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March-12-2010,
The British Are Coming!...By Hartley Henderson

The British Are Coming!

For much of the last decade British companies were eyeing the U.S. market for expansion.

Party Gaming, 888 Holdings, and Bowman's International, among others were already catering to the United States but many other UK companies including William Hill, Ladbrokes and Betfair stayed on the outside but kept close tabs on the political climate waiting for the right time to make the move. Of course their interest should not be surprising...Projections have been made that $125 billion will be wagered online in 2015 and that the U.S. market accounts for a large percentage of that.

By 2005 it appeared all of the major companies would be making the move and in fact William Hill ran commercials throughout North America talking about the company and describing themselves as a company for elite bettors although they never actually allowed U.S. customers.

In October 2006 the passing of the UIGEA convinced those companies that never catered to the U.S. to stay away indefinitely and many companies that were currently operating in the U.S. including Party Gaming, 888 Gaming, SportingBet and others were forced to withdraw.

They suggested that they weren't interested in operating in a market where they could be perceived as breaking the law but the truth is that as public companies they had no other option.

In January 2007 NETeller withdrew from the U.S. market after the DOJ arrested its founders and threatened action against the current executives.

It must be noted that the companies which left were still fined by the U.S. government because the DOJ felt they didn't leave fast enough. Party Gaming agreed to pay a $105 million fine and later individuals in the company such as Anurag Dikshit agreed to larger settlements on their own.

Since the election of President Obama the political climate has changed in the U.S. and it's clear that those same companies are getting their affairs in order preparing for the inevitability of an open market for online gambling.

While there has never been an indication by the government that the U.S.'s stance towards gambling is different than when the Republicans were in office, the success of Barney Frank's bills and the postponement of enforced UIGEA regulations, the move by states to legalize new forms of gambling within their borders, and the total lack of movement by the U.S.T.R. in rewriting its WTO commitments has given new hope to overseas companies that the attitudes to gambling in the U.S. are changing.

Betfair was the first to make a major move into the U.S. market with the $50 million purchase of TVG from Macrovision Solutions in 2009 and while the company officially stated the purchase was to open up their horse racing product to a new market almost everyone in the industry realized the move was primarily designed to get a foot in the door when the markets did become open to other gambling initiatives.

Most in the industry was left scratching their heads when Ruth Parasol and her husband bandied around the idea of a $1 billion payment to the U.S. in exchange for complete exoneration for having provided gambling services to the U.S. previously, but it seems evident the deal was far more complex and in the end the company paid a $105 million fine as was mentioned earlier.

Regardless, Party Gaming now appears to be off the DOJ's hit list and the company is at the forefront of all talks of a legalized poker network within the U.S. In May of 2009 Party Poker signed Mike Sexton to be a spokesman for the company and in August the company purchased the World Poker Tour. According to Sexton it was a business move but the implication was that they had the U.S. market in their sites.

"Obviously the goal for all of us with Party Poker is to reclaim the No. 1 spot in online poker," Sexton said in a news conference. "That can never happen unless regulation happens, but I think Party Poker is lining themselves up to come back in a professional way, and we'll see how that pays off in the long run."

It's also notable that in a recent think tank discussion on an intrastate poker network for California, representatives from Party Gaming, Ladbrokes and Paddy Power were present to discuss the advantages of such a network. It is unlikely any of them would have come to the United States, let alone make a presentation, if the country was still being run by the Republican government.

It's not just gambling companies that are ready to move into the market.

Payment processors are also looking to come into the market.

While it's unlikely NETeller will be making a move back any time soon, British based UC group announced that they were setting up a U.S. company called Secure Trading which will be offering payment solutions for gambling when the opportunity presents itself. UC Group is made up of previous executives from MasterCard and company spokesman Chris Thom made it clear what the purpose of the move to the United States was in a statement on their web site. "Momentum for regulating Internet gambling in the U.S. has been building for some time," said Chris Thom. "As Congress prepares to take the final step, SecureTrading Inc.'s turnkey system is primed to enable our customers to go live the moment Internet gambling is regulated."

