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October-07-2008,
Memoirs of a Sportsbettor, Part III: The Internet Revolution is Over...By Jay Graziani

Easy money always attracts a slew of thieves, and the offshore bonus scene was soon predictably overrun by miscreants. It wasn't enough to be picking up 20% bonuses on every deposit with no transfer fees. Greed got the best of the industry as surging multiple account scams and referral bonus schemes brought the scummy side of the industry into the light of day. A crafty but unethical player could pick up 50% on deposits to "new" accounts with deposit and referral bonuses and use line shopping and the plethora of reduced juice books to scalp through his rollover with only a few percentage in loss. With dozens of offshore books popping up monthly, the dedicated thief could find plenty of new blood upon which to leech, setting up accounts for his girlfriend, uncle, mom, dog, and so on. Sportsbooks were profitable enough, however, that bonus abusers were little more than a cost of doing business, and bonuses were such an effective marketing tool that they remained generous despite the downsides. Money was there for the taking for anyone inclined to grab it.

Of course, all good things must come to end. After years of exponential growth, the offshore industry took a rapid downturn, not due to the increased competition or a sudden influx of sharp players, but due simply to government intervention, in particular the hastily-passed (and poorly considered) Unlawful Internet Gambling Enforcement Act (UIGEA). While the Act is largely considered to have been a knee-jerk reaction to the meteoric rise of the online poker craze (and the sudden outflux of gambling money from the U.S.), it devastated the sports betting industry as well. Though the legislation still does not have much in the way of teeth, it put enough of a scare into bankers to freeze up the offshore financial currents. Joe Q. Citizen suddenly had a hell of a time getting offshore accounts funded, and moving money back to the States became even more of a nightmare. Transfers that once took an hour or less now took 8 weeks or longer, leaving a gambler's valuable capital in limbo for what could seem like an eternity.

The hits just kept coming after UIGEA. First, the indictment of the NETeller founders eliminated the most convenient online money transfer option available for U.S. gamblers since Paypal went legit. The arrest of the principals of offshore colossus BetOnSports caused an already skittish industry to go haywire, with rock-solid Pinnacle sports book departing the U.S. market hastily, yet voluntarily, much to the dismay of gamblers everywhere. And the increasing financial pressures on the industry led to far-reaching changes, including great reductions in player incentive bonuses and the virtual extinction of reduced-juice shops.

The art of bonus whoring is all but dead now. Those without their own opinions or database findings are suddenly finding it much more difficult to grind out a profit, especially when transfer fees are taken into account. Lines are getting tighter and limits are getting lower. The closest thing to free money nowadays is poker propping, a pastime much more common than today's online poker sites would like the public to believe. But even that is no longer easy pickings, with most of the dead money already pulled out of the collective pot through UIGEA, the end of the popular poker fad, or just other poker players gutting the fish first.

While many sports book players have lamented the death of bonuses, it has made the industry much stronger, even if the weaning was painful. Bonuses provided cheap and easy marketing, but came with more problems than they were worth, and the bonus abusers made the feasibility of bonus promotions questionable even at a time when many sports books were undergoing unprecedented growth. When the industry tightened up post-UIGEA, marketing departments had to trim the fat, and the best way to shore up the bottom line is to stop giving away free money. While bonuses can still be found, they are much rarer, and much less generous. Unfortunately, worse promotions, along with money transfer woes, have catalyzed a mass exodus of "recreational gamblers" from the offshore gambling business. Plenty of start-up sports books went with them as the online gambling pie quickly shrunk and suddenly had far fewer slices than needed to support a once-thriving industry.

So what comes next for offshore sports books? Many predicted a flight to local bookmakers following the passage of UIGEA and the hurdles it placed in front of U.S. sports bettors. But the top tier of sports books seem to have weathered the storm, with most continuing to provide services to U.S. gamblers, though the profits are not flowing in quite as quickly as projections of a few years ago suggested. An upside of the present environment is the quick death of most of the low-grade sports books that lacked the financial wherewithal to survive the turbulent recent past. Those operations that have survived this very rough period now possess the financial backing, strength of operations, and record of reliability that makes for a strong and healthy industry, or at least for the rebuilding of one.

Now the survivors have to wait it out and hope the political climate changes enough for them to make an honest living without worrying about compliance with vague and irrational laws with questionable jurisdiction. Regardless of political whim, there will always be a customer base for fundamentally natural vices like gambling, and offshore outlets will always exist in some form, despite the legal ramifications imposed on either bettor or bookie. Gambling has always existed and always will, and the internet is too pervasive to be excluded. Today's offshore scene may look more like 1997 than 2007, but it is still hanging on.

Most other countries have made reasonable attempts to regulate internet gambling, but the puritanical U.S. lags far behind. Hopefully that will change, but probably not due to a shift in the right-wing moral agenda that has dictated American political discourse over the past decade. If any change is to come soon, it will be on the financial side, as a lagging economy and ballooning deficits force the government to reconsider new income streams, a role that gambling has filled often and admirably in the past. Whether federalization of online gambling will be on favorable terms for bettors and bookies is far from clear, but it represents the likely next chapter in the evolution of online gambling.

10-07-08
Jay Graziani
MajorWager.com
graziani@majorwager.com

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