Tuesday, January 23, 2007

The Sucker’s won’t be betting online during Super Bowl XLI

Super Bowl Sunday is the biggest single gambling participation day of the year drawing in everyone from professionals wagering thousands of dollars on the outcome to social fans tossing a bill into some random-chance office or tavern pool. Regulated sports betting parlors at Nevada casinos handled a record $90.8 million in Super Bowl wagers for Super Bowl XL winning $15.4 million from players. This year’s game featuring the Chicago Bears and the Indianapolis Colts is expected to generate more than $100 million in Las Vegas. Where there won’t be any betting for Super Bowl XL is online. In the last few years, driven by American bettors, the dollars bet on the Internet defied the imagination. Christiansen Capital Advisors estimated online sports operations handled between $450 million and $600 million in Super Bowl bets last year, far above the $90.8 million legally wagered in Nevada.

The end of the beginning for Internet gambling began on Monday, October 2 when the United States Congress did exactly what they said they were going to do for years –banning 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.

The Justice Department has been relentless in their resolve to end Internet gambling by Americans. While Internet sports gambling is legal in most other countries, close to 100 percent of the Internet gambling sites have shut down since President Bush signed the Unlawful Internet Gambling Enforcement Act, making it illegal for Internet sites to handle sports betting.

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.

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 on what has been dubbed “Black Monday” by the now dead industry” in 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.

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.

Since Black Monday most Internet gambling sites have vanished. While there wasn’t a great deal of news in November and December, three events that have taken place in the last two weeks that directly relate to Internet based sports betting send a clear message to the Internet gambling industry – you’re no longer welcome in the United States.

Two weeks ago Pinnacle Sports told its U.S. customers that it would no longer accept their wagers on sports, horses or anything else. According to The Washington Post, The Eye on Gambling Web site published a brief interview with an executive identified only as Pinnacle's "main man," who said: "When the U.S. focuses on something and says 'Enough,' and when they go to war, no individual company can possibly win in a fight of this nature."

Before its demise earlier this month, Pinnacle which had been in business since 1996 handled every imaginable wager from Hillary Rodham Clinton's chances in '08, on the Golden Globe Awards, on Danish hockey or Croatian soccer.

Last Tuesday, two Canadians who created companies that processed Internet gambling transactions were arrested and charged with laundering billions of dollars in gambling proceeds. The charges against John David Lefebvre, 55, and Stephen Eric Lawrence, 46, who founded the company, Neteller, in 1999, were in two criminal complaints unsealed in Federal District Court in Manhattan on Monday, Michael J. Garcia, United States attorney, said in a statement.

According to a New York Times report the Justice Department believes both men knew when they took their company public that what it was doing was illegal and knew they were violating American laws.

“Blatant violations of U.S. law are not a mere ‘risk’ to be disclosed to prospective investors,” Michael J. Garcia, United States attorney said in a statement at the time of the indictment. “Criminal prosecutions related to online gambling will be pursued even in cases where assets and defendants are positioned outside of the United States.”

The Canadian angle on this is ‘interesting’. According to FBI reports, NETeller transferred money bet online in the United States and sent it to a bank account in Calgary. But NETeller wasn't the bookie handling the betting action. It merely charged a fee allowing U.S. gamblers to transfer their betting dough to offshore gaming companies in places such as the Isle of Man. If you’re a fan of the Soprano’s Lefebvre and Lawrence were the “middle men”.

The Calgary Herald reported Friday, that according to the FBI, $50 million US was transferred by NETeller between March and April alone last year. The billions involved in this trade made Lefebvre and Lawrence -- the most unlikely shylocks imaginable -- rich beyond their dreams. According to documents, Lefebvre cashed in $123 million US in options on NETeller in November 2005 (some of which ended up in philanthropic enterprises in Calgary).

