Sunday, October 29, 2006

Gamblers may look over their shoulder now, but experts say a new
Internet-gambling ban won't keep bettors from ponying up, just turn them on
to overseas payment services out of the law's reach. "It has put a terrible
scare into people," said I. Nelson Rose, who teaches gambling law at
Whittier Law School. "But it won't by any means wipe out Internet gambling."
The fright swept through the $12 billion industry on the heels of the recent
arrests of two gambling company executives and a new law President Bush
signed Oct. 13 that seeks to ban most online gambling and criminalizes funds
transfers. The law has wiped out billions of dollars in shareholder value of
British companies, leaving the industry's future in doubt as U.S. lawmakers
initially celebrated finding a way to halt bets coming from America. But
serious questions remain about whether the legislation can be effective in
stopping U.S. residents from playing poker or betting on sports.
The Unlawful Internet Gambling Enforcement Act goes after the money, not the
millions of players, which would be nearly impossible to enforce.
It will essentially try to choke off the way Americans fund their gambling
habits, hoping to prevent the transfer of dollars to the popular Internet
sites.
It's also widely understood that the law has online poker in its sights,
identifying it as a game of chance - something the poker companies dispute.
They believe poker is a game of skill and therefore not subject to the new
rules. But they're fearful nonetheless. "Their mission is to kill the
funding of online poker, and that's what this law does," said Mike Sexton,
who hosts the popular World Poker Tour and has won millions as a
professional player. 2,000 gambling sites
The new law comes amid an explosion in online gambling, fueled by the Texas
Hold 'em craze and widespread access to the Internet. In addition, dozens of
Web sites have sprouted up that allow gamblers with credit cards to bet on
any sport they choose, for any amount of money they want.

Industry experts say there are an estimated 2,000 Internet sites that take
bets for sports and poker. American players have fueled Internet gambling,
supplying $6 billion of the $12 billion in revenues generated annually.

"The time has been one of rapid growth," said Sebastian Sinclair, president
of Christiansen Capital Advisors, a gambling consultant. "This industry was
well on its way to becoming mainstream in a great part of the world. Capital
was tripping over itself to fund these companies."

The new law gives the U.S. Treasury and the Federal Reserve, along with the
attorney general, 270 days to establish policies and procedures.

"The regulations are clearly going to prevent banks from doing electronic
fund transfers to gambling sites, but that is no big deal," Rose said.
In some cases, banks simply move the money to payment processors, known as
e-wallets. Non-U.S. payment processors such as the widely used Neteller then
transfer the money to the Internet gambling sites.

The U.S. government has no authority over processors like Neteller that are
operating legally.
Anthony Cabot, a gambling lawyer in Las Vegas, thinks language used in the
bill provides a loophole for the payment processors and the U.S. banks that
want to do business with them.

"Unless you have some fairly draconian measures ... the likelihood of
stopping payment to them is small," Cabot said.

Offshore betting targeted
Much damage has already been done to the offshore sports-betting industry
without the looming regulations.
British BetOnSports PLC folded after its chief executive was arrested in
July by U.S. authorities. David Carruthers faces 22 counts of fraud and
racketeering charges and remains under house arrest in the St. Louis area.

London-based Sportingbet's chairman was detained last month in New York on a
state fugitive warrant charging him with illegal online gambling. He was
eventually freed.

Both arrests sounded serious alarm bells for those running sports wagering
sites that take American bets.

The new legislation has already had a dramatic effect. It supposedly
clarifies the 1961 Wire Act, explicitly outlawing Internet gambling,
including online poker.
It creates new criminal penalties that have rattled investors and
executives - although Rose said it doesn't expand the act, and there's no
indication the Justice Department is about to launch a huge campaign to
enforce the law.

Still, the biggest publicly traded names in Internet gambling on the London
Stock Exchange and AIM, the exchange's global market for growing companies,
could not afford to flout American law. When news broke earlier this month
that Congress has passed the bill, Internet-gambling companies traded on
those exchanges lost a combined $7 billion in market capitalization.

PartyGaming PLC, once the envy of online gambling with its more than $8
billion IPO in 2005, is now trying to figure out how to save its business
model. It runs what was once the world's biggest poker site, PartyPoker, and
has said it will no longer take payments from the U.S., eliminating nearly
80 percent of its revenue and sending its stock plunging.

Another poker company, 888 Holdings PLC, also said it would stop taking U.S.
bets, ensuring its profits will fall dramatically.
Sportingbet and Leisure & Gaming both sold their U.S. operations for a
dollar. Sportingbet said its exit from the U.S. market cost it nearly $400
million.