Internet Gambling Recap: Lightweight Bill Doesn’t Hold Water
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Written By Reprise Media | October 4, 2006 | Share This
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On Monday we talked about the Unlawful Internet Gambling Enforcement Act that recently passed in both the House and Senate. As a fan of the online gambling, I wanted to clarify parts of our original post for the concerned gamblers of the world (like myself).
We wrote, “The Act will…effectively put the gambling companies out of business” – this is not entirely accurate. The bill has made it illegal to process transactions by credit card and US based financial institutions – a slam to the banking industry, not gambling companies. Though on the surface it appears that the banks will be held responsible, many financial institutions claim that they lack the technology to track gambling transactions. As Steve Verdier, director of congressional relations for the Independent Community Bankers of America, says (via MSN Money), “The Fed and Treasury are not supposed to ask us to do the impossible.”
Regardless, the UIGE Act does not extend to International 3rd party intermediaries, such as Neteller and FirePay (both London-based and traded on the London exchange). Once money is transferred off-shore, the account holder can send it wherever they choose – to a jeweler in St. Thomas, a casino in Costa Rica, or any other U.S. company or individual. In other words– even if U.S. banks are forced to monitor transactions (assuming they develop adequate technology), online gamblers can still transfer money through international accounts.
What I’m most interested in, however, is the bill’s specific wording. The Act prohibits transactions through “unlawful” gambling sites – but what makes one site ‘lawful’ vs. ‘unlawful’? Many have suggested that the Act is only targeting sports betting, in which case, sites including other popular games like Poker and Blackjack may not be affected. Given the massive popularity of poker, I seriously doubt that people will cease to play online, and will merely find alternative means to fund their accounts. A much more effective way to discourage online games would be to impose a gambling tax on various poker sites. In fact, the Poker Players Alliance conducted a study showing that such a tax could generate over $3 billion in federal revenue (PDF).
In the meantime, what does this bill mean for major casinos that have been lobbying to move their operations online? Mitch Garber, chief executive of Party Gaming, is quoted on MSNBC saying, “I wouldn’t be surprised if they [MGM and Harrah’s] didn’t have an interest in winning non US-facing companies as a means of dipping their toes in the internet world. I know MGM and Harrah’s well, and I think they have always acknowledged that internet gaming companies will move ahead in time and watched with great interest to see the success.” ( Incidentally, the Act has made traditional casinos like Harrah’s more attractive to investors. Yesterday, Harrah’s received a buyout offer of $25.7 billion from Apollo Management and the Texas Pacific Group.)
In my opinion, the bill is a feeble attempt to stop the unstoppable. It’s akin to placing a band-aid on an arterial wound. Yesterday’s falling stock prices of companies like PartyGaming and Sportingbet are an initial shock, but are in no way indicative of a dying business. Just as prohibition didn’t put an end to alcohol consumption, the Gambling Enforcement Act will fail to curb a massively popular activity. If anything, it will only encourage gamblers to become more creative.
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