INT'L HERALD TRIBUNE: U.K. Seeks Global Rules for Online Gambling

[Louis Cypher]

November 2, 2006
By ERIC PFANNER AND HEATHER TIMMONS
International Herald Tribune

ASCOT, England British officials have called for international coordination to regulate online gambling as policy makers and investors scramble to salvage high-stakes bets on the industry in the wake of an effective U.S. ban on the business.

As the first large Western country to explicitly allow private-sector operators to set up shop on its soil, Britain has stood to benefit enormously from taxing Internet gambling companies that moved here, analysts say. Following the U.S. move to stamp out online gambling, however, much of that revenue is in jeopardy. Analysts expect Internet gambling companies to go through a round of consolidation as they pick up the pieces.

At the Royal Ascot racecourse, where well-bred Britons trot out their finest hats and tailcoats during an annual series of races in June, British officials met Tuesday with delegates of more than 30 countries to discuss ways to imbue the industry with a similar degree of respectability.

"The industry has been very hard hit by the U.S. ban," Tessa Jowell, the British culture minister, said at a news conference. "They want to demonstrate that they are a clean industry."

Analysts estimate that more than £4 billion, or $7.6 billion, has been wiped off the market value of publicly traded online gambling stocks since the U.S. Congress on Sept. 30 passed legislation that effectively outlawed the industry That does not take into account the falling revenue and plummeting value of online gambling companies that are privately held, which analysts say is impossible to quantify.

Several large online gambling companies, particularly those whose stocks are traded in London, have said they are no longer taking bets from U.S. customers after President George W. Bush on Oct. 13 signed the legislation, the Unlawful Internet Gambling Enforcement Act, but smaller, private companies may still be doing so, analysts say.

"People have to accept the laws of a particular country," said Richard Caborn, the British sports minister.

But the new law puts the United States sharply at odds with one of its closest allies. British officials say legalization, with careful regulation, is the best way to properly police online gambling, given the borderless nature of the Internet.

"The Internet is a global marketplace, and that's why we need action at the global level," Jowell said.

Delegates meeting here failed to agree on a communiqué setting out an international code of practice for regulation. One participant, Mark Mendel, a lawyer advising the Caribbean island state of Antigua, home to a number of online gambling services, said the disagreements were minor, and that he expected a final agreement within days.

A draft communiqué sets out several principles for online gambling, stating that it should not be allowed to become a source of crime or be used to finance criminality, that it should be fair to consumers and that children and problem gamblers should be protected.

The draft communiqué appears to be an effort to respond to concerns about gambling addiction and other social ills said to be associated with betting. The British government says there are one million online gamblers in Britain, a third of the European total, each wagering an average of £1,000 per year.

British officials insisted that Britain's move to take the lead in legalizing and regulating online gambling was motivated by a desire to protect consumers, rather than to lure operators, and their tax revenue, to their country's shores. The conference Tuesday, to which the United States was invited but declined to attend, had been scheduled before the U.S. enactment of the ban on transactions with gambling services.

"This is not a knee-jerk action," said Caborn, the British sports minister. Caborn said Britain would try to "engage with" international institutions like the World Trade Organization as it makes the case for legalized, regulated online gambling. The WTO has already ruled, in a case pitting Antigua against the United States, that U.S. efforts to restrict online gambling were inconsistent with international trade rules, because they provided loopholes for U.S. horse-racing operators and state lotteries, for example.

Caborn declined to say whether Britain might follow the lead of Antigua and challenge the United States at the WTO.

But he added that a follow-up decision in the Antigua case, gauging compliance with the initial ruling, would be a "landmark decision." That ruling is expected in January.

Bankers and analysts say online gaming companies are talking about merging with each other, while private equity companies, which are flush with cash, have been wondering whether they can put together a few of these companies, slash costs and generate profits from them.

Traditional casino companies in the United States and Asia are also said to be looking at the online sites as a way to get into Europe.

And British betting-shop chains like Ladbrokes and William Hill have also been thinking about doing deals, bankers add.

So far, none of these conversations has resulted in any firm deals.