US crackdown raises odds for internet gambling

A US crackdown is expected to take a big bite out of the global market for Internet gambling even as efforts to legalize and regulate online wagering in the US gather steam.

Bettors from the United States represented nearly half of the estimated 15 billion dollars in online gaming revenues in 2006, according to industry analysts and the Interactive Gaming Association.

But the odds have changed dramatically and the US market is now uncertain since last year’s passage of a law to bar banks and credit card issuers from processing payments for online gaming.

Meanwhile the arrest in the US of key players in the industry – including a Briton changing planes in the US – has also sent chills through the virtual gaming halls.

"All these things are extremely successful in terms of stymying the industry in the US," said Sue Schneider, publisher of Interactive Gaming News and a follower of the industry for a decade.

Warwick Bartlett, a partner of British-based Global Betting and Gaming Consultants, said he expected the US market share of the worldwide online gaming industry to drop from 45 percent in 2006 to 24 percent in 2007 as a result of the latest US law and other actions.

"The impact is going to be greater than expected," he said in a telephone interview.

Worldwide revenues meanwhile, which have been on an upward trajectory since 1999, are likely to fall from 14.9 billion dollars in 2006 to 13.8 billion in 2007, the British consultancy said.

"The industry is quite battered and bruised but they are concentrating on markets other than the United States," Bartlett said.

Arrests and prosecution of persons involved in online gambling operations are not unique to the United States — similar actions have taken place in other countries including France, China and Turkey — but Bartlett said the actions in the world’s biggest market has had a major impact.

"In most countries it seems Internet gambling is illegal, but it’s a question of how determined the authorities are to stamp it out," he noted.

David Carruthers, former chief executive of BetOnSports, was arrested July 16, as he changed planes at Dallas-Fort Worth International Airport. Other executives from the British-registered company were also indicted as part of a US offensive against the operators of gaming websites.

These actions along with the US law signed in October by President George W. Bush have prompted many of the publicly traded and regulated gaming firms – many of whom are registered in Britain – to halt US operations.

British online gambling website Sportingbet said it had sold its US operations for a single dollar following the law’s enactment.

Yet Americans are expected to continue to find ways to place bets online, through websites based in places like Antigua, Costa Rica and elsewhere, analysts say.

"The Internet isn’t going to go away, and its manifold reshaping of consumer behavior, including gambling behavior, isn’t going to stop just because Congress passed a law," said Eugene Christiansen of Christiansen Capital Advisors.

Christiansen estimated global online gaming revenues at 15.2 billion dollars in 2006. For 2007, he sees a downward revision but has not yet come up with an estimate.

"All of the publicly traded companies have exited the US market and there has been a contraction in online gambling," Christiansen told AFP.

"But the long-term consequences are murkier. Anecdotal evidence would suggest it might be taken up by privately held, unregulated companies."

Keith Furlong of Catania Consulting said the US law is likely to "drive the industry underground" and has "driven away the operators who followed the most socially responsible practices."

Backers of online gambling say the US would do well to follow the British example of regulating and taxing profits instead of prosecuting; they argue that technology is in place to prevent underage and compulsive gambling.

Representative Barney Frank, who heads the House Financial Services Committee, introduced a bill April 26 that would set up a regulatory agency to license Internet gaming companies in the United States.

Steven Adamske, Frank’s spokesman, said the bill would be "an uphill battle" but added: "It’s about individual freedom, and the representative feels that outside of paying taxes, the government shouldn’t be telling people how to spend their money."

The Poker Players Alliance, which includes participants in wildly popular online card games, hailed this as "a common sense approach to Internet gaming."

Nelson Rose, a law professor at Whittier Law School and consultant to the gaming industry, said he does not believe the crackdown will halt gambling in the US.

"I call this Prohibition 2.0," Rose said. "This won’t work, just as Prohibition 1.0 failed to get everyone to stop drinking."

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US crackdown raises odds for internet gambling