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 Simon Goodley |
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| A vote by US
lawmakers has given PartyGaming and other online bookies cause to hope that
America's four-year ban on internet betting could soon be lifted
The four-year losing streak suffered by Britain's online gambling industry could be about to end. The multibillion-pound industry virtually collapsed after its biggest market – the US – was closed down overnight when Congress introduced a surprise clause to legislation in September 2006, in effect making internet betting illegal. Not only was that a blow for investors – it was a hugely expensive one. As soon as the London Stock Exchange opened the following Monday morning, shares in PartyGaming – then a FTSE 100 member – slumped by 58%, while rivals 888 Holdings and Sportingbet saw their shares slide by 26% and 64% respectively, wiping an estimated £4bn off the sector's value. The companies have since concentrated on opportunities in other parts of the world, but the businesses have never fully recovered from the shock of losing their most lucrative market. Last year it was worth an estimated at $5.4bn (£3.5bn) overall, a figure that could rise to $12bn-$16bn if the market were opened up, analysts say. However, there is renewed hope that a winning hand may soon be on the cards. Last week, Barney Frank, Democratic chairman of the US House of Representatives financial services committee, renewed his protracted campaign to repeal the Unlawful Internet Gambling Enforcement Act, which prohibits the transfer of funds from a financial institution to "illegal" internet gambling sites. On Wednesday, American lawmakers on the financial services committee voted by 41-22 to approve the move, meaning that legislation can now be introduced that would seek to regulate many forms of online gambling. As a result of his efforts, Frank (who does not bet) has been praised by online gamblers – as well as many Republicans – and vilified by gambling opponents, although the criticism is unlikely to worry a man who once said: "I'm a left-handed gay Jew. I've never felt, automatically, a member of any majority." His once-controversial views on online gambling may be becoming orthodox. One banker working in the industry said: "The argument in favour of regulation, as opposed to prohibition, is beginning to become mainstream, even in America." Such arguments are already being made in academia. In a paper on online gambling regulation commissioned by WiredSafety, an educational charity, Harvard University professor Malcolm Sparrow wrote: "Notwithstanding the current prohibitionist legal and regulatory approach, millions of US residents gamble online through offshore gambling sites. As a result, the US finds itself in the unfortunate position of incurring all the social costs of online gambling while having no control over the gaming sites that serve US residents." The Frank vote came shortly before another significant move, with the announcement yesterday that PartyGaming and its Austrian-based rival Bwin are to merge in a deal which they say will create the world's biggest publicly listed online gambling group, worth $3.3bn. The new company would be in a strong position to exploit the opening up of the US market. In a note to investors today, the Morgan Stanley leisure analyst Vaughan Lewis said: "The overall political tide is moving firmly in favour of regulation, rather than prohibition. "With its expertise… market-leading technology, strong marketing capability and good brands, we think the combined entity [of PartyGaming and Bwin] would be extremely well positioned to benefit from any market opening in the US. We include nothing in our forecasts for the US, so any new market here is pure upside." In a recent Barclays Capital research note, the investment bank said: "In the event of federal regulation, we believe PartyGaming would be the likely key beneficiary. Under this hypothetical scenario, we estimate the potential [underlying profits] uplift could be 94% for PartyGaming and 58% for [rival] Bwin and 888. On a state-by-state hypothetical scenario, we estimate the uplift for the group would be considerably lower, but still meaningful." PartyGaming has already been trying to pave the way back to the US. Last year, it agreed a settlement with the American authorities that was seen as preparation for an eventual return to the market. The company agreed to pay a penalty of $105m in eight instalments over four years as part of a "non-prosecution agreement". There could yet be practical hurdles. Despite making some progress, Frank's efforts to repeal the legislation could easily stall because he needs action before November's midterm elections. Even so, other options may emerge. For example, individual states might decide to take matters into their own hands, as the 1961 Interstate Wire Act – the other infamous piece of US legislation which some argue outlaws online gambling – does not cover intrastate transactions, ie those that occur between parties in the same state. Certainly the technology to ensure that online gambling is restricted between people in the same state already exists, albeit with slight complications for those on state boundaries. Separately, there are concerns among European operators that US firms may be favoured for any future licences. Initial efforts to regulate are likely also to be limited to online poker and possibly casino sites, as opposed to sports betting. When might any of this happen? It's an interesting bet. "Don't listen to anybody who tells you they know the timeline of a piece of US legislation," warns one industry expert. "They're lying." Or, in poker parlance, they're bluffing. |
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Welcome to the News desk. 