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June-25-2009,
The Online Gambling Industry in America is Far Different Than What it Could Have Been-Part II...By Hartley Henderson

To read Part I of this article, Please click HERE

Part II

4. Poorly run gambling websites and scam operations

There's nothing unique about scams or badly managed companies, they have always existed and will continue to exist until the end of times. This is true both online and in the land based economy. Just ask people who owned Enron, Worldcom, Bre-x and most recently AIG stock. However, with the newness of the internet and the arguments by lawmakers and politicians that online gambling sites couldn't be trusted, it was imperative that gambling websites were unanimously on the up and up. Prior to the internet there were some scam operations such as Dial-A-Bet, Top Turf, Goldcoast and RKR Sports, but for the most part gambling companies that were operating phone businesses such as WWTS, Bowmans and SDB Global were all legitimate. Online operations seemed to be operating flawlessly for the first couple of years, and even those that closed up paid out first. That changed in early 2002 when Charlie Therwhanger packed his bags and skipped town in Curacao, leaving thousands of Ace's Gold and Sports Market customers out of their funds. The closure not only left players and affiliate sites out of their funds, but it also brought into question the legitimacy of what was supposed to be an iron clad licensing system. Their closure was followed by other poorly run sites such as Bet Camelot, New Age Bets and Caribi sports, but for the most part Ace's Gold was the catalyst that had people wondering about offshore legitimacy.

But while the sportsbook closures left a foul taste in bettors' mouths, a far worse incident was the scandal at Absolute Poker and Ultimate Bet. Apparently when designing the software in the early 2000s, both companies had some sort of system that allowed managers to see the hole cards of all players to ensure the system was operating properly. When they were comfortable with the software, the managers never deleted those "superuser" accounts and years later chose to use those accounts to cheat players in high buy in tournaments after those managers left the company. It looked bad on the companies and Kahnawake, who was left holding the bag for an issue they could not have known anything about. To make matters worse the issue was featured on "60 Minutes", which naturally raised the eyebrows of not only those in the industry, but of politicians and casual observers as well.

It was imperative that online operations appeared as legitimate as possible in the first decade of operation to take the ammunition out of the gun from the likes of Kyl and James Dobson, but these places only helped fuel the fire.

5. The EU's terrible deal with the United States at the WTO

After the USTR waved the white flag and decided to rewrite its commitments rather than living up to the agreement they originally signed, several countries aside from Antigua came forward to ask for compensation. They included were Canada, Macao, India, Costa Rica, Japan and the European Union. But of the lot, the most significant was the EU. By all accounts, given the amount wiped off the AIM stock market after the passing of the UIGEA, and more significantly the amount of money that could be made by European companies if they were allowed to target the U.S., the compensation should have been hefty. Some early estimates suggested the EU could expect over $100 billion in trade concessions for allowing the U.S. to rewrite the commitments. Had this been the figure arrived at there was no way the U.S. could have agreed to the compensation and would have had to find an alternate route, including simply living up to the agreement. For some reason, however, Peter Mandelson, the EU trade commissioner, came to an undisclosed agreement in the area of shipping and storage. Most accounts stated the concessions were worth around a billion dollars, although many sources stated that the U.S. was prepared to open the market in those areas anyway, so in fact there were no real concessions. It became quickly evident that the EU either made a bad deal or that the U.S. somehow tricked them into signing something different than what they had bargained for. Of course given the dirty tactics the U.S. employed in other ways to get its way in the area of gambling, that wouldn't be surprising. Mandelson, at the bequest of the Remote Gaming Association, demanded that the U.S. stop prosecuting EU based operators for "crimes" committed before the UIGEA was passed, and later Mandelson seemed to demand that the U.S. reopen its market to gambling because they were breaking WTO rules. And recently Catherine Ashton (Mandelson's successor) also demanded the U.S. stop discriminating against EU operators and suggested that the U.S. was operating in violation of WTO rules, and that she was prepared to take them to the WTO for action. The whole issue has everyone scratching their heads. If the EU didn't want to make the deal, then why did they make it? More importantly, if there was a deal made then why is the EU acting like there wasn't? What is certain, however, is that to date the U.S. hasn't rewritten its commitments, which makes it possible that the deal was never finalized. There is talk that Party Gaming is being considered to run California's intrastate poker network, and that several European sites are being considered for Delaware's sports lottery. If that is the case, the EU may indeed play a key role in ensuring the vibrant growth of online gaming in the U.S. But if the deal was made which allowed the U.S. to rewrite its commitments, it seems no one is satisfied with what was arrived at.

6. The fast rise of online poker.

It may seem a paradox to say the rapid growth of internet poker harmed the growth of the industry, but the truth is that it was poker which raised the eyebrows of the politicians and the religious right. The few sportsbooks and casinos that existed online really were of little interest to most in government, and for that reason few Senators could be bothered to address the issue seriously when gambling bills were introduced. However, when poker took off, it took off fast. Poker on TV prior to 2003 was unheard of, but the invention of the camera which allowed viewers to see hole cards (and more importantly when the average American could play online for money) caused interest to grow rapidly, particularly online tournaments. Add to that the World Series of Poker win by Chris Moneymaker in 2003, followed by Greg Raymer and Joe Hachen, and suddenly the average Joe had visions of becoming the next poker millionaire by winning a low buy in online satellite. After all, these new millionaires didn't possess any great skills that an average Joe couldn't learn. Names like Phil Ivey, Gus Hansen and Phil Hellmuth were as recognizable as Paris Hilton and Michael Jordan. Soon poker paraphernalia was everywhere, and no TV tournament was viewable without seeing Full Tilt Poker and PokerStars hats and tee shirts being worn by pros and amateurs alike. In fact poker was almost "in your face", which of course caught the attention of politicians and religious leaders. Many politicians were quick to jump on side of online poker, including Robert Wexler, Barney Frank and others, but more politicians were painting doom and gloom scenarios due to the meteoric rise of the game. The Poker Player's Alliance was soon formed and millions of poker players joined the organization. Consequently it became an "us vs. them" issue. You were either with the religious right and condemning the evils of poker, or you were with the poker industry. Ironically, what was viewed by millions on "Celebrity Apprentice" between Annie Duke and Joan Rivers was indicative of what was occurring on the Hill in the mid 2000s.

The reason this was significant is that had online poker simply been allowed to build gradually along with sports and other forms of gambling, and if the Poker Player's Alliance become a general online wagering lobby group, it is likely there would be far more support in the House and Senate for online gambling. However, by forcing the issue it almost forced politicians' hands before they could get both sides of the story and make an educated decision as to what was best for the country.

Online gambling today is still a multi-billion dollar industry and is growing in Europe by leaps and bounds. Americans continue to gamble despite roadblocks thrown at them by the government, and there is no reason to believe the U.S. has any way to stop this. Nevertheless, it's disappointing to see what is available to U.S. citizens today compared to what could have been if the U.S. government had not stepped in the way. What was most disappointing, however, was to see the very undemocratic actions employed by the world's biggest superpower. I guess to the U.S. government the end justified the means.

06-25-2009
Hartley Henderson
MajorWager.com
henderson@majorwager.com

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