Gambling News - June 2005 Edition

"US Regulator Casts Shadow Over Boom in Online Poker"

Legal officials in the U.S. step up efforts to put an end to illegal internet gambling.

The uncertainty of U.S. actions is problematic for potential investors as PartyGaming, the world’s largest Internet poker company prepares for its ten billion dollar stock market flotation. The majority of PartyGaming’s customers are American with about five percent of its players coming from the UK. The uncertainty is also affecting the online gambling company, SportingBet, PartyGaming’s main competitor in the UK. Both PartyGaming and SportingBet contend that they are not doing anything illegal. SportingBet maintains that by operating within the UK it is not breaking any laws, while PartyGaming argues that the Wire Act only applies to sports betting and not to poker.

The 1960’s Wire Act, which prohibits the use of phone lines for placing wagers, is the basis of the U.S. ban on online gambling, but the World Trade Organization recently challenged the legality of the ban. Officially, the U.S. considers almost all forms of Internet gambling illegal and goes after companies involved in the online gambling industry. Lawyers representing Antigua, a tiny island nation that has built up a booming business by hosting online gambling businesses, complained to the WTO that the U.S. ban on online gambling violated free trade agreements because the U.S. allows online horseracing betting by U.S. operatives while, at the same time, banning all other forms of Internet gambling. Eventually, the WTO made a rather ambiguous ruling on the case that lets both countries claim victory.

Meanwhile clarification on U.S. policy and what the U.S. Government can practically do about online gambling is vague. This lack of clarification and the fear that U.S. regulators are going to increase their efforts to clamp down on online gambling could have adverse effects on the online gambling companies. Altium Capital’s Greg Feehely said: There is no doubt that there is a regulatory risk attached to PartyGaming and investors should be aware of that. But that risk has also already been discounted in PartyGaming’s valuation. A company with a growth record and potential like theirs would float at more than twenty times its earnings. It is only being valued at around ten to twelve times its earnings, because of the risk of the uncertain legal situation in the U.S.” Feehely does not believe that the U.S. will try and prosecute overseas poker companies.

Amidst all these announcements of going public on the London Stock Exchange, U.S. legal officials have begun stepping up efforts to bring a speedy end to the illegal internet gambling.

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