From todays WSJ
From todays WSJ
Despite Crackdown, Online Gamblers
Aren't Ready to Fold
By CHRISTINA BINKLEY and JESSICA E. VASCELLARO
October 3, 2006; Page A17
Despite a U.S. government crackdown on Internet gambling, experts say patrons of the industry will likely find alternate ways to get their bets down.
Last week, Congress passed ports legislation that included unrelated provisions that would forbid Internet casino companies from accepting U.S. financial transactions. The legislation is designed to prohibit U.S. banks and credit card companies from processing payments for illegal online gambling. That means that online poker players couldn't simply wire money from their banks to an account with an online casino, as many do now. The new measures would not affect sites in which games aren't played for money. President Bush is expected to sign the bill into law.
Online gambling is banned in the U.S. However, U.S. residents account for more than half of the business of online casinos located abroad. Consequently, shares of several U.K.-based online-gambling companies -- including PartyGaming PLC, 888 Holdings PLC and Sportingbet PLC -- tumbled on the news that they might lose the revenue from American bettors.
PartyGaming, the world's biggest online-gambling company by market capitalization, and 888 Holdings said yesterday that they plan to stop accepting bets from U.S. customers if Mr. Bush signs the act into law. PartyGaming generates 76% of its revenue from the U.S., while 888 generates about half its revenue from the U.S.
Still, many industry experts say that the U.S. can't shut down online gambling completely. "Trying to stop Internet gambling is akin to trying to hold a wave on the sand and stop the ocean from sending any more," said Alan Feldman, spokesman for Las Vegas-based casino giant MGM Mirage.
Unlike the online gambling companies whose shares took a hit, the vast majority of online wagering sites are not run by public companies. Frank Fahrenkopf, president of the American Gaming Association, the industry's Washington-based trade and lobbying group, says there are somewhere between 2,500 and 3,000 offshore Internet sites taking wagers from Americans, and only 100 of them are run by public corporations listed on European exchanges.
Many of these online gambling sites don't deal directly with U.S. consumers, but instead work through online intermediaries like Neteller.com, which transfer money from bank accounts to online businesses for a fee. For example, when a U.S. gambler sets up an account, the money is first sent to Neteller, which in turn deals with the gambling site. Even if the new law cracks down on some existing intermediaries, others may surface, raising questions about how well the law can be enforced.
Mr. Fahrenkopf said there may be a temporary halt in online gambling activity but he adds that "new companies will pop up. The money will find its way there." The U.S. trade group says regulating Internet gambling may be "a more viable option" than a complete ban.
The federal government says online gambling is illegal under the 45-year-old Wire Act -- a leftover from Robert F. Kennedy's war on organized crime. There are a number of exemptions, including parimutuel horse betting. In recent years, federal prosecutors have been moving against online gambling. In separate instances, they recently arrested two executives of overseas sports betting sites who were traveling to the U.S.
Some gamblers, however are skeptical that the measure would stop them. Brad Sachse, a 21-year-old senior at the University of Northern Colorado in Greeley, Colo., says he plans to keep playing online poker by using third-party payment sites like Firepay.com or Neteller. "I am pretty sure you can get around it," says Mr. Sachse, who says he makes between $5,000 to $10,000 a month through sites like Pokerstars.com. "I do this for a living so this definitely affects my life a lot."
Others said they plan to keep playing, albeit more cautiously. Worried that the site might shut down before she collected on all her winnings, Avani Doshi, a 23-year-old who works at a large bank in New York City, says she has started cashing out immediately when she bets on NFL and college football games on Bodog.com. "It is a pain not to be able to leave more money in the account, but it is better than seeing that it is gone," says Ms. Doshi.
It's unclear what direct financial impact the estimated $12 billion online gambling industry has on the nation's roughly $30 billion commercial casino industry, where a number of Las Vegas casino companies have also been hoping for a relaxation of Internet gambling laws that might allow them to enter the business.
Most American credit-card associations don't do business with offshore gambling sites, so money often flows from American bettors to the sites via online intermediaries like Neteller. The new law would require the Treasury Department to draft regulations for how U.S. banks would have to deal with such intermediaries.
Some banking groups opposed the law, fearing the compliance costs would be too burdensome. At least one group, however, the Independent Community Bankers of America, expressed confidence that the regulations will be manageable.
"We got some language in the bill that looks like it protects the financial services industry," said Steve Verdier, director of congressional relations for the Independent Community Bankers of America, which represents almost 5,000 banks in the U.S. "It could have been a lot worse."
Financial services companies and the U.S. Chamber of Commerce had expressed concerns about the compliance burdens that would be imposed, such as tracking and blocking potentially millions of transactions. Under the legislation as passed, "If you are acting as a normal bank, and you're not in some sort of conspiracy with a betting house, then you are not going to be held liable," Mr. Verdier said. In addition, the legislation will be guided and enforced by regulations written by the Federal Reserve and the U.S. Treasury Department.
"If they find that the banks just don't have the technology to track and block these transactions, then we don't have to," Mr. Verdier said. "The Fed and Treasury are not supposed to ask us to do the impossible."
