| | |  | Online Wagering: Illegal, But For How Long?
| 03/19/07 01:40 PM |
Teddy Covers
| With March Madness upon us and stories in the news about grandmothers getting arrested for participating in $50 office pools, the question that is begging to be asked is, “Why is something that a significant portion of the American population participates in and enjoys illegal?” Aren’t Americans taking just as large of a gamble, if not more, by investing in the stock market? Why is it acceptable to gamble on business, but not acceptable to gamble on sports? Is the government taking things too far when they tell us how to invest our hard earned money?
Serious sports bettors in the United States have been under assault for the last year, thanks to a ‘perfect storm’ of federal indictments from the Justice Department and bizarre legislation from Congress. As it stands now, the US is right on par with the totalitarian regimes in the Middle East and China in their restrictions on online gaming, eons away from the more progressive stance of other Western nations.
In Australia, online gaming is licensed and regulated with a handful of gaming sites publicly traded on the Sydney stock exchange. It’s a similar story in Great Britain, where numerous gaming sites are located and traded on the London Stock Exchange. Gaming investors in both stock exchanges lost billions of dollars last year following the US ‘crackdown’ against online gaming.
In 2005, the Caribbean nation of Antigua brought a case against the US to the World Trade Organization. Antigua argued that the US government’s crackdown on online gaming was an illegal trade restriction, breaking a free trade pact that the US had signed. Antigua cited exceptions for horseracing and lotteries as evidence that the US was not anti-gambling. With some form of state-sanctioned gaming legal in 48 of the 50 US states, Antigua’s case had great merit. The WTO ruled against the US in their preliminary ruling and is expected to rule against the Bush administration once again when the appeal is heard.
Last summer, the Justice Department arrested a pair of executives from the publicly traded online gaming sites as they changed planes in the US, traveling from Britain to Costa Rica. Betonsports.com CEO David Carruthers was charged with racketeering and fraud for permitting U.S. citizens to gamble on the site. Similarly, Sportingbet.com Chairman, Peter Dicks, has also been charged by a Louisiana court with violating the 1961 Wire Act that prohibits sports betting over the phone. The following week, gaming stocks in Australia and London lost more than half of their value. Betonsports folded, costing bettors millions in non-refundable deposits and uncollectible winnings.
Following those arrests, US gamblers were treated to more bad news in October. Well after midnight on the very last night of Congressional action, prior to the November elections, Senator Bill Frist from Tennessee succeeded in attaching a rider to a 'sure to pass' Port Securities Bill, the Unlawful Internet Gambling Enforcement Act (UIGEA). The bill made it illegal for banks and credit-card companies to make payments to online gambling sites.
Following the passage of that bill, many key internet sites stopped doing business with US customers. Neteller.com, the world’s leading online payment processor, had two of their founders arrested on US soil, this time by the District Attorney of New York. Neteller subsequently decided to pull out of the US market. Currently, more than $55 million dollars from Neteller’s US clients is in limbo. Neteller stock plunged on the London Stock Exchange. It remains to be seen if the company can survive.
Following the Neteller debacle, numerous sites bolted from the US marketplace. The sites that left were the bigger, publicly traded and regulated companies – Party Gaming, Pinnaclesports, etc. With the industry leaders gone, the smaller, less established companies were left to compete for US clients. In effect, the US pushed out the bigger, well established, publicly traded companies, leaving the rogues, the mafia and those who aren’t afraid of the US government to increase their market share. This is a classic case of a bad law’s unintended consequences.
Radio stations nationwide received a threatening letter from the Justice Department informing them that they should not accept advertising from any offshore gaming companies or they would face the wrath of the federal government. Despite the fact that online poker and online sports betting sites were throwing dollars at the big radio conglomerates, the feds browbeating worked. Every major radio corporation in the country cooperated with the new restrictions and ceased accepting gaming advertising.
Poker players around the country continue to face arrest for playing in small stakes local games. Richard Nixon financed his first Congressional campaign with poker winnings from his tenure in the military, but grandmothers, doctors and other respected citizens have been busted. A good friend of mine, a Chicago based attorney playing in small stakes game with other professionals, was recently fined, with the ringleader (the game’s host) facing charges. Longstanding New York City poker clubs have faced similar crackdowns. This is happening in major cities across the country, not just in more traditionally conservative rural areas.
It’s a similar story with relatively harmless March Madness office pools. Estimates are that 80% of office workers nationwide fill out a bracket or two. A few years back, Fidelity Insurance fired nine employees and disciplined sixteen others for participating in an office pool, saying that gambling at work was a violation of company policy. And sports fans all remember what happened to Rick Neuheisel, head football coach at the University of Washington, who was fired and publicly humiliated for his participation in a high stakes March Madness pool.
The proponents of these draconian tactics use a rather simplistic argument against gaming in general and online gaming in particular. Representative Jim Leach, who pushed the UIGEA through the House of Representatives; “Religious leaders of all denominations and faiths are seeing gambling problems erode family values. If Congress had not acted, gamblers would soon be able to place bets not just from home computers, but from their cell phones while they drive home from work or their Blackberries as they wait in line at the movies."
People like to gamble. Gambling in one form or another has been prevalent in the US since the 1600’s. State sanctioned lotteries, where the ‘house’ sucks out 50% of the prize pool, are heavily advertised and promoted despite their negative impact on the poor and the addicted. Gambling is legal in 48 states. And despite the recent crackdowns, online gaming continues to flourish.
The US Prohibition on alcohol was an unmitigated disaster. It turned ordinary citizens into criminals, while providing the spark (and the profits) for explosive growth in organized crime. The moralists who pushed through the 18th amendment used remarkably similar arguments to those who pushed through the UIGEA. And we all know how that ended: Prohibition was repealed after 14 long years. Let’s hope it doesn’t take that long for the federal government to change their regressive stance on internet gaming. Legalization, taxation and regulation is quite literally, inevitable. The only question is how long it will take.
Chairman of the House Financial Services Committee, Barney Frank, is currently in the “thinking” stage as he attempts to bring new legislation to vote on repealing the UIGEA. He has called it one of the “stupidest” laws ever to pass. It always helps to have a voice on the “inside” and it appears as though we may have one.
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