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December-27-2006,
2006 Online Gambling Industry Year in Review...By Hartley Henderson

With the start of the year 2006, it was clear that the online gambling industry was quite strong despite efforts to curtail it. The industry had boomed to $12 billion in revenues, publicly traded companies like Sportingbet, BetOnSports, Party Poker, etc. were all flourishing and their stock prices were rising. Even Betcorp, which had struggled in prior years, started showing a major turnaround. Meanwhile, private companies like Pinnacle Sports and World Sports Exchange continued to generate new interest with unique lines and low vig wagering, and Bodog continued to add new companies to its repertoire including a music company, an information page and a charity website. Golden Palace continued its pursuit to purchase every ridiculous item on EBay like William Shatner's kidney stone and Bodog did everything in its power to get its sportsbook website recognized through press releases whenever possible. On the knowledge and watchdog side of things, Majorwager had become the undisputed place to go for industry related information and advice with coverage from main stream media such as, "The Wall Street Journal", MSNBC and ESPN, amongst others.

As well, the island of Antigua felt confident that the U.S. market would soon be open to betting operations located on the island, as demanded by the WTO in June 2005 when it ordered the U.S. to stop discriminating against the island and allow U.S. citizens to bet at websites located there. The United States government had until June of 2006 to comply. Britain began to look at ways to regulate the industry and attract more businesses into the country and other European countries like Italy and Germany didn't know which way to turn; reminiscent of their actions in many other areas throughout history. Meanwhile in the United States, the House of Representatives, led by Jim Leach and Robert Goodlatte, seemed anxious to ban online gambling, while the Senate had no interest in the area. Indeed with the war in Iraq, Congress more disliked by the American public than ever and George Bush's popularity rating plummeting, it seemed almost certain that the whole area of gambling would be put on the back burner for quite some time while the government dealt with ways to convince Americans that Iraq was not going to become another Vietnam.

In the first few months of 2006 there were a few industry changes with Olympic Sports changing its name to The Greek, WSEX offering no rake poker and Nevada showing record numbers of residents betting online inside the state. This interest in online wagering in Nevada convinced MGM and Harrah's to lobby for legalized online wagering from the state of Nevada. But for the most part there were no major developments until March 15. On that date the home of Calvin Ayre, Founder of Bodog, was raided by Costa Rican police and that news caused concern for many in the industry. As it turned out, the raid was related to a poker show that was being held in the studio there which the police thought may have actually been a real poker game, and in Costa Rica gambling is illegal. Many, however, were concerned that the raid may have involved U.S. authorities trying to arrest the outspoken CEO of Bodog Calvin Ayre in an attempt to warn others in the industry that the U.S. authorities were watching them. Calvin Ayre laughed off the suggestion stating that the raid only helped build interest in his sports and poker websites, but perhaps he shouldn't have been so flippant.

In early July that concern came to fruition. In the first major industry related news of the year, David Carruthers, the CEO of BetOnSports, was arrested in Dallas while changing planes on his way to Costa Rica. The charges included mail fraud, transmission of wagers and wagering information, interstate transportation of gambling paraphernalia and interference with the administration of internal revenue laws, specifically tax evasion. The arrest sent shivers down the spines of many in the industry, as this was the first arrest of a non American citizen in relation to online gambling. While the government did issue warrants and even succeeded in arresting some involved in the industry prior to Carruthers, it was the first time that the government actually went after a non American citizen. Many in the industry waited for Britain to chime in on the arrest of a Scottish born citizen for enacting a service which was legal where the bets were taken, but the inaction by the British government was deafening. The U.S. government also issued arrest warrants for Gary Kaplan and 22 others at BetonSports on similar grounds related to racketeering. In response to this, Bodog cancelled a conference in the United States, Betcorp delisted from the ASX and, worst of all, gambling started to gain attention again in the congress. In fact on July 12th, just prior to the arrest, the House voted 317-93 to enact the Gambling Enforcement Act and encouraged the Senate to pass the bill, even if it meant attaching it to existing legislation. The house was adamant that this be done as they realized the bill had little chance of going anywhere if it didn't pass before the mid term elections. Consequently, most speculated Carruther's arrest was politically motivated. To help convince the Senate to vote for the bill, Frist put in an exemption for horse racing and lotteries, something which many senators were concerned about, even though doing so was counter to what the justice department wanted. On July 25th, David Carruthers was removed by BetOnSports as CEO, and in August the company ceased operations in Costa Rica and Antigua.

While all this was occurring, the deadline had passed for the United States to live up to its obligations to meet the WTO requirements relating to Antigua, but instead of actually complying, they instead made a statement that in their opinion they had met the requirements without giving any real details of how they had done so. The issue is still not resolved, although Antigua has been encouraged to fight back by hitting the U.S. where it hurts most - no longer agreeing to U.S. intellectual property rights. Clearly any trade embargos Antigua could enforce on the United States for not living up to its WTO requirements would hurt them more than the United States, but if Antigua started distributing pirated copies of Microsoft software, as an example, at dirt cheap prices and legally able to do so per WTO rules, then the United States would have no choice but to address the issue once and for all, rather than thumbing their noses at the WTO and the island of Antigua and Barbuda.

