In the wake of the BetonSports crisis, many online gambling companies are looking to create business elsewhere reports Business Week

The respected publication Business Week commented on the online gambling industry in the wake of the BetonSports crisis (see previous InfoPowa bulletins) this week, reporting that the BetonSports debacle and the arrest of its ex-CEO David Carruthers has resulted in business moves to reduce exposure to the vagaries of the US online gambling market.

Europe and Asia are the main targets of diversification moves, the article notes, quoting industry insiders who say the trend could signal the start of a major wave of consolidation. Earlier this month, PartyGaming, the world's biggest Web poker company, spent $131 million to buy Bulgarian-based Gamebookers, a sports betting business focused on Continental Europe. According to Aug. 21 news reports, Gibraltar-based PartyGaming is also the top candidate to bag rival Victor Chandler, which is based in Gibraltar and has no U.S. exposure.

The potential loss of U.S. markets is substantial for online gaming companies, the article continues revealing that last year Americans gambled about $5.9 billion online - around half the global total. Pointing to the Carruthers case and earlier attempts by US Department of Justice authorities to stop online gambling advertising, and moves by politicians to introduce legialsation to ban online gambling, the article suggests that the industry has been "spooked" by recent US events.

It gives Betcorp, an Antigua-based online sports betting and poker company, as an example - it has stopped taking phone bets from U.S. residents and is reevaluating its entire U.S. online gambling business, which accounts for 80 percent of revenues. The author also points to the market volatility following the Carruthers arrest, with large declines in stock prices of listed companies that have only partially recovered.

All of this is making Asia look like an attractive alternative. Online gambling in the region is growing fast and "is still untapped," says Leighton Vaughan Williams, Director of the Betting Research Unit at Nottingham Trent University.

However, the Asian market, at $2.1 billion last year, is only about one-third the size of the market in the U.S. Even if it triples, as expected, between now and 2010 it will be only as big then as the U.S. market is today. On top of that, the use of credit cards and electronic payments is not as widely accepted in Asia as in the U.S. and Europe, though that's beginning to change quickly.

Analysts say the greatest promise lies in Japan and China - the former for its advanced banking system and the latter for its sheer size. But the heavy hand of government in the region is a major concern for betting sites, said Greg Harris, an analyst at investment bank Canaccord Adams. In China, for instance, the government has forced some Internet service providers to block sites, such as 888 Holdings' 888.com, which is inaccessible in most of the country.

For now, expansion and consolidation of European online operations seems to be a better bet. Among those companies already making a move is Vienna-based Bwin Interactive Entertainment, which bought Swedish poker site Ongame for $643.5 million last December (see previous InfoPowa bulletins). Analysts say 888 Holdings is also scouting opportunities outside the U.S.

Other companies with a big European presence also are likely to prove attractive takeover targets, said Evolution's Randhawa. One contender: Stockholm-listed Unibet Group which runs unibet.com and is active primarily in the Scandinavian market.

Even so, the European market is hardly an overnight cure for the industry's headaches. Cash-strapped national and regional governments are eager to keep tax revenues away from the online crowd. And European governments aren't averse to tangling with online gambling operators in protecting state monopolies.

Despite the challenges, revenues for most online gambling companies continue to grow at more than 40 percent annually, according to a recent Dresdner Kleinwort report. And the U.S. business is still so big and lucrative that some operators are willing to tough it out.

British-based Sportingbet, whose gambling sites include sports-betting site sportbook.com and paradisepoker.com, is taking a typical approach. The company says "it's business as usual." But a spokesman acknowledges that the company is aiming to reduce its reliance on the U.S., which now generates 65 percent of its revenues.

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