Betting on Online Gambling

There is an interesting piece in Forbes about the prospects for legalization of online gaming here in the USA:

For several rapturous years, hundreds of companies have been exploiting the fact that U.S. laws on online gambling are as hazy as your classic, smoke-filled casino. Even while the U.S. Department of Justice insists all forms of online gambling are illegal, based on the 1961 Federal Wire Act, that interpretation has not been accepted in some U.S. courts. And case law has given online gambling businesses cause to believe that non-sports Internet wagering is, in fact, legitimate. With no specific federal legislation on Internet gambling, this $12 billion industry has been able to garner half of its revenue from America.

The arrest of Carruthers, coupled with the passage of a bill