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July-28-2010,
A Reflection of My Time Writing About the Industry - Part 2...By Hartley Henderson

The Industry Positives and Negatives

Without question the industry has faced some highs and lows since I began covering it.

The first part of the decade was quite positive while the last half was predominantly negative. Nevertheless, even at its worst there were reasons to be optimistic during the down times. The following represent the high and low points of the industry over the last decade.

INDUSTRY HIGH POINTS

The growth of an industry

No doubt many of the readers of these forums will remember the old days of betting on sports. The wagers were either placed with friends, with local bookmakers (who you weren't sure if they would be around the next week to collect), or in Las Vegas if one had the time and money. Then around the early 1990s some offshore sportsbooks based in England sprung up to take wagers from North America. Bowman's International was the first book for many in North America. In fact my first offshore wager was a bet on the Toronto Blue Jays to win the 1992 World Series at Bowman's International.

Betting minimums were high due to communication costs and bets were always placed on the phone. Other books followed, mostly based in Caribbean destinations and consequently offshore books like WWTS, Post-Time and SBG Global became popular phone options for North American bettors. Of course many scam operations like Top Turf or Dial-A-Bet emerged as well.

Then in 1996 the Internet became viable and several of the same books looked at the web as a cheaper form of communication. It allowed new ventures to open up with the Internet as their first offering. The Internet cut down on costs, opened a wider market and allowed reasonable minimums that were enticing to any income group. Intertops, which was based in Austria at the time, was arguably the first to go online followed closely by WSEX and a new way of betting emerged. All of a sudden sports bettors had the ability to wager on a wide variety of sports by a much easier communication and with minimums as low as $1 since there was really no extra overhead for the books. Some books such as WSEX and later Matchbook and Betfair offered the ability to wager on contests in play. Betfair and Matchbook also revolutionalized P2P betting which allowed sports bettors to wager against each other with the bookmaker acting as the intermediary. Of course prior to the internet most gambling was person to person with one friend taking one team while the other took the opposing team often offering points or odds. Betfair and Matchbook just made that more feasible.

Along with a whole new avenue for sports betting, the Internet also offered a great medium for poker networks. Prior to the Internet, poker was often played at people's houses or at land based clubs which often were dirty, smelly and off limits to many. The industry started slowly but many sites such as PokerStars, Party Poker and Full Tilt Poker opened up and the popularity really took off when a no name poker player named Chris Moneymaker won the World Series of Poker after winning a spot in an online poker satellite tournament. Moneymaker was followed by Greg Raymer who also won a spot online and all of a sudden small time gamblers who never dreamed they would be good enough to win a real poker game or tournament were enticed to try the new system. Books on how to win at online poker were plentiful and what was once a small niche grew to the huge industry it is today.

Don Best Screen and Information

While the Internet was a Godsend to small time sports bettors it was also a bonus to the larger players. Most big time gamblers were forced to use runners to try and find the best line but the Internet allowed sites like Don Best, Vegas Insider and others to emerge. They showed a list of real time line comparisons at various books allowing everyone the chance to find the best lines. Of course books also had the technology which consequently resulted in quicker line changes at all sportsbooks which effectively killed the opportunity for middles or scalps which many larger bettors feasted on. In Europe Oddschecker.com became a major source of information for any bettors who wanted to wager on sports.

But more important than the instant access to lines to players was the ability to access information they likely couldn't receive before. Many sports bettors used to rely on the Gold Sheet or other handicapping papers to get stats and information but the Internet provided everyone a new medium to get the information on their own. It seemed like everyone had a handicapping angle and tons of past stats which they were willing to release for a price. Stats such as batter success vs. specific pitchers; head to head past results in auto racing; etc. were all at hand. Mind you because everyone had the information the odds were often lower than they would have been if everyone didn't have access to the stats. Thus, some may consider the new ability to access information to be more of a negative than a positive but the new access to information and lines has been revolutionary.

