WTO ruling spurs ’Net backlash

May 31, 2005 2:32 AM

When the tiny South American nation of Antigua filed a trade agreement complaint against the USA with the World Trade Organization (WTO), all it wanted was its licensed gaming operators to have legal access to U.S. gamblers.

And, even though it claims to have won a favorable ruling from the WTO, Antigua’s action may have set in motion the mechanism that would forever slam the door on Internet gambling in the U.S.

Rather than acquiesce to a WTO ruling that the U.S.’s Interstate Horseracing Act discriminates against foreign operators, federal lawmakers are considering legislation — The Unlawful Internet Gambling Enforcement Act of 2005 — that would virtually eliminate interstate horse betting.

"The current administration decided it would do nothing to weaken current prohibitions against online gaming," said Tony Cabot, an attorney with Lewis and Roca, a firm that specializes in Internet gaming issues.

Cabot said the bill proposed by Arizona Sen. John Kyl would "effectively shut down any interstate betting" that would go through a financial transaction service provider, such as a credit card company or bank.

That’s nothing new for Kyl, who has floated similar legislation in the past. This time, however, he doesn’t provide an exemption for horse racing.

That puts the entire pari-mutuel industry — not just account wagering providers such as TVG and youbet.com — at risk of being severely crippled.

Chuck Champion, CEO of youbet.com, said that passage of such legislation would not only destroy his company, but "could shut down all simulcasting in the U.S. and be a death knell for the industry."

Champion added that the bill — which hasn’t formally been introduced in the Senate — "is something to watch," although it isn’t something to grow "overly concerned about."

One stock analyst, Mark Argento of Think Equity, agreed. "Given the proposed nature of the legislation, considerable political clout of the horse-racing industry and fate of previous attempts at exemption-free legislation, we believe the passage of the legislation in its current form is highly unlikely," Argento said.

Other industry experts are not so sure.

Frank Fahrenkopf, president of the American Gaming Association, reportedly said there was a "possibility" the legislation could be enacted into law, and Tony Cabot said the current political climate in Washington, D.C. actually favors passage.

"If they want to pass Senator Kyl’s bill or any version of Senator Kyl’s bill, they can," Cabot said.