Confusion on internet gambling spurs US appetite for more facts


Dormant account
Dec 12, 2000
Confusion on internet gambling spurs US appetite for more facts
By Amy Yee in Montreal
Published: June 15 2005 03:00 | Last updated: June 15 2005 03:00

US lawmakers may introduce a bill calling for broad study of online gambling if Congress again fails to pass an outright ban on internet betting.

Such a move could be a step in legitimising the nascent industry, which relies on the US market even though internet gambling is viewed as illegal by the US administration.

Investor interest in the high-margin business is keen ahead of planned flotations of internet companies such as on the London Stock Exchange, which would be valued at nearly 6bn (9bn, $11bn). But there are many cross-border trade and political issues that threaten to hamper the industry.

The US is the $12bn (10bn, 7bn) industry's largest market, although the US Justice Department says it is illegal for online companies to take bets from US consumers. But US punters can still place bets because online operators use computer servers based offshore.

Over the past decade US legislators have tried and failed to pass a law that explicitly bans internet gambling. The House of Representatives has twice passed the bill, which later died in the Senate. Lawmakers are now drafting another bill and, if it again fails to pass, legislation may surface that proposes a study of the industry.

"My gut feeling is that another bill could be introduced that would propose a one-year study of the effects of internet gaming," Frank Fahrenkopf, head of the American Gaming Association, told the Financial Times this week at GIGSE, an international internet gaming conference in Montreal.

"There's a movement to take a year to bring in leading people from around the world to testify whether the technology is there to help determine if there is enough protection against taking bets from illegal jurisdictions, from minors and to control pathological gaming," he said. "If [the original bill] gets hung up, there could be appetite for something like this."

The AGA, representing US commercial casinos, officially opposes online gambling because of inadequate technological controls.

Mr Fahrenkopf said there was a "long shot" that Congress would pass the initial bill banning internet gaming this year. The online gaming industry, which counts on the US for about 60-70 per cent of revenue, The is expected to generate revenue of $18bn in 2008, according to Dresdner Kleinwort Wasserstein, the investment bank. But legal action in the US is one of the biggest risks for fast-growing companies such as PartyGaming, based in Gibraltar.

Matters are further complicated by a World Trade Organisation ruling this spring on a US appeal against a complaint filed by Antigua and Barbuda. The Caribbean island-state said the US crackdown stifled its online gaming business and violated international trade rules.

The WTO said the US could prohibit an industry on moral grounds but that such a law would have to be applied to all forms of remote betting, including horse racing, which is legal in some states. A ban on horse races is unlikely because of the industry's powerful lobbyists.

The US is also waiting to see how the UK might regulate internet gambling, following a gambling act this spring that seeks to overhaul British gambling laws. "If the British show they can regulate [online gaming] and prevent money laundering, regulators in the US will take a hard look at it," said Mr Fahrenkopf.

In spite of booming business in Las Vegas and the televised poker tournaments that have helped make gambling mainstream, online gaming faces strong opposition from those who believe it is a gateway to social ills. The Justice Department has worked to dissuade banks from accepting credit card transactions for online betting and to quash advertising on websites and television and in print.

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