A New Opportunity for Struggling Jurisdictions

While the U.S. government clearly could care less, given their actions, the growth of offshore gambling has given many struggling countries a new lease on life. Antigua and Costa Rica are known as great tourist destinations but their economies had been struggling as tourism dollars declined. Both countries (and particularly Antigua) saw the opportunity to help their economy by creating a new destination and tax haven for sportsbooks to operate. The United States didn?t oppose it at first but later did. In fact until the UIGEA passed it was reported that clerks working for sportsbooks were making far more than they could otherwise and the governments saw a new revenue stream at levels they couldn't have achieved otherwise. Furthermore in the small native reserve of Kahnawake, the Mohawks decided to help their struggling economy by providing betting companies the opportunity to operate from servers on the reserve. Mohawk Internet Technologies was deemed a huge success by Canadian government officials at the first Internet Gaming Conference and the reserve has benefited greatly ever since. In Europe small islands like the Isle of Man, Alderney, Gibraltar and Malta have flourished thanks to online gambling.

Internet Gambling Forums

Last but not least a major high point for sports bettors and poker players has been the rise of Internet gambling forums such as MajorWager, 2+2 etc. The forums provided a new opportunity to not only gather information but have also allowed players from around the world to discuss games, handicapping strategies, experiences with gambling companies and various other pieces of information that bettors would deem valuable. As well, articles relating to the industry allowed bettors to stay in touch with all the latest news. Prior to the Internet this would have been impossible.

INDUSTRY LOW POINTS

There are numerous low points over the last few years and it would be too long to detail them all. I'll focus on four. Obviously the crusade by John Kyl, Robert Goodlatte, Jim Leach and the other anti gambling factions in the Republican party to try and kill the industry in its infancy was a major low point in the industry especially after the trio gained steam in Congress after the election of George W. Bush. As well the rise and fall of very questionable books like Camelot, New Age Bets, First Fidelity etc. along with mainstays like Ace's Gold and Bet On Sports (albeit on totally different circumstances) can't be ignored as a low point. And the poker scandal at Absolute Poker and Ultimate Bet brought much disrepute to online poker but the four low points I will focus on are the Jay Cohen case, the passing of the UIGEA, the NETeller debacle and the WTO injustice.

Jay Cohen Case

After the successful launch of Internet wagering the Attorney General's office under Bill Clinton decided to crack down on offshore wagering. In 1998 Federal prosecutors in New York charged 14 individuals representing six offshore sports gambling businesses with violation of U.S. gaming laws. Janet Reno, then Attorney General stated "To Internet betting operators everywhere we have a simple message you can't hide online and you can't hide offshore." While the issue was previously a low priority for the government, Reno changed that at the bequest of John Kyl who was worried that people would "click the mouse and lose the house." This obviously could have been a great opportunity for all charged to pool their resources, hire a team of the best criminal and internet lawyers and present a defense that the courts couldn't simply wave off ,but instead only Jay Cohen, one of the owners of WSEX, returned to file a defense. The others that were named by the federal prosecutors either ignored the AG or returned and plead guilty. In fact Steve Budin, the head person of SBG Global cited in a book he wrote later that he returned because he knew he was guilty. Yet many who knew him have refuted that statement claiming Budin never believed what he was doing was wrong. In any case Cohen was forced to fight the charges alone and as the old union song states "no force on earth is weaker than the feeble might of one."

Cohen hired competent lawyers who argued their defense, valiantly claiming that Antigua is a sovereign state that is allowed to create its own laws and what Antigua was doing is no different than what Las Vegas has done. Moreover, Cohen's defense relied on the notion that a bet takes place where the server is located not where the original transmission was placed. So if someone places a wager from New York at WSEX's website the bet takes place in Antigua since it's only when the server processes the bet (in Antigua) that the bet is actually made. Cohen also pointed out the hypocrisy of the New York government since they allow bettors to wager on horse racing by phone and Internet. By all accounts the defense was solid but in a travesty of justice the judge told the jury that Cohen's defense was irrelevant. While he didn't come right out and tell the jury to find Cohen guilty, as that would be jury tampering, he left them with no real alternative. Cohen received a 21 month sentence and was released in 2004. Cohen stated that after the case one of the jurors told him that they wanted to find him not guilty but the judge really gave them no choice.

