Fallout continues off-shore

Jan 23, 2007 6:29 AM

As the U.S. government escalates its war on Internet gambling, many players are pulling the plug on their laptop sportsbooks and running for cover.

"I’ve been involved with sports betting online for 10-plus years," said one bettor who asked for anonymity. "It will never be the same again. I don’t see how we can overcome this."

"This" refers to a Department of Justice crackdown on Internet gambling that has forced many online operators and payment processors to exit the U.S. market.

The latest to pull out was Neteller, the largest payment processor in the world. Neteller’s announcement that it would no longer transfer funds from U.S. customers to online gambling sites followed a similar announcement from Citadel Commerce, another "e-wallet" source.

Neteller processed $7 billion in transactions in 2005 and $5.1 billion in the first half of 2006, mostly from U.S. clients to and from online betting sites. By some accounts, that amounted to nearly 80 percent of the global market for online wagers.

The withdrawal of Neteller from the U.S. market was even more devastating than the departure last week of Pinnacle Sports, the world’s leading online race and sports book.

"What you’re finding with the Internet gambling sites is the publicly traded ones and prominent ones are leaving," said David Stewart, an online gambling expert and lawyer with Washington, D.C.-based firm Ropes & Gray LLP. "The entities that are more visible and are more transparent can’t take the heat."

Pinnacle, which is headquartered in Curacao, joins several British-based online gambling operations, including PartyGaming, Sportingbet, BetOnSports and Leisure & Gaming, to have left the U.S. market.

Private offshore operators continue to run such sites as Bodog, Cris Sports, PokerStars and FullTiltPoker, but without a money transferor like Neteller, those companies may have a limited shelf life for U.S. customers.

Despite seriously crippling the Internet gambling industry, the U.S. Department of Justice (DOJ) may not be ready to call off the dogs.

According to sources in Great Britain, the DOJ has subpoenaed dozens of investment banks, accountants and law firms to hand over emails, telephone records and other documents connected with Internet gambling firms.

Among the banks to be subpoenaed were HSBC, Dresdner Kleinwort, Credit Suisse and Deutsche Bank. Although none of the banks would comment on the subpoenas, they are known to have advised and help float offerings for online gamers that include 888.com, BetOnSports and PartyGaming.

"There is no doubt at all that this situation is escalating," said a British investment banker. "This has definitely got legs."

Despite the possibility of more dot-com dominoes falling to DOJ pressure, avid and professional gamblers have begun new measures to skirt the law.

It is rumored that some of the biggest online gamblers have actually established residences outside the U.S. in order to bet, while others have simply opened bank accounts overseas.

Some experts are recommending bettors try less dramatic means to place bets, such as Western Union, Moneygrams, cashier’s checks, money orders and the new sports debit card, which some sports books are touting as the next great breakthrough in making online bets.

Online poker site UltimateBet.com last week sent out an e-mail newsletter encouraging its players to use other "safe, secure and similar banking methods already available," listing such brands as ePassporte, ATMonline and CLICK2PAY.

Internet blogs also lit up with players discussing the best ways to keep funding their online gambling accounts.

"Just set up both a click2pay account and a Epassporte one. We’ll see how long this lasts," wrote Bacaluk on poker forum PocketFives.com.

Michael Bolcerek, president of the online poker lobby group, Poker Players Alliance, warned, however, that the withdrawal of brand name providers would encourage the emergence of less trustworthy money dealers.

"People are going to migrate to nonpublic, less transparent methodologies," he said.

Poker magazine publisher Eric Morris of Bluff Media said the withdrawal of PayPal and major credit card companies from the U.S. online gambling business in 2001 caused a panic that didn’t last.

"The industry took a bit of a dive and came back stronger than ever before," he said. "The bottom line is that people are going to find a way."