Moneybookers, the UK's largest gambling processor also indicated that if and when gambling is regulated they want in.

Does this mean that the U.S. is preparing to open up the U.S. gambling market to foreign interests? It depends who you speak to. Clive Hawkswood, the Chief Executive of the Remote Gambling Association, a trade organization that represents gambling interests in Europe, was pleased with the direction but wasn?t sure what it indicated. When asked if he believed these moves suggested that British companies were eager to get into the U.S. market Hawkswood replied as follows:

"You're right, they are all interested, but then again they're interested in any worthwhile markets that might open up. However, I wouldn't say that means they expect the US market to open up soon. Instead it indicates a belief that it will open at some point and they're all in this for the long haul. And when licensing becomes available there is no valid reason to restrict licenses to existing US companies and we'd hope that the US would welcome the inward investment of finances and expertise. Even if licenses were restricted to US companies then they would merely set up US companies, buy into existing ones, or look at joint ventures with established US brands. It's really not unusual for us to begin working in jurisdictions even when there might not be change for a few years. Obviously it would be great if it was earlier than that but law and detailed regulations do take a long time to do properly and we're used to that."

An executive for a British sportsbook on the other hand was much more positive. He asked I not identify him or the company since they still have some reservations about the DOJ but he was quite candid that they will be targeting U.S. customers as soon as the UIGEA is repealed or a new law is passed that permits the activity.

"We have never been told that the market will open up for certain but there is every indication it is inevitable and we need to get our affairs sorted in the U.S. first. We want a U.S. presence so that if the government tries to issue a protectionist measure we can state that we are already operating in the U.S. and employing U.S. citizens so there is no justifiable reason to block us. No court in the United States will allow the government to pick and choose which existing companies can operate in a legal environment."

It should be noted that the sportsbook operator said he was willing to limit bets to horse racing, poker and casinos if a bill passes that prohibits sports betting, but he believes in the end the United States will realize that sports betting revenues are just too lucrative to give up forever. He also indicated that he believes it's only a matter of time before at least a dozen states had some form of sports betting.

So what exactly is the reason for all this optimism? Clearly the success of Barney Frank's bills and the agreement by the Treasury to postpone the implementation of the UIGEA are seen as positive developments but the economy and the move by state governments is likely the bigger source of the positive outlooks.

Delaware introduced their sports lottery and California is clearly going to start up a poker network as soon as they can resolve the First Nations issue, Other states keep coming forward announcing new gambling initiatives. The states may decide to run the new gambling initiatives themselves but it makes little sense when they can hire someone like a Party Poker, Betfair or William Hill that already has all the equipment and expertise in place and would almost surely generate greater profits for the states.

Once states legalize land based gambling the move online is a foregone conclusion. Horse racing is currently offered online and states like New Jersey indicated casinos (and hopefully sports betting) will soon follow. State governments are reluctant to announce new taxes to help erase the deficit since the public generally votes against any government who dips into their wallets, but gambling is seen as a recreational activity rather than a tax. Hence the outcry against it is very small except for religious groups. Furthermore, numerous polls have indicated that the general public believes all gambling (including online) should be legal and with midterm elections coming up it could be detrimental for politicians to be on the wrong side of the issue as Jim Leach discovered in 2006.

Speaking to industry analysts and experts it's clear that the coming year will be paramount in determining the future of the industry in the United States. It is widely assumed that the Treasury will once again postpone mandatory compliance to the UIGEA regulations until after the midterm elections and those election results will be vital in determining the direction the government will take in regards to gambling.

There is an expectation that some states will put gambling initiatives on the ballots and almost certainly the success of the cosponsors of HR2266 and HR2267 in the elections will be scrutinized. If all goes smoothly many in the industry believe that President Obama will make an announcement regarding current gambling laws.

Without question the issue of gambling in the United States is a hot topic and British companies believe governments are looking at any source of revenues that can help eliminate deficits without raising taxes. Consequently, British gambling companies are coming to America, but what their roll and influence will be is still to be determined.

03-12-2010
Hartley Henderson
MajorWager.com
henderson@majorwager.com

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