Over the weekend, the Justice Department determined to put the final nail into the coffin for Internet based gambling on the eve of the biggest event of the year, the Super Bowl, first reported by The Sunday Times of London: subpoenas were issued by the Southern District Court of New York to at least 16 banks, including HSBC, Dresdner Kleinwort, Credit Suisse and Deutsche Bank. The Justice Departments demands included records and copies of e-mails, telephone records and other documents directly relating to the Department of Justice ability to build cases against individuals and companies who profited from online gaming in the US.

Alan Duncan, Shadow Trade and Industry Secretary, told The Times of London: “There is growing suspicion that the US Department of Justice is using its muscle in a highly unpleasant manner, and is targeting financial institutions beyond their own shores in a way that cannot be justified. I hope the Department will stop and review its approach so that its behavior doesn’t sour relations between us.”

Vince Cable, the Liberal Democrat Treasury spokesman and a former chief economist for Shell, said: “This appears to be another case of extra-territorial and retrospective action from the US authorities that goes against two basic principles of justice.”

A senior banking source, who asked not to be named because of the “immense legal complexity and sensitivity” of the issue said: “The US is saying to itself, ‘We must get somebody’, and in the process it seems to think it can foist . . . US legislation, even individual state legislation, on anybody.

“They are going after parties removed several steps from the business of gambling. To pursue say, an adviser on a float is frankly ridiculous. It is a straightforward case of the Government being responsible for setting and arranging sensible boundaries on what the US can request.”

“It appears that the Department of Justice is waging a war of intimidation against Internet gambling,” said I. Nelson Rose, a professor of law at Whittier Law School in Costa Mesa, Calif., who is an expert on Internet gambling law in a New York Times report.

Monday the British Stock Exchange reacted. Shares in European based online gambling firms dropped by as much as 9 percent.

``They're trying to make the founders sweat, as well as current management,'' said analyst Tejinder Randhawa at Evolution Securities in a Reuters report. Shares in PartyGaming, the world's biggest online gaming group, were down 6.5 percent by 1122 GMT, while rival Sportingbet was down 6 percent, Playtech was down 4.2 percent and 888 was down 1.7 percent. Austria's Bwin fell 0.8 percent.

``They seem to be on a mission,'' said Evolution's Randhawa.

``Extradition requests are unlikely, but they're not impossible, given what happened to the NatWest Three,'' he added, referring to three UK bankers extradited to the U.S. on charges linked to collapsed energy giant Enron.

Lawyer Clive Gringras, head of Olswang's e-commerce unit (a British based law firm), believes the move would probably have a ``chilling effect'' on the industry amid fears other countries would follow the U.S. lead.

''The only way an Internet company could really avoid risk and uncertainty would be to stop doing international business,'' he told Reuters.

According to several media reports the Justice Department believes the 1961 Wire Act, which outlawed telephone betting, could also be interpreted to include the Internet.

''I would have thought the DoJ would have been more reticent, given that the legislation was ambiguous at best,'' said Olswang's Gringras.

It appears the Justice Department regards Internet gambling as a clear and present danger to American citizens. Is it a victimless crime, or is it a crime at all. That no longer appears to be the issue. When the Justice Department is delivering subpoenas to major intentional banks including but not limited to HSBC, Deutsche Bank, Credit Suisse and Dresdner Kleinwort (the news broke over the weekend but the subpoenas were actually delivered three weeks ago) if it wasn’t obvious before the events of the last few days – the days of Internet based sports betting, an industry that generated well over a billion in 2005 and close to that total before its collapse in early October is now a dead industry, an opportunity that no longer exists.

And the final message the good folks at Pinnacle Sports left their clients: “It is with sadness that we have chosen to leave the US market, but we are so grateful for all the customers we've acquired throughout the years.”

The only remaining question, just how will anyone associated with Pinnacle Sports honor any of the future bets their ‘customers’ had made with Pinnacle, how will these Pinnacle shysters honor their promise to pay people whose account balances they absconded with? Sorry suckers – all bets are off.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: The Times of London, Reuters, The New York Times and The Calgary Herald

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