More Canadian jobs lost to UIGEA


RIP Brian
Feb 22, 2001

Thanks to US enforcement activity against Neteller, a promising Vancouver company axes staff

The knock-on impact of US Department of Justice actions aimed at killing off those sectors of the online gambling industry that it regards as illegal was demonstrated again his week in an excellent review of the fate of Canadian company ESI Entertainment Systems Vancouver Sun writer David Baines.

ESI doesn't operate any online gambling websites, but provides support services and products for gambling operators and bettors through three subsidiaries:

* Citadel Commerce Corp., which provides payment processing services to the online gambling industry.

* ESI Integrity Inc., which sells real time audit, fraud and risk-management software to government lotteries and parimutuel organizations.

* PlayLine Inc., which markets turnkey gambling systems to land-based gaming venues such as casinos, pubs and cruise ships.

The company went public last March, raising $10 million and initially, it looked like a great business to be in.

Revenues for the year ending February 2006 rose 70 percent to $18.5 million, and net earnings jumped by 30 percent to $1.3 million. The company's workforce soon grew to 160, nearly all in Burnaby, near Vancouver.

Unfortunately nearly 80 percent of the company's business was generated by Citadel Commerce, which runs electronic payment processing accounts for more than 625 000 customers, nearly all of whom live in the United States.

These customers, in turn, had accounts with Internet gambling companies which paid Citadel a fee for every financial transaction those customers made with them, and consequently the majority of ESI's revenues came from online gambling by U.S. customers.

In September, Deloitte & Touche ranked ESI the 26th fastest-growing technology company in Canada. The following month U.S. Congress passed the Unlawful Internet Gambling Enforcement Act, which specifically prohibited financial intermediaries like Citadel from processing online gambling transactions.

Initially, ESI executives took a wait-and-see approach. "At this time, we are evaluating the negative impact of this new legislation on our activities," said president Michael Meeks.

On January 15 this tear the company was still delivering good results. Revenues for the nine months ending November 30 were up 35 percent to $17.5 million, and gross profit had soared by 81 percent to $11 million.

However, it was becoming clear that Citadel's business model would be seriously squeezed by the Unlawful Internet Gambling Enforcement Act, so the company wrote down over $6 million in assets, resulting in a net loss of $4.5 million. The company also announced it would lay off 22 employees, saving $1 million in annual staffing costs.

The appropriateness of these moves was confirmed two days later, when the U.S. Justice Department announced that FBI agents had arrested Canadian citizens John Lefebvre and Stephen Lawrence, co-founders of Isle of Man-based and London listed electronic payment processor NETeller plc., for conspiring to promote illegal gambling.

The same day the arrests were broadcast, ESI announced that, as a consequence subsidiary Citadel would no longer offer financial processing to foreign Internet gambling merchants for U.S. consumers.

"This decision will have a material impact on the financial condition of the company as a substantial part of its revenues was derived from non-domestic Internet gaming merchants for USA consumers," the company warned.

Last week, the tragic effect of this decision became apparent when ESI revealed that it had reduced its workforce by another 35 percent to 80 people, and had taken other measures that would save $5 million per year.

The once promising employment for 160 Canadians had been reduced by half.

"With these changes completed," said the companys CEO, "we are now able to focus our cash reserves on our growing market opportunities in Europe and are better positioned to execute our international payment solution strategy."

But all this has had a profound effect on ESI's stock price. It has slumped from its $3 initial offering price to 58 cents on the Toronto Stock Exchange.
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Is there a move to challenge UIGEA?

Feb. 22, 2007


Talk on the London market boosts online gambling shares

Online gambling company shares listed on the London market received a brief fillip this week as talk circulated that a US Congressman could be about to challenge the Unlawful Internet Gambling Enforcement Act passed in October last year. The Act targets for disruption any online gambling financial transactions and has had an adverse impact on the American online gambling market.

The rumour was that US Congressman Barney Frank, who is chairman of the Financial Services Committee in Congress is preparing an attempt to have the legislation repealed, and on the strength of it Party Gaming shares surged by some 20 percent.

UK business media contacted the politician's office in Washington, only to be told by a spokesman that although Frank was "not in favour" of the restrictions facing online gambling as a result of the Unlawful Internet Gambling Enforcement Bill, there was nothing on the agenda right now to reverse the bill.

He refused to say whether the Congressman was considering such a move.

Other possible explanations for the revitalised interest in online gambling stock then emerged, including a theory that the Party Gaming group may be a bid target for both online betting groups and real-world bookmakers, or manouvreing ahead of PG's results announcement scheduled for next month amid talk that the company is growing market share as regular players seek out the busiest online poker tables.
Even if Chairman Frank does get a bill passed which reverses the UIGEA, I doubt President Bush would sign it.

...unless it gets attached to a must-pass Homeland Security bill.;)
An article in This is Money, about yesterdays PartyGaming pump and dump.

