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August-04-2010,
A Reflection of My Time Writing About the Industry Part 3- Predictions for the Future...By Hartley Henderson

For my last article at MajorWager I am going to make some bold predictions about the future of gambling in North America. While the bulk of the article will focus on the United States, I'll start with Canada where the prediction is fairly simple.

CANADA

Canada's laws regarding gambling have always been fairly consistent and the Internet did little to change that.

Canadian law states that only provinces can oversee gambling schemes although they can license other companies to run the gambling as long as the government has ultimate final control. So in Windsor, for instance, the casino is overseen by the OLG (Ontario Lottery and Gaming) but is managed by Harrah's. Casino Rama located near Orillia, Ontario, is on Native property and hence the Chippewa Nation benefit from the Casino, but it is still technically overseen and conducted by the OLG while Penn National Gaming actually runs the operations of the casino. The law also dictates that there can be no exceptions regardless of the medium of communication and betting between provinces is not allowed.

So the following will happen in pretty much all of Canada and one can bank on it... British Columbia has already launched an online casino, perfectly legal under the laws of the land, and other provinces will follow suit. The current B.C. website is down because the province didn't consider safety issues when developing it and consequently hackers had a field day stealing personal information from signups. Nevertheless, the province will get things straightened out (possibly by working with existing casino websites) and will be up and operating again. As well more land based casinos will continue to be opened in larger urban centers to drive tourism, including one somewhere in Toronto. All race tracks currently offer slot machines but casinos are limited. Furthermore, poker networks will be developed on the internet and in due time the provinces will change Federal laws that prohibit inter-province gaming so that patrons from all provinces will be able to be part of the same network. This will allow for larger poker games and also for mega jackpot casino games. As for sports betting, the current Canadian law states that only parlays are legal but that law can and will be struck down as provinces look to increase revenues with sports betting. No doubt professional leagues will object which may result in an agreement between the leagues and casinos not to offer games involving a home team within that city?s limits but with single game sports betting as the one untapped revenue source and with Ontario pushing for the law change, it almost certainly will be overturned the same way the ban on dice games was overturned in 1998.

Lastly, expect horse race tracks in Canada to become mega entertainment complexes offering horse racing, concerts etc. as well as full blown casinos and sportsbooks. Woodbine Entertainment has started the ball rolling in that direction and other tracks seem eager to get aboard as well. Canada will become a gambling haven in due time.

THE UNITED STATES

The UIGEA and Growth of Offshore websites

As for the United States there are numerous predictions but I will stick with four predictions which will change the industry.

The first two predictions are that the UIGEA will be amended and offshore websites will continue to grow. While these are actually two separate predictions the two really can't be separated. The UIGEA is a bad law that should never have been passed. There are reasons Congress kept rejecting the law as they knew it was rife with problems and as is the case with any hastily passed legislation, the fallacies of the legislation come out when regulations are written for it. Such is the case with the UIGEA, as it is unenforceable and can't enact penalties on any company that does break the law since all those companies are located outside the U.S. However, because the UIGEA is attached to the Safe Port Law it really can't be repealed. Consequently, it's almost a certainty that the law will be amended but hopefully not with the amendments made at the House Financial Subcommittee. The agreement that just passed the Subcommittee requires a heavy tax on deposits and winnings and excludes any companies from applying for a license if they were catering to the U.S. after October 2006. It also makes sports betting illegal forever. Those amendments will only guarantee the rise of offshore sites.

For whatever reason, Congress truly believes that given the option of betting with an offshore site or one based in the U.S. American citizens will automatically choose the U.S. site regardless of conditions placed on them simply because the company is based in the United States.

