Friday, November 10, 2006

The online gambling industry, facing billions in losses because of a new
U.S. law, is scrambling for ways to keep Americans in its game. President
Bush signed legislation in mid-October that bars U.S. banks and financial
firms from sending credit card payments or other funds to sites involved in
online gambling, which is mostly illegal in the United States. The
high-flying industry now finds itself in the position of a gambler who has
bet big on a full house, only to see his opponent turn over a straight
flush. Americans supply half of the industry's nearly $13 billion in annual
revenue. With the new law threatening to cut off that flow of cash, the
market value of online companies, most of which trade on the London Stock
Exchange, have plummeted. Sportingbet, which operates Paradise Poker, pulled
out of the U.S. market after the law was enacted and has seen its stock
price fall to about one-tenth of its level last spring. British betting-shop
chain Ladbrokes, meanwhile, is in talks to merge with 888 Holdings, which
operates the popular Pacific Poker site. The British government has jumped
into action, convening a conference this month aimed at rescuing the
lucrative industry by imposing strict code of principles. Its proposal aims
at ensuring the games are fair and that screens are in place to protect
compulsive gamblers and children. "The industry has been very hard hit by
the U.S. ban," said Tessa Jowell, Britain's culture minister. "The Internet
is a global marketplace, and that's why we need action at the global level."

However, the United States declined to join the dozens of countries at the
conference.

In the United States, where the popularity of Texas Hold em has driven the
online gambling craze, poker players are working to have their game exempted
as a game of skill, not chance, as U.S. officials write the regulations for
the new law.

Michael Bolcerek, president of the Poker Players Alliance, an advocacy group
in Washington with more than 120,000 members, said his group will have
better odds with the Democrats gaining power in Congress.

The law already grants exemptions for betting on horse racing, intrastate
lotteries, and fantasy sports play.

Some predict the new law could spark growth in other areas of legal
gambling.

"Under the new law, U.S. states have the right to regulate Internet gambling
on an intrastate basis," said Mark Balestra, vice president of publishing
for the River City Group, a St. Louis-based publisher focusing on the gaming
and gambling industries.

"Most likely, this will lead to state lotteries going online," he said.
Others see the possibility of bingo moving onto the Internet.

However, the online gambling industry's best hope might be weak enforcement
of the new law.

"Given the language of the act, it is clear that U.S. banks and other U.S.
financial transaction providers cannot send funds to those involved in
illegal Internet gambling," said Joseph Lewczak, a partner at the law firm
of Davis & Gilbert in New York.

If the new law is used to block the transfer of any funds from a U.S. bank
to a foreign account used in connection with online gambling, "online
gambling in the United States will surely dry up," Lewczak said. "Only those
who physically take cash overseas and open an overseas account may have the
ability to participate."

However, he said, there may be a loophole "by virtue of the fact that the
U.S. agencies involved with enforcement may not be able to, or just won't,
pursue foreign entities involved in transferring money to the gambling
sites."

One leading online money transfer business - Neteller, which is based on the
Isle of Man - plans to accept financial transactions made by U.S. residents
during the 270-day period in which U.S. officials are writing rules for the
new law.

Neteller officials say they will continue to review the law, which they
claim isn't clear when it comes to the obligations of financial transaction
providers.

In the end, it may be impossible to keep American players away from the
estimated 2,000 Internet sites that take bets for sports and poker.

"People will continue to gamble online because people absolutely love it,"
said Bolcerek of the Poker Players Alliance.

"Prohibitions are known for not being effective, and this prohibition will
just send the game underground," he said. "It will cause Web sites to pop up
in unregulated jurisdictions offering the game of poker to U.S. citizens."