Online bet ban OK’d

Oct 3, 2006 6:23 AM

Almost like a cat burglar in the middle of the night, the U.S. Congress early Saturday morning put together a measure banning most forms of Internet gambling and attached it to unrelated legislation to bolster port security, which the Congress approved.

The legislation was sent to President George Bush to sign into law. He is expected to do so within the next few days.

The bill — the Unlawful Internet Gambling Enforcement Act of 2006 — is a compromise between earlier versions passed by the House and Senate, and would make it illegal for banks and credit card companies to make payments (including fund transfers) to online gambling sites.

The legislation, a copy of which was obtained by GamingToday, makes exceptions for bets or wagers made in accordance with the Interstate Horseracing Act of 1978, bets made in compliance with the Indian Gaming Regulatory Act or any bet or wager placed and received entirely within a state in which gambling is legal.

Reaction to the bill came quickly, especially in venues where Internet gambling is legal. A headline in a London newspaper screamed that the bill put the "Internet gambling industry in crisis," while another publication reported that stocks in all listed online companies fell by as much as 60 percent, effectively cutting the equity of the industry in half.

The bill was pushed through Congress by the Republican leadership in both chambers. Democrats who opposed the bill said the legislation was created to placate the conservative base, particularly the religious right, before the November 7 congressional elections.

Other political observers said the bill would also enhance Senate Majority Leader Bill Frist’s chances as a 2008 presidential candidate. Frist recently appeared at an Iowa hearing to listen to concerns about Internet gambling (Iowa holds the first presidential nominating contests).

The new law will squeeze online gambling operators out of the U.S. market.

Recently, several of the largest off-shore gaming sites have been under siege by the U.S. Justice Department. As a result, many of them — including the most reputable and financially stable — have decided to pull the plug on American bettors.

The most recent firm to nix U.S. gamblers is William Hill, the United Kingdom’s second largest bookmaker. Upon advice by its lawyers, William Hill will block all attempts by clients with a U.S. address or credit card from participating in its online casinos and poker games.

The company already bars U.S. citizens from betting on sports over the Internet because of the 1961 Wire Act, which prohibits the use of telephone lines to make sports bets.

William Hill assured its investors that closing its U.S. site would have a minimal impact on its profit/loss statement. The company said its U.S. site accounted for only 1 percent of its online gaming revenue and less than 0.1 percent of the company’s total revenue.

"We believe that this will have a very material impact on the long-term prospects of online gambling, and in particular poker," said analyst Julian Easthope at UBS. "This will lead to a rapid decline in the use of online poker sites."

On Monday, other online gaming giants, Pokerstars and PartyPoker, announced they would be shutting down their U.S. operations.

Online poker is huge in the U.S. Internet sites sent nearly three-quarters of the 8,000 players into last summer’s World Series of Poker championship event.

One British firm, Sportingbet, believes the U.S. vendetta against online gambling is a commercial ploy to bolster American businesses, even though there are no U.S.-based online gaming companies.

Sportingbet’s executive director, Nigel Payne, wrote in a New York Times piece that the Department of Justice is making commercial decisions under the guise of concern about the effects of Internet gambling on social welfare.

"I believe that the real picture that emerges is one of fiscal protectionism that is being masked by political maneuvering and adroit public relations," he said.

Sportingbet’s CEO Peter Dicks was recently arrested while on a flight layover in the U.S. He was subsequently released on bail, though might be facing gambling-related charges in the state of Louisiana, which he hasn’t visited in more than 20 years.

The legislation was lobbied against by the banking industry, which is expected to be hit hardest by the ban. Payment processors like Neteller and Optimal Group’s FireOne subsidiary are evaluating the bill’s repercussions, even though Neteller has publicly stated that the ban will have a "material adverse effect" on its U.S. business.

Some gambling insiders said the new ban on Internet gambling might have the same effect as the prohibition on liquor had in the 1920s. Rather than stop people from betting, it might send them to dubious sites, which may not have the financial strength of more legitimate operators.

The result — like Prohibition that sent drinkers to bootleggers — could be playing poker or betting against an operator that may or may not pay off winners.

U.S. online gamblers are mostly defiant of the new ban. Several that contacted GamingToday said they would continue to bet and play poker online.

"There are many ways around credit card deposits," said one online player.

Another suggested that off-shore sites would establish many different bank accounts, which would be difficult to police. "It will take the U.S. weeks to months to identify any one account as gambling," he said.

One online player even suggested that shutting off the Internet for gambling in the U.S. would bring back mob-controlled gambling!

"This could be the rebirth of the mob and the best thing to happen for organized crime since alcohol prohibition," he said. "They are not going to know how to handle all of the business. They are going to make a killing offering no discounts, full vig all the time, bad parlay and teaser odds — it will be a gold mine."

Thoughts like that must have Al Capone turning in his grave.