Essentially it's the "Buy American" campaign played out in a different way. But Americans have proven they aren't that loyal to Uncle Sam, particularly if it reaches into their wallets. When American cars were more expensive and less reliable than foreign cars, the majority of Americans started switching to foreign cars despite the Big 3 telling Americans they are losing jobs overseas. Furthermore, RCA may have been a huge name in electronics at some point but now they are nothing compared to Sony, Toshiba etc. Americans have shown over and over that if they are given two equal products, one foreign and one American, they will buy the American product. However, they won't simply buy American if the product is inferior or more costly. That's where the proposed UIGEA amendments fail. In the area of poker, Americans love PokerStars and Full Tilt Poker. They are by far and away the 2 most popular poker sites on the web and while there are impediments that have been put in place that makes it harder for Americans to get money to the sites, American players have found ways regardless. If the House Subcommittee amendment is accepted as is and Harrah's opens a poker network based in Nevada the following will happen: All signups to Harrah's will have to give their information to the site including a social security number as any large winnings will be subject to a 25% withholding tax for IRS purposes. Furthermore there will almost certainly be a tax on deposits and the amount of games and tournaments will likely be far smaller than what is available at PokerStars or Full Tilt. If and when that happens, how many Americans will play there when they can still play at PokerStars or Full Tilt without those requirements? Naturally some will sign up with the new sites but it is unlikely current players at PokerStars and Full Tilt will stop playing there unless Harrah's offers something that is astoundingly superior to the other sites.

Without question the difficulty of getting money to and from offshore sites will increase since the amendment requires the identification and blocking of all accounts related to offshore gambling but that identification is happening now and the sites seem to be operating without issue. Moreover, there are plans in the works now which will allow Americans to fund and withdraw from offshore sites without using American banks at all. I won't get into it here to tip off the Feds but a reliable source has informed me that at some point in the near future, transactions will be done seamlessly which bypasses the U.S. banking system altogether, thereby making the UIGEA absolutely meaningless. In addition, PokerStars, which to date has tried to be as transparent with their accounting as possible to appease the U.S. will no doubt give the Feds the middle finger when they are essentially told that Party Poker, iPoker etc. are ok to operate in the U.S. but PokerStars are pariahs.

As well, with the ban on online sports gambling continuing under the amendment, Americans will still have no choice but to bet with their favorite offshore sportsbook who will continue to reap the benefits of the ill thought out ban.

The End of PASPA

The Professional and Amateur Sports Protection Act (PASPA) passed at the request of the sports leagues who were responding to match fixing. Like the UIGEA, the act was written hastily and enacted without much discourse and is now being challenged. The law gave Nevada the right to offer sports betting as well as Delaware, Montana and Oregon, which at some point prior to 1992 offered sports lotteries. New Jersey was given the chance to opt in to the exception but chose not to. The other 45 states were forbidden from ever offering sports betting. No state really challenged the law because they had no interest in sports betting but with casinos and horse racing floundering and a renewed interest in sports betting in recent years, many states decided they wanted to offer the product.

Gambling may be seen as evil by many states but it's also seen as an easy way to generate revenue without directly taxing the public. Taxes are taboo since the electorate tend to punish politicians who dip into their wallets, not to mention the fact that taxation options at the state level are very limited. Delaware was the first to announce it would offer sports betting at its current race tracks but the courts ruled they could only offer 3 game parlays on the NFL as it did in the 1970s. New Jersey announced they would be offering sports betting also to prop up their race tracks and casinos but the courts ruled they couldn?t because they opted out in 1992. And other states apparently are quite interested in sports betting but are staying on the sidelines waiting to see what happens in Delaware and New Jersey. Not surprisingly the sports leagues have raised the biggest concern about states offering betting on their products but in the end it will be left to the Supreme Court of the land. iMEGA has taken an active roll in the whole process but there is concern they may not have standing.