From todays WSJ
Despite Crackdown, Online Gamblers
Aren't Ready to Fold
By CHRISTINA BINKLEY and JESSICA E. VASCELLARO
October 3, 2006; Page A17
Despite a U.S. government crackdown on Internet gambling, experts say patrons of the industry will likely find alternate ways to get their bets down.
Last week, Congress passed ports legislation that included unrelated provisions that would forbid Internet casino companies from accepting U.S. financial transactions. The legislation is designed to prohibit U.S. banks and credit card companies from processing payments for illegal online gambling. That means that online poker players couldn't simply wire money from their banks to an account with an online casino, as many do now. The new measures would not affect sites in which games aren't played for money. President Bush is expected to sign the bill into law.
Online gambling is banned in the U.S. However, U.S. residents account for more than half of the business of online casinos located abroad. Consequently, shares of several U.K.-based online-gambling companies -- including PartyGaming PLC, 888 Holdings PLC and Sportingbet PLC -- tumbled on the news that they might lose the revenue from American bettors.
PartyGaming, the world's biggest online-gambling company by market capitalization, and 888 Holdings said yesterday that they plan to stop accepting bets from U.S. customers if Mr. Bush signs the act into law. PartyGaming generates 76% of its revenue from the U.S., while 888 generates about half its revenue from the U.S.
Still, many industry experts say that the U.S. can't shut down online gambling completely. "Trying to stop Internet gambling is akin to trying to hold a wave on the sand and stop the ocean from sending any more," said Alan Feldman, spokesman for Las Vegas-based casino giant MGM Mirage.
Unlike the online gambling companies whose shares took a hit, the vast majority of online wagering sites are not run by public companies. Frank Fahrenkopf, president of the American Gaming Association, the industry's Washington-based trade and lobbying group, says there are somewhere between 2,500 and 3,000 offshore Internet sites taking wagers from Americans, and only 100 of them are run by public corporations listed on European exchanges.
Many of these online gambling sites don't deal directly with U.S. consumers, but instead work through online intermediaries like Neteller.com, which transfer money from bank accounts to online businesses for a fee. For example, when a U.S. gambler sets up an account, the money is first sent to Neteller, which in turn deals with the gambling site. Even if the new law cracks down on some existing intermediaries, others may surface, raising questions about how well the law can be enforced.
Mr. Fahrenkopf said there may be a temporary halt in online gambling activity but he adds that "new companies will pop up. The money will find its way there." The U.S. trade group says regulating Internet gambling may be "a more viable option" than a complete ban.
The federal government says online gambling is illegal under the 45-year-old Wire Act -- a leftover from Robert F. Kennedy's war on organized crime. There are a number of exemptions, including parimutuel horse betting. In recent years, federal prosecutors have been moving against online gambling. In separate instances, they recently arrested two executives of overseas sports betting sites who were traveling to the U.S.
Some gamblers, however are skeptical that the measure would stop them. Brad Sachse, a 21-year-old senior at the University of Northern Colorado in Greeley, Colo., says he plans to keep playing online poker by using third-party payment sites like Firepay.com or Neteller. "I am pretty sure you can get around it," says Mr. Sachse, who says he makes between $5,000 to $10,000 a month through sites like Pokerstars.com. "I do this for a living so this definitely affects my life a lot."
Others said they plan to keep playing, albeit more cautiously. Worried that the site might shut down before she collected on all her winnings, Avani Doshi, a 23-year-old who works at a large bank in New York City, says she has started cashing out immediately when she bets on NFL and college football games on Bodog.com. "It is a pain not to be able to leave more money in the account, but it is better than seeing that it is gone," says Ms. Doshi.
It's unclear what direct financial impact the estimated $12 billion online gambling industry has on the nation's roughly $30 billion commercial casino industry, where a number of Las Vegas casino companies have also been hoping for a relaxation of Internet gambling laws that might allow them to enter the business.
Most American credit-card associations don't do business with offshore gambling sites, so money often flows from American bettors to the sites via online intermediaries like Neteller. The new law would require the Treasury Department to draft regulations for how U.S. banks would have to deal with such intermediaries.
Some banking groups opposed the law, fearing the compliance costs would be too burdensome. At least one group, however, the Independent Community Bankers of America, expressed confidence that the regulations will be manageable.
"We got some language in the bill that looks like it protects the financial services industry," said Steve Verdier, director of congressional relations for the Independent Community Bankers of America, which represents almost 5,000 banks in the U.S. "It could have been a lot worse."
Financial services companies and the U.S. Chamber of Commerce had expressed concerns about the compliance burdens that would be imposed, such as tracking and blocking potentially millions of transactions. Under the legislation as passed, "If you are acting as a normal bank, and you're not in some sort of conspiracy with a betting house, then you are not going to be held liable," Mr. Verdier said. In addition, the legislation will be guided and enforced by regulations written by the Federal Reserve and the U.S. Treasury Department.
"If they find that the banks just don't have the technology to track and block these transactions, then we don't have to," Mr. Verdier said. "The Fed and Treasury are not supposed to ask us to do the impossible."
