Monday, November 06, 2006

Close friends since college days, Akhil Gupta and Sunil Baheti have never
missed each other on the Diwali (Festival of Lights) night gambling bashes
each year, even though they have lived some 13,000 kilometers apart for the
past four years. Every year while Akhil and his other ex-college mates
assembled at his living room in Delhi for a few hours of online gambling at
PartyPoker.com, Sunil joined in too by logging on to the site from Texas,
where he is currently a practicing lawyer. This year, though, it was a
little different. Instead of playing at their usual site, the old friends
switched to 3Patti.com, an Indian card-game website that also offers the
local game called teenpatti, a favorite among ritual gamblers. "We couldn't
play at PartyPoker because it was closed to Sunil following the ban on
online gambling in US," said Akhil, "but that's okay. 3Patti was as much
fun." Akhil and his friends were not the only ones making that shift that
night. According to 3Patti.com, which claims to be the largest Indian online
gambling den, for about a week leading to the Diwali night on October 21,
the site recorded its highest hits from Indian clients (that was second only
to the number of hits from the US) since October 13, the day President
George W Bush signed a law that seeks to ban most online gambling and
criminalizes funds transfers in the US. 3Patti is reportedly planning to
invest more in India as industry sources say several other sites, too, are
shifting operations out of the US and may be heading toward India and
elsewhere in Asia. "The [online gambling] companies, particularly the large
ones with large resources, that have ceased operations in the US have all
said that they would refocus their efforts on other markets, and
particularly the Asian markets," said Eugene Christiansen, chairman of
Christiansen Capital Advisors LLC, a US-based consultancy firm that provides
gambling and entertainment-industry analysis and management services.

The exodus in fact has already started. On the day Bush signed the new law,
Sportingbet for instance, a UK-based online-gambling firm that derived about
56% of its business from the United States, sold its US operations to an
Antiguan company for US$1 and said "it is focusing on Europe and the rest of
the world including Asia". While closing their operations to all US
customers, others such as PartyGaming and 888Holdings too said they would be
moving elsewhere.
Indeed, the Unlawful Internet Gambling Enforcement Act may be making online
gaming firms rush out of the US, but experts say a new Internet-gambling ban
won't keep bettors from looking over their shoulders for long, and they may
just turn to offshore sites and overseas payment services out of the law's
reach. The impact of the ban, then: online gaming is all set to bloom in
Asia.

According to William Eadington, a professor of the Institute for the Study
of Gambling and Commercial Gaming at the University of Nevada, Reno, with
mega-casinos already open in Macau, Singapore scheduled to open gambling in
2009, South Korea permitting limited legalization of gambling, and with no
clear laws in India along with its residents' notorious gambling instincts,
Asia certainly looks all set to emerge as the next gambling den of the
world.

"End of prohibition and high level of enthusiasm from Asian customers makes
Asia the next emerging growth market," Eadington said, adding that of all
the centers being developed in the region, Macau promises the maximum
opportunity. Macau is already becoming the "Las Vegas of Asia", after a new
gambling law in 2002 broke up the gaming monopoly, allowing Las Vegas
entrepreneurs to open major new casinos such as the Wynn Resorts, The
Venetian, MGM, Melcor, and Galaxy.
Singapore, too, has decided to legalize gambling, "enhancing the
attractiveness of a prosperous but boring city, while [South] Korea, Japan,
Thailand, Taiwan, India, China are watching others and trying to decide what
to do," Eadington said. All these Asian countries, as well as European
countries, he said, are tying to regulate Internet gambling rather than
banning it as gamblers are increasingly turning to the Web.

So the serious question is, can the new US law really be effective in
stopping US residents from betting online? After all, the online sites may
be moving out of US, but they still have e-wallets to help them attract the
US crowd even though it may be on the wrong side of the law. Take the
instance of 3Patti.com: this site offers various payment options, two of
which could easily be used by a US resident to open an account at the site.

Besides, says Christiansen of Christiansen Capital Advisors, e-payment
outfits not subjected to the US authority such as NETeller, based in the
Isle of Man, a dependency of the United Kingdom, can accept payments from a
US citizen if it wants.

"The problem is," said Christiansen, "the new law has already made many
exceptions that make Internet gambling a wide-open area." For instance,
although the new law knocks offshore companies out of the US, it does not
appear to change existing definitions of federally prescribed gambling,
which allow state-licensed casinos, the horse-racing industry, state
lotteries and fantasy sports leagues.

In fact, like Professor Eadington, Christiansen agrees that the new law will
not stop gambling but will create black market in the US that will thrive on
diverting the US customers to online gambling sites in Asia and Europe. He
said, "Laws that prohibit widely accepted behavior are directed against
legitimate businesses, not criminals," and cited as a pointer the 18th
Amendment of the US constitution and the Volstead Act, which in 1920
prohibited the manufacture, distribution and sale of beer, wine and spirits.

Prohibition transferred the alcoholic beverage industry from licensed and
regulated companies to organized crime but failed to stop Americans from
drinking and did nothing to ameliorate the harmful effects of alcohol.
"Online gambling is unstoppable, and the new law would just drive gamblers
into the arms of touts and crooks," Christiansen said.

Meanwhile, many equate the carnage this ban caused to the London Stock
Exchange (LSE) to the dotcom-bubble collapse following AOL's purchase of
Time Warner in January 2001. Most of the US gambling websites are run by
European gaming companies listed on the LSE. PartyGaming, for instance, the
world's largest online poker company, lost 75% of its revenue by shutting
its US sites, and at least two publicly traded companies, World Gaming and
BetonSports, are in effect out of business in the US.

The market capitalization of large online gambling companies has also been
cut in half at the LSE. Christiansen Capital Advisors says the US market, at
$6 billion, accounted for half of the $12 billion global Internet gambling
market last year, which is expected to double to $24 billion by 2010.

Still, there may an upside to this ban. "Companies listed on the London
Stock Exchange or the London AIM [Alternative Investment Market] in 2005
have substantial cash reserves," said Christiansen. "That cash will buy more
in the way of online competition than it would have six months ago, which
means that consolidation in the online gambling is likely to accelerate."