The Cohen case was a low point because it put a huge knife into the industry when it was really taking off but it also was a clear message to everyone that the U.S. government was prepared to do whatever it felt it needed to in an effort to stop online gambling including manipulation at the court level. The next 3 low points illustrate that as well.

The Passing of the UIGEA

Since 1997 several anti-gambling zealots like John Kyl, Robert Goodlatte etc. tried to have online gambling banned. They introduced law after law but none of them passed for varying reasons. In 2006 it appeared that the bill again would fail after it was voted down but Congressman Bill Frist, many believe at the behest of George W Bush, attached the anti gambling legislation called the Unlawful Gambling Enforcement Act (UIGEA) to the Safe Port Act. The Safe Port Act was deemed essential at protecting the ports from terrorists and was a sure pass bill. Since the bill was already guaranteed to pass anything attached to it was pretty much guaranteed to pass as well. By passing it in that way the bill was never debated. Many in Congress such as Barney Frank were disgusted by the attempt to attach a totally unrelated bill to a security measure but it passed 98-0 in the Senate and 421-2 in the House. The way in which the bill was passed made it clear once again that the government had no concern about ethics in its crusade to block Americans from wagering online.

Almost immediately following the passage of the bill almost 60% of Party Poker's stock price was lost and all publicly traded companies including SportingBet, WWTS, 888 Gaming, Mansion etc. were forced to leave the U.S. market. Pinnacle Sports pulled out later and various payment firms were forced to leave. The law made it illegal for payment companies to accept wagers for online gambling with several exemptions carved out. Even though the law wasn't official until the regulations were written the companies left anyways and the regulations weren't actually passed for almost 3 years following George W. Bush's signing of the Safe Port Act. To make matters worse, the U.S. government then decided to prosecute companies for their involvement in online gambling even though the law wasn't in effect. To date the Remote Gaming Association in the EU has taken the U.S. government to task for its attempt to extort UK gambling operators who left when the UIGEA was enacted.

The UIGEA not only killed a lot of good companies but it also made it far more difficult for companies to process payments and dampened the excitement the industry was generating. Looking at any gambling forum or talking to online gamblers it's clear that the fun, excitement and vivaciousness that they were experiencing prior to the UIGEA just didn't exist after. The law didn't deter people from gambling offshore (no law can stop that) but it did make them less eager to talk about it publicly.

One positive that arose from the UIGEA was the organization of lobby groups to oppose it. iMEGA, the Poker Player's Alliance and a group of Congressmen led by Barney Frank have all emerged to try and overturn the UIGEA or at least minimize its impact.

The NETeller Fiasco

When the UIGEA passed one company that decided to stick it out was NETeller (now called Neovia Financial PLC). The company was originally based in the Caribbean but moved its main headquarters to the Isle of Man with a subsidiary office in Canada. After the Safe Port Act passed NETeller decided to take some time to look at their options and indicated they would likely leave the U.S. market but wanted some time to restructure. It appeared Uncle Sam wasn't willing to go along with their timeline and forced the issue by arresting the original founders of the company. John Lefebvre and Stephen Lawrence were charged with money laundering. The charges were illogical since NETeller never hid their modus operandi and at the time of the arrests both Lefebvre and Lawrence had left the company. Nevertheless the arrests worked as NETeller ceased trading on the AIM for some time and in January 2007 NETeller announced it would no longer process transactions for Americans. If that had been the end of the story then it would have been regrettable but acceptable. The DoJ, however, once more trying to make a point took it one step further. They seized all ACH transfers in process and told U.S. banks to decline any transfers that were coming from NETeller. This left people with money in their accounts in a state of flux since Americans couldn't transfer money back to the books from NETeller, couldn't transfer it to their banks and couldn't transfer it to people in Canada or other countries who wanted to help them out. Their money was literally held hostage.

