UIGEA FAILING TO STOP THE ACTION IN COSTA RICA

15 February 2008

ESPN takes a look at a betting market that continues to prosper from US action


ESPN award winning writer Paul Moran provided our read for the week with his insightful article on the failure of the Unlawful Internet Gambling Enforcement Act to stop betting on US events through Costa Rica online companies.

"While opposition to Internet gambling in all its various forms in the U.S. has come primarily from the conservative Christian right, the Costa Rican government, never an institution that has sought to legislate morality, has facilitated the industry's grown by providing fertile ground," Moran opines.

He goes on to describe typically nondescript office buildings in San Jose "....with roomsful of computers and telephone operators as well as tiny offices in private residences, [where] more than 200 Internet gaming enterprises are doing a brisk business with players of every persuasion in virtually every corner of the earth but primarily the United States, despite the best efforts of government to thwart wagering in cyberspace."

The article concentrates on horse racing action, revealing that wherever horses are running in the U.S., if a video feed is available, betting action will be accommodated by these offshore companies in the style of the traditional backroom bookmaker.

"Two clerks conduct business from cash drawers, the contents mostly American currency, which management prefers to the Costa Rican colone," Moran reports. "The races come via balky streaming video with eight televisions dedicated to whatever happens to be going on at the moment in the United States. The place is most lively on NFL Sundays and during the March NCAA basketball tournament. The racing business picks up on weekends and big days."

Moran writes that the U.S. ban on financial transactions with online gambling companies has done little to curtail the activity of American professional horseplayers who operate at a level at which the rebates of up to 5 percent offered by off-shore enterprises are meaningful at the bottom line. Efforts to stem the flow of money to offshore accounts amount only to inconvenience.

Some [land] racing associations have taken meaningful financial hits by closing U.S. pari-mutuel pools to off-shore sources of revenue - rebate shops, as they were known - that once were permitted to co-mingle handle, losing simulcast fees as well as portion of the takeout.

Describing the ease with which Costa Ric betting companies can be set up, Moran reveals that it costs less than $10 000 in government fees to launch an online gaming venture. In the other popular locations for such enterprises, primarily in the Caribbean, official start-up fees can run as much as $250 000 plus substantial annual fees.

The regional telephone system, Internet infrastructure and no shortage of educated, multilingual employees are positive factors for a new operator looking to set up a Costa Rica business, he says. While larger companies are typically located in downtown office buildings and are believed to be handling as much as $15 million a month in sports, racing and other activity, primarily online poker, smaller one-room enterprises are said to be handling about $100 000 per month. The online wagering industry employs about 3 000 people in the Central American country.

Moran makes the startling disclosure that the New York Racing Association estimated it lost $50 million in annual handle when it severed relationships with offshore simulcast outlets a few years ago. Although there is no way to determine the volume of money wagered in Costa Rica on US horse racing, it is known that most of the total betting handle comes from American players to whom rebates are meaningful enticement, he observes.

"This is money, serious money that, were Internet wagering expanded, regulated and taxed in the United States, would make a substantial difference to the bottom line of the racing industry as well as several levels of government," Moran concludes. "So, who needs money?"

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