Thursday, October 05, 2006

A Sucker’s Bet – say bye-bye to your money

Monday, was a day those who enjoy making a friendly sports wager on the Internet will never forget. The United States Congress did exactly what they said they were going to do for years – they banned internet gambling in the United States making it illegal for banks and credit card companies to process payments to offshore Web sites that directly deal with sports related gambling. What began a few months back, the arrest of BetonSports CEO, David Carruthers, and subsequent shutdown of, will end in the next few days when President George W. Bush signs the Unlawful Internet Gambling Enforcement Act.

Since Monday virtually every sports related gambling website has announced they’ve either shutdown or will end any connection to American betters the moment President Bush does what the Republican Congress overwhelmingly supported by a vote of 317 to 93, shut down an “industry” that estimates annual revenues north of $10 billion.

Similar to what happened to anyone foolish enough to place a long term bet on an event (i.e. picking the winner of Super Bowl XLI) commonly called “betting futures” with then, are the real suckers. Most of the Internet based business they choose to do business with are based in Costa Rica and other “off-shore” locations. Good luck trying to collect a dime if you hold any “betting futures” with any Internet gambling site that is about to pull the plug on their American based operations.

The a self proclaimed “sports betting resource” continues to offer unparalleled coverage if you believe their world is about to come to an end. Their view of the decision American lawmakers supported Monday it was a decision that was, “rammed through Congress by the Republican leadership in the final minutes before the election period recess.”

Not quite finished in their total condemnation – “The Act begins with Congress’s findings and purpose. These include a recommendation from the discredited National Gambling Impact Study Commission, whose chair was the right-wing, Republican incompetent, Kay Coles James. Findings include the doubtful assertion that Internet gambling is a growing problem for banks and credit card companies. It correctly states that “new mechanisms for enforcing gambling laws on the Internet are necessary,” especially cross-border betting.”

The bottom line there was every indication since early January; the American Justice System was determined to take control of what lawmakers believed is an industry that is out of control.

On Friday, January 20, 2006, The Sporting News reached a $7.2 million settlement with the Justice Department to resolve accusations that it promoted Internet gambling by publishing and broadcasting advertisements for overseas online casinos. The Sporting News didn’t say they had done anything wrong, but agreed to pay the United States $7.2 million. Vulcan Media, owned by Microsoft co-founder Paul Allen, may have been able to afford to write a $7.2 million check, but that should have sent a strong wake-up call to Internet based gambling websites trying to attract American dollars.

The United States attorney's office in the Eastern District of Missouri began what has been an extensive investigation that focused on Internet casinos and sports gambling in 2003. Catherine L. Hanaway, the United States attorney for the Eastern District of Missouri told the New York Times, her office has been sending out letters for more then three years to trade organizations representing major media organizations stating that their members could be violating the law by accepting advertising from offshore casinos. Shortly after, there was a significant drop in the number of American media companies accepting such ads.

The concern Congressional leaders had in offering overwhelming support to the bill, how out of control an unregulated industry was and where it could be heading.

Net gambling "is a scourge on our society," said Rep. Bob Goodlatte, a Virginia Republican who's tried for the better part of a decade to enact legislation that combats Net gambling."Gamblers will be able to place bets not just from their home computers, but also from their cell phones as they drive to work and from their BlackBerrys when they wait in line for the movies," said Rep. Jim Leach, an Iowa Republican.The fallout was immediate, almost comical. British based World Gaming was worth $118 million Monday, by Tuesday the company worth had fallen to $18 million – yes one online off-shore gambling related business had lost $100 million in one day. Good luck to anyone who has any ‘betting futures’ with this company.

"It's certainly devastated the public companies on the stock exchange in London," said Simon Noble, chief executive officer of the privately held Pinnacle Sports UK betting company. "It certainly comes as a surprise to a lot of operators."

"This has come as a major shock to the industry, where most observers expected the legislation to fail," said Stephen Ford, an analyst for broker firm Collins Stewart. "It also comes as a major shock to the stock market and unsurprisingly stock prices have fallen significantly across all online gaming stocks exposed to the US."

PartyGaming shed as much as 62 percent of its value in Monday morning deals on the
London FTSE 100 index of leading shares, while its smaller peers Sportingbet dived 73 percent and 888 Holdings slid 50 percent on the second tier FTSE 250. Despite heavy losses to the gaming sector, London’s main indices were trading higher by the half-way stage.

Australian based online gaming company Betcorp says new US laws banning gambling in its biggest market are likely to have a material adverse effect on its business.

"While management will take appropriate measures to mitigate its impact the Act is likely to have a material adverse effect on the operation of the company and its profitability," Betcorp said in a statement to the Australian Stock Exchange.

The only real question – what happens next? First and foremost anyone who honestly believes there is a possibility President Bush might veto the Unlawful Internet Gambling Enforcement Act is living in a fool’s paradise. If anyone has ‘betting futures’ with any website shutting down their American operations, call your local congressional member. They’ll remind you that Internet gambling may be a victimless crime but it is a crime nonetheless.

Just consider how important American bettors are to online gambling sites. Sportingbet told Yahoo News it was "disappointed" by the decision in Congress, adding that it would have "a material impact" on trading. It pointed out that during the year to the end of July, 2006, 62 percent of the company’s gross win was generated from US-based customers. Last month, 888 revealed that 52 percent of its revenues came from the United States.

Game, set, match – sucker’s, good luck collecting on your bets from business based in that bastion of democracy – Costa Rica.

For Sports Business News this is Howard Bloom