Tuesday, October 03, 2006

THE US Government stunned the online gambling industry over the weekend by
passing laws that effectively ban the services from their biggest market.
The $US6 billion ($8 billion) industry went into meltdown over the news,
with shares in UK-listed PartyGaming, 888 Holdings and SportingBet - which
has operations in Australia - plummeting in early London trading overnight.
Also in the line of fire is Betcorp, which is listed on the Australian Stock
Exchange and, like the UK-listed companies, counts on US customers for most
of its business. The US Senate, which was expected to block the legislation,
sneaked the bill through early Saturday morning US time, following some
last-minute manoeuvring ahead of the Senate break for mid-term elections.
The bill outlaws the processing of bets for online gaming companies,
effectively preventing US banks and credit card companies from doing
business with the operators. It could be signed into law by President Bush
as early as this week. The bill excludes US-based online betting on services
like horse racing and lotteries and has no impact on American casinos and
other gambling operations. The US Government has been in a tussle with the
industry for more than a decade, dating back to when foreign operators
accepted bets from US citizens over the phone from offshore operations in
the Caribbean.

These online sports betting, poker and casino operators have been drawn to
the London Stock Exchange, where investors have profited from the explosive
growth in US internet wagers, despite their questionable legal status.

That is expected to change. According to UK reports, 888 Holdings,
PartyGaming, and SportingBet are expected to halt their US-facing
operations.

Shares in PartyGaming slid 64.5p, or 59 per cent, to 43.5p in early London
trading. SportingBet shares were down 69 per cent to 58p and 888 Holdings 48
per cent to 76p.

The latest move is not entirely surprising given the hard line already being
taken by US authorities. SportingBet's former chairman, Peter Dicks, was
arrested last month on a warrant issued by Louisiana State Police, but was
released by a New York court recently. Mr Dicks faced being extradited to
the state on charges that include gambling by computer, a charge that could
land him a year in jail.

In July, the then chief executive of BetonSports, David Carruthers, was
arrested in Texas, sending internet gambling stocks plunging.

Mr Carruthers, who has since been sacked by BetonSports, has pleaded not
guilty to racketeering and tax evasion.

Australian-listed Betcorp, which generates most of its business from US
sports betting, announced last month that it would discontinue its phone
service to US customers after, as it said, taking legal advice. The
company's stock has more than halved since the troubles began in July,
closing at its lowest levels in more than two years yesterday at $1.88.

Betcorp will leave the Australian Stock Exchange this month to concentrate
on its British listing. Executives were not available for comment yesterday.

Betcorp was one of the first online companies to be targeted for allegedly
contravening US laws.