NETeller, to their credit did all they could to try and work things out with the government to get the money back to players but it took almost 7 months and required Americans to send a form requesting the money returned. Larger bettors who were certain submitting a claim would see their information wind up on the desks of the IRS decided to forego the request and it is still uncertain what the government did with those request forms. In April of 2007 NETeller also announced it was leaving the Canadian market, a decision which to this day seems to make little sense. NETeller may have received similar threats from the Canadian government, may have decided that with the Canadian office and the founders being Canadian that the risk wasn't worth the reward or may have just decided to get away from North America and focus on Europe and Asia instead. They have never let their reasons be known. Regardless of the reason, it left Canadian bettors out of the loop.

The significance of the NETeller situation, aside from once again indicating the lengths the DoJ was willing stoop to in an effort to stop online gambling and the inconvenience it caused Americans was that it effectively killed the ability to deposit and withdraw money in an easy fashion. Most Americans and Canadians relied on NETeller because its software provided the easiest means to move money around to gambling sites and friends, and when NETeller closed its operations almost every other E-Wallet followed suit. Americans have been forced to rely on checks, money transfers or similar options that are far more costly and less timely. Canadians have numerous other options such as Instadebit, Moneybookers and credit cards. They are still viable from most banks so they haven't suffered as much as Americans but to this day Americans state what used to be processed in minutes now can take weeks. In fact numerous Americans I spoke to told me they have returned to their local bookie because it's "just easier to deal with the mob."

The WTO debacle

The last major low point in the industry occurred with the Antigua-U.S. dispute filed at the WTO. After the Jay Cohen verdict Antigua hired Mark Mendel as an attorney to file a motion at the WTO claiming that the U.S. were in violation an agreement. Without going into great detail, Antigua argued that the U.S. signed an agreement under GATS stating that they would open their market to gambling products from other countries. The U.S. argued that it signed that in error and used a "morals" argument claiming that remote gambling goes against the country's principles. A WTO body heard the arguments and sided with Antigua stating that the U.S. allowed remote gambling on horse racing so allowing one form of remote gambling while trying to block another was hypocritical. The U.S. appealed the decision and the appellate court upheld the original decision but provided the U.S. an out. The courts told the U.S. that if it stopped remote gambling on horse racing in the United States then the courts would side with the States. The horse racing industry threatened to fight any attempts to block online or inter-track betting on their product tooth and nail and it was clear to the government that they were in a corner.

In typical U.S. government fashion, the U.S. didn't agree to correct things in a reasonable manner. At first they simply tried to ignore the ruling and later announced it would rewrite its commitment. While this was an option it was not one anyone felt the U.S. would stoop to since it was never done in the past and most countries believed rewriting commitments was just underhanded. All countries who felt they were affected or would be affected could file a claim for compensation and among those asking for compensation was the EU. It was believed by most in the industry that one of 2 scenarios would bring the U.S. to its knees. If the EU demanded excessive compensation since they were being badly hurt by the decision or if the WTO gave Antigua a large enough award for their lawsuit the U.S. would have no choice but to re-evaluate the whole situation. But alas neither happened. EU Trade Commissioner Peter Mandelson agreed to a small concession in the area of shipping and storage and later the WTO awarded Antigua $21 million a year to be used in the area of Copyrights and Trademarks. The $21 million wasn't even equal to what Antigua spent on legal fees and certainly wasn't large enough to be a deterrent to the U.S.

The decisions were a sham and to this date no one has been content with the outcome. Catherine Ashton, who took over for Mandelson, made many derogatory comments about the U.S. afterwards because of its gambling ban and it was evident she wasn't at all happy with Madelson's decision to settle with the U.S. The current EU trade commissioner Karel DeGucht was just elected and hasn't stated anything on the situation. And despite the ruling against Antigua, nothing was ever done. The U.S. has yet to rewrite its commitments, Antigua has yet to use its $21 million award (although it recently indicated it may) and no countries have been compensated. Instead you have a situation where the U.S. has used its "might makes right" bullying tactics to force a ruling in its direction and in the process has once again made the WTO look silly and meaningless.

In the last article I'll look at my predictions for the future of the industry.

07-28-2010
Hartley Henderson
MajorWager.com
henderson@majorwager.com

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