My prediction is that when it eventually gets to the U.S. Supreme Court the law will be struck down. While most of the Supreme Court judges are conservatives the truth is that the law is unconstitutional and should never have seen the light of day. The constitution gives the Federal government the right to enforce laws in various areas such as immigration, security etc. but the tenth amendment is clear "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." Since there is nothing in the constitution that gives the Feds the right to enact laws regarding gambling it's up to the states to decide gambling laws for themselves. Almost all states offer lotteries (which in the day of the mob was also known as running numbers), most states have some sort of casinos and the vast majority of states have race tracks. So why should sports be any different? The answer is that it shouldn't, and the law should never have passed. Aside from violating the 10th amendment it also violates the Commerce Clause. How can the Supreme Court justify allowing something in one state, telling 3 other states they can only provide a portion of what the "preferred state" can offer and then telling the other 46 they can never offer the product at all? It is patently unfair and unconstitutional. If this were cigarettes, alcohol or any other vice the law would never have seen the light of day. If the Supreme Court makes a ruling based on the true constitutionality of the act there is no way PASPA can be deemed legal. Once the law is scrapped, look for the majority of states to offer some sort of sports betting. Some states may enact rules like Las Vegas had excluding games in cities that involve teams from that city as a peace offering to the leagues.

A Settlement with Antigua and the WTO

The WTO issue seems to have been going on forever and for good reason. Antigua filed a complaint with the WTO in the early 1990s following the conviction of Jay Cohen and to date the U.S. hasn't taken the issue seriously. At first the U.S. wrote off the complaint suggesting Antigua has only itself to blame for getting into a taboo industry. Then when the WTO ruled for Antigua they waved it off as a wrong verdict that would be overturned by the appellate court. When the Appellate court ruled for Antigua and told the U.S. they had to comply the U.S. responded by doing nothing and announcing they were in compliance. And finally when the U.S. realized the WTO weren't going to side with them simply due to their size and power the USTR decided to rewrite their commitments. Antigua has blamed the U.S. for their declining online gambling industry and while the Kyl and Leach bills and eventually the UIGEA didn't help, the large licensing fees in Antigua are probably a larger reason for the exodus. Nevertheless, Antigua did win in the WTO courts and the U.S. has been forced to rewrite its commitments and compensate countries that are affected.

The U.S. came to agreements with Canada, the EU, Macao and Japan but still refuse to take Antigua seriously and basically dared the small country to use the award given to them by the WTO of $21 million a year in ignoring TRIPS agreements (copyrights and trademarks). However, while the U.S. has come to agreement with the affected countries, to date they haven't rewritten their commitments and by all accounts have little plan to. While the Republicans seemed willing and almost anxious to tell the WTO where they could stick their decision it seems the current Democrats aren't so confrontational. The Democrats are taking the same stance as the Republicans had stating that they won't open the markets to Antiguan gambling, but they seem more concerned about the consequences of reneging on an agreement, not to mention the fact that EU Trade Representatives after Peter Mandelson aren't as keen to the agreement that was made by him. More importantly the U.S. has been the biggest benefactor of WTO decisions and they don't want other countries ignoring future WTO rulings favoring the U.S. by using the Antigua decision as a precedent.

Consequently the following is my prediction with regards to the WTO issue and Antigua. The U.S. will remove its decision to rewrite its commitments, thereby eliminating the need to offer concessions. The country will provide opportunities for EU based companies to compete for online poker licenses when the UIGEA is amended and with Party Poker, Betfair etc. offering products in the U.S. they will be able to state that they are now in compliance because they are allowing foreign entities to offer remote gambling products in the U.S. At the same time the U.S. likely won't do anything with Antigua but they probably won't press the issue either meaning that Antiguan companies will be able to operate as always without U.S. threats. It's also possible, but not likely, that Obama will actually agree to send one of his trade representatives to talk with Antiguan officials (as Antigua has requested) to see if they can come to some sort of agreement which will convince Antigua to abandon their plan to use the $21 million per year award given to them by the WTO and in turn the U.S. may lift their current ban which effectively is treating Antiguan banks as a rogue entity. The Sir Allen Stanford scandal makes that less likely though.

One last prediction is that online and land based gambling will grow in leaps and bounds in the United States and worldwide in the near future and at some point will be seen in the U.S. and Canada as it is in England - a normal everyday business.

It has been a pleasure writing for MajorWager the last 4 years and with any luck in the near future, the United States government will come to the realization as they did with alcohol prohibition in the 1930s, that the government cannot and should not dictate morals to adults and tell them how they should be spending their own money.

08-04-2010
Hartley Henderson
MajorWager.com
henderson@majorwager.com

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