Poker started to grow in the United States and worldwide and the Poker Player's Alliance, seeing that a bill aimed at them could soon be enacted, asked for an exemption similar to those given to horse racing and fantasy sports, arguing that poker is a game of skill and hence should not be treated like casino gaming. The alliance grew in numbers and has been supported by many poker sites, particularly Poker Stars and Party Poker. Meanwhile, all the poker sites started putting up .net versions of their software which they used in the advertising in an effort to convince authorities that their advertising was not encouraging betting, but rather helping provide information since the .net sites were for information purposes only. The government saw through this farce and passed a statement that any .net sites that even had a link on it to real gaming sites was, in essence, a betting site also. This action seemed to coincide with Jamie Gold winning the World Series of Poker in August of 2006, who ironically now has legal problems of his own.

On September 7th, Peter Dicks, a chairman of Sportingbet.com was greeted at New York's JFK International airport by Louisiana officials who charged that the company illegally took bets from residents of Louisiana. Dicks resigned as chairman and authorities later allowed him to return to the UK, but it was clear that anyone that is heading up gambling websites would be arrested when entering the United States, regardless of their citizenship.

The gambling bill appeared to be dead later in September when Bill Frist urged senators to attach the bill to an armed forces defense bill. But Shelley Berkley, a democratic House of Representatives member from the state of Nevada and legal counsel for many casinos, put the Senate majority leader in his place stating "we must not use this important bill as a convenient vehicle for political pet issues like online gambling." With that attempt foiled, it appeared the legislation was dead, but then in October Frist managed to attach the bill to the Safe Port Act. The Act was passed at midnight of the day Congress adjourned for the 2006 midterm elections. The Act was originally passed by the House on May 4th and the Senate on September 14th, but had no reference to the Unlawful Internet Gambling Enforcement Act. However, Frist somehow managed to attach the bill to the Safe Port Act, and with the House and Senate already committed to it, the bill passed on September 30th without any hearing of the unrelated attachment. George Bush signed it into law on October 13th, and with that came the online gambling tsunami. Almost immediately, every publicly traded company pulled out of the U.S. market. Sportingbet withdrew, Party Poker pulled out, Mansion left and Crytpologic companies announced it would no longer service the U.S. market. Betcorp ceased operations, eventually to be bought out by Bodog, and even longtime stalwart Bowman's sold their American interest to Bodog and eventually sold the rest of their business to Bet365, who also withdrew from the U.S. market. As well, on the payment processor side of things, Neteller eventually announced they would no longer take American clients and Moneybookers has put their business up for sale. While they never solicited for American customer,s it seems clear that the company was hoping to penetrate the U.S. market at some point.

With almost $6 billion going out of the stock markets in England, everyone waited for the British government to finally say something to the Americans about their interfering policy, but again just silence. In fact, the only industry that did say something negative about the bill was the National Thoroughbred Racing Association, who condemned it. Mind you, what the NTRA was upset about was concern that they may still be targeted in the future, despite having an exemption in the Act. After all, the bill doesn't supersede the wire act, which the bill was apparently based on, and as such the justice department, in essence, said that in their view online horse racing was still disallowed by the wire act and that federal legislation would prevail. Consequently, horse racing is still a target.

The American justice department further flexed its muscle on November 16th when it arrested 27 individuals connected with a New York sports betting operation called playwithal.com. What made the bust noticeable was the announcement that the management at Prolexic Technologies were also implicated in the bust, so for the first time the U.S. government held a hosting and internet design company responsible for its association to an online gaming outfit. It was clear that the United States justice department was telling everyone that as far as they're concerned, if you are even remotely associated with a gambling website you are operating against the bill.

The province of Ontario also started looking at online gambling, and in early November announced that they wanted to pass a law making it illegal to advertise a sports betting website in the province. Meanwhile, the rest of the world finally decided it needed to make a decision one way or the other in relation to online gambling, so in late November Britain hosted a conference about regulating it. Consequently, Italy, Spain and South Africa have announced they are going to legalize, regulate and tax online gambling in stark contrast to what Italy had earlier planned to do, and England announced it would offer tax incentives to bring companies from offshore islands like the Isle of Man and Gibraltar to the mainland of Britain. Britain is also encouraging other governments like Canada and Costa Rica to follow suit.

And of course all the while, George Bush is at his lowest popularity rating ever, and is a lame duck president as the Senate and House of Representatives are now controlled by Democrats, which include many gambling activists such as Harry Reid, Trent Lott, and John Conyers, while longtime online gambling foe James Leach has been ousted. Plus, Bill Frist who attached the bill to the Safe Port Act announced he will not run for president in 2008.

So here we are about to enter the year 2007 with a much leaner choice of websites for Americans to bet at, the issue of regulation still up in the air and the threat of abolishing intellectual property rights by the island of Antigua and Barbuda still a major concern for the U.S. government. But, despite it all, one thing is certain: Gambling has always been a favorite pastime dating back to the bible, and no matter what laws the American government tries to pass, American gamblers will always find a way to exercise what they believe are their basic rights.

12-27-06
Hartley Henderson
MajorWager.com
henderson@majorwager.com



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