International edition
September 27, 2020

Gaming as a whole generated us$ 90 billion in revenues in the country in 2006

Gambling firms take a punt on new US internet gaming deal

(US).- The biggest operators in the Irish gambling industry are betting on an end to the US internet gaming ban, with even President Obama now a keen poker player. The world's largest betting exchange, Betfair, believes a lifting of the ban on internet gambling in the US is on the cards.

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ast week, the online gamer called in advisers Credit Suisse to gear up for a potential boom in the sector ahead of the move. Betfair, which reported revenues of 345 million euros this year, already has horse-racing gambling interests in the US and has managed to successfully enter other challenging territories, such as Australia. A flurry of acquisition activity is kicking off among European online gambling operators with the US market in mind.

PartyGaming, the online gaming and gambling group, has just bought US poker business World Poker Tour Enterprises for us$ 12.3 million, its first US acquisition since being forced out of the country in 2006. Rival online gaming firm 888 is also believed to be on the acquisition trail as well.

The firm pulled out of the US in October 2006 after the Unlawful Internet Gaming Enforcement Act (UIGEA) was passed. It recently agreed to pay the US authorities us$ 105 million in settlements to avoid the threat of being prosecuted for allegedly providing internet gambling services to customers pre-2006. This is all likely to be with the object of clearing the way for getting back in the US gambling game.

Brian Hadfield, CEO of Cryptologic, the Irish-based casino software company, is naturally observing all of this with interest. America opening up could be a killer opportunity for Cryptologic, which has the biggest online gambling names as clients, including Betfair, Sportingbet, 888 and Partygaming.

Hadfield said that with the right legal circumstances in place, Cryptologic would also look at partnerships with companies in the US. "We have an excellent branded games offering and could find partners among the best performing companies. "It is almost inevitable – there is a groundswell of bipartisan support and the current economic climate is a factor. "

There are opportunities now for Irish and European firms to get a foot in the door through teaming up with US gambling houses. "TVG, YouBet and Twin Spires, the big three in the US, have all been in Europe lately looking for partners with internet expertise," said Andrew Gellatly, director of Gambling Compliance, a UK-based legal and financial consultancy for the industry. He added: "It's a very live issue. If the US were to open up, the internet expertise of Paddy Power and others would make them attractive potential dance partners."

While the moral appeal to the US bible belt was a great excuse for the Bush administration to crack down on Internet gaming in 2006, the real impetus was Nevada and New Jersey's powerful land-based casino lobby. "The US land-based casinos were caught off guard by internet gaming," said David Hickson, managing director of the Fitzwilliam Card Club and a director of the of the Gaming and Leisure Association of Ireland (GLAI). "Customers were not flying to Vegas and Atlanta, but gambling online instead. So they lobbied for a ban and got it."

Now, says Hickson, the land-based casinos have come round to seeing the 'ker-ching' value of online gaming for themselves and want in. "They've also learned that it's not going to go away. There seems to be a move to get the ban relaxed or removed."

Online poker is being used as leverage by anti-gaming law lobbyists, based on the argument that it is a game of skill rather than strictly about gambling. President Barack Obama is said to be a keen poker player.

If a repeal does happen, it's unlikely that European online gambling businesses that were there pre-2006, especially those who kept operating in the US through offshore sites, would be welcomed with open arms by the US Department of Justice. "You'd have to say it's possible they wouldn't get a licence," said Hadfield. "The obvious people to get a licence are people who are already there – the Las Vegas casino names, the MGMs, the Harrahs."

"The known value of internet gambling in the US is us$ 10 billion (7 billion euros) per annum," said Hickson. A good deal more is untaxed and unregulated.

Gaming as a whole generated us$ 90 billion in revenues in the US in 2006. Gambling has become America's adult pastime of choice to the tune of us$ 75 billion in punter spending, ahead of movies, concerts, sporting events and amusement parks combined.

Any sports betting brand may have perception problems, Gellatly believes. The 1961 Federal Wire Act came out of the need to control serious sports betting racketeering problems in the US. "Sports betting is still absolutely illegal and that's not going to change," said Gellatly. "Paddy Power is very associated with sports. We've taken the view that it is more likely to concentrate on the Australian market [than enter the US]."

Internet betting on horse-racing, which Betfair is involved in, is legal in the US, a big exception to this, thanks to the big lobbying power of Kentucky senators. Tarred with the gambling brush by US regulation, spread betting is also forbidden stateside.

Irish spread betting firms Worldspreads and Delta Index are big players in the UK and Europe but taking on the US could be a way off even if there is a law change. "The US financial regulatory system at the moment might not favour it," said Gellatly.

Worldspreads CEO Conor Foley is watching how any law change is approached. "We are considering whether the US gambling authorities would view financial spread betting as a 'bet' or as an 'investment product' and hence there is uncertainty as to what impact any relaxation of the legislation would have.” "If they are prepared to accept it as a 'bet' then we would definitely look for partnership opportunities in the US."

Worldspreads Conor Foley believes "it is almost certain that the US authorities will change the legislation within the next two years and legalise online gambling. They are losing on potentially billions of dollars in betting tax by allowing this business go through the Caribbean and so 'regulate and tax' is likely to become the new policy.”

Whatever about the Obama administration being more amenable to law change, the US Department of Justice has always been 'culturally' opposed to gambling of all kinds, according to Gellatly.

However, powerful congressman Barney Frank supports the repeal of the UIGEA and has drafted a new gaming act. "Barney Frank is enormously powerful," said Gellatly. "However, Harry Reid is leader of the Senate and is not going to let anything pass that would hurt land-based casinos."

State to state it's happening already. California has been licensing horse-racing bets through internet services such as YouBet and TVG for years. Twenty-nine states use the internet to help horse-betting, and five more use it to sell state lottery tickets. According to a recent Daily Telegraph report, Sportingbet, PokerStars and PartyGaming have spent an estimated us$ 5.23 million lobbying Congress to change current gaming laws.

"Skeptics say it's not worth enough money, that the tax would be too low," Gellatly said. "A big question is whether the economic upside would be enough."A PricewaterhouseCooper's report last year claimed us$ 51.9 billion could be realised in tax revenues over 10 years if internet gambling was legalised in the United States.

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