Online Gaming Smorgasbord

The Unlawful Internet Gambling Enforcement Act has created interesting ripples. Before the recent election there was speculation that the Republican-sponsored Act, which imposes civil and criminal penalties on financial institutions that process transactions with online gaming sites, could affect the fortunes of some house races. “‘I’ve been a loyal Republican for over 30 years, and I’m quitting the party I once loved,’ said Jim Henry, 55, who lives outside San Francisco. ‘Not because of the Mark Foley scandal or Middle East policy. But because the Republican Party wants to stop me from what I love to do: play poker over the Internet.'” The Republicans, of course, lost the control of both houses of Congress, although I’ve read nothing that suggests opposition to the Act materially affected the outcome. Reactions to the Act underscore a split in Republican voters, between religious conservatives who oppose gambling on moral grounds and libertarians who object to government regulation of a private recreational activity.(1)

Since President Bush signed it into law on October 13 the Act has had serious financial consequences for online gaming companies. Traffic to Internet gaming sites by U.S. residents dropped 56% in the month following the Act’s passage and companies such as Sportingbet PLC (60% U.S.-based business) and Party-Gaming PLC (80% U.S.-based business). Investors sold off shares of publicly traded gambling companies; PartyGaming PLC saw more than half of its market capitalization disappear (£2 billion), Sportingbet PLC lost £500 million, and other publicly-trade companies experienced major losses.(2) Companies like PokerStars continue to operate, offering online poker games that they argue are games of skill, not chance, and therefor outside the Act’s reach.(2)

Meanwhile, BetOnSports PLC settled a civil lawsuit filed by the U.S. Attorney in St. Louis by agreeing (a) not to take any bets from U.S. residents, (b) to take out advertisements in U.S. newspapers telling readers that online gambling is illegal in the United States, and (c) to establish a toll-free number to advise customers how to obtain refunds of wagers placed before the suit was filed. BetOnSports, which did not admit any wrongdoing in settling the case, said it plans to concentrate its business on the Asian market. BetOnSport’s CEO David Carruthers, who was arrested in July along with other BetOnSports employees for conspiracy, fraud, and racketeering charges, still faces criminal charges and is in custody in St. Louis.(3)

The U.S. has also stepped-up enforcement of existing criminal statutes. One week ago law enforcement officials announced the prosecution of a “billion-dollar-a-year gambling ring,” charging 27 people with “enterprise corruption, money laundering, and promoting gambling.” The gambling ring allegedly centered on a web site through which bettors, supplied with a secret code, could track bets placed with bookies on football, baseball, basketball, and other sports. Police say that defendant James Giordino, the putative mastermind, ran the gambling operation from a laptop that he never let out of his sight–until he left it behind in his hotel room while attending a wedding on Long Island in 2005. Police hacked into the computer (presumably subject to a warrant) and discovered information that led to the recent arrests. Prosecutor seek forfeiture of $500 million in assets.(4)

  1. Adam Goldman, Did Republicans overplay their hand with the anti-Internet gambling bill? FindLaw, 2-Nov-06
  2. Sean F. Kane, New Legislation Forces Gaming Sites to Decide When to Hold ‘Em and When to Fold ‘Em, Internet Law & Strategy, 3-Nov-06; Associated Press, Traffic to online gambling sites drops in wake of new U.S. law, SiliconValley.com, 14-Nov-06
  3. Associated Press, U.S., BetOnSports Settle Civil Case, 10-Nov-06, The Wall Street Journal; CBS/AP, 11 Charged in Web Gambling Crackdown, CBSNews.com, 18-Jul-06
  4. Associated Press, Criminal charges brought over online gambling, MSNBC.com, 15-Nov-06

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