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Yesterday's trading: Punters gamble on PartyGaming
Geoff Foster, Daily Mail
22 February 2007

The online gaming massacre of 2006 saw 6.5bn wiped off the sector's value. The US clampdown on internet gambling sparked an avalanche of selling which left thousands of investors, big and small, nursing hefty losses.

They have since given the industry the bargepole treatment, preferring safer havens. Until yesterday, that is.

Various rumours prompted a flurry of speculative buying in PartyGaming which lifted the shares to 45p before closing 4p higher at 41p.

Brave buyers piled in amid reports that veteran Congressman Barney Frank, Democrat chairman of the House Financial Services Committee, wants to repeal the gambling ruling and has called for a two-year amnesty. Last March, Frank said: 'Adults are entitled to do with their money what they want to do.'

Other stimulants included very vague takeover talk and gossip that full-year figures on March 1 will easily exceed expectations.

It was the September arrest in the US of Sportingbet's former chairman Peter Dicks that preceded the sector's collapse and led to 1bn being slashed from its value. The group had to flog its US gaming division for a token dollar.

The merest hint of a US reprieve saw a welcome recovery which left the stock 5p better at 40p on hefty turnover of 13.8m, well up on Tuesday's mediocre 983,000. 888 Holdings, still waiting for Ladbrokes to pounce, firmed 1p to 111p.

Partygaming has been down all this morning, by about 3%. Link to Party's stock price :
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Link to a bitchin' speech by Rep. Frank, on his website.


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U.S. House of Representatives
July 11, 2006

Mr. FRANK of Massachusetts. Mr. Speaker, I strongly disagree with the gentleman from Iowa with whom I often agree. I don't disagree with him entirely. I will stipulate that there is nothing in the Bhagavad Gita about gambling. But other than that, I don't think he got much right.

He says that gambling on the Internet does not add to the GDP or make America competitive. Has it become the role of this Congress to prohibit any activity that an adult wants to engage in voluntarily if it doesn't add to the GDP or make us more competitive?

What kind of socio-, cultural authoritarianism are we advocating here?

Now, I agree there is a practice around today that causes a lot of problems, damages families, people lose their jobs, they get in debt. They do it to excess. It is called drinking. Are we going to go back to Prohibition? Prohibition didn't work for alcohol; it doesn't work for gambling.

When people abuse a particular practice, the sensible thing is to try to deal with the abuse, not outlaw it.

By the way, this bill allows certain kinds of Internet gambling to stay, so apparently the notion is that those few people who are obsessive and addicted will not take advantage of those forms which are still available to them.

But the fundamental point is this. If an adult in this country, with his or her own money, wants to engage in an activity that harms no one, how dare we prohibit it because it doesn't add to the GDP or it has no macroeconomic benefit. Are we all to take home calculators and, until we have satisfied the gentleman from Iowa that we are being socially useful, we abstain from recreational activities that we choose?

This Congress is well on the way to getting it absolutely backwards. In areas where we need to act together to protect the quality of our life, in the environment, in transportation, in public safety, we abstain; but in those areas where individuals ought to be allowed to make their own choices, we intervene. And that is what this is.

Now, people have said, well, some students abuse it. We should work to try to diminish abuse. But if we were to outlaw for adults everything that college students abuse, we would all just sit home and do nothing.

By the way, credit card abuse among students is a more serious problem, I believe, than gambling. Maybe gambling will catch up. But we have heard many, many stories about young people who have credit cards that they abuse. Do we ban credit cards for them?

But here is the fundamental issue. Shouldn't it be the principle in this government that the burden of proof is on those who want to prohibit adults from their own free choices to show that they are harming other people?

We ought to say that, if you decide with your own money to engage in an activity that harms no one else, you ought to be allowed to do it. And once you say, oh, no, but that doesn't add to the GDP, and that can lead to some problems in families, then this is hardly the only thing you will end up banning.

The fundamental principle of the autonomy of the individual is at stake today.

Now, I have to say, I understand a lot of the conservatives don't like it because there are people on the religious side who don't like it. Some of my liberal friends, I think, are being very inconsistent. We are for allowing a lot of things. I mean, many of us vote to say, You can burn the flag; I wish you wouldn't, but you can. It shouldn't be a crime.

You can look at certain things on television that maybe other people think you shouldn't. You can do other things but you can't gamble. There is a fundamental inconsistency there.

I guess people think gambling is tacky. They don't like it. Well, fine, then don't do it. But don't prohibit other individuals from engaging in it.

People have said, What is the value of gambling? Here is the value. Some human beings enjoy doing it. Shouldn't that be our principle? If individuals like doing something and they harm no one, we will allow them to do it, even if other people disapprove of what they do.

And it is, of course, likely to be ineffective. The best thing that ever happens to illegal gamblers is when you do a measure like this.

I hope the bill is defeated.

Maybe Mitch Garber, Ms. Parasol, and Mr. Dikshit, could donate some of the proceeds of yesterdays run-up, towards Rep. Frank's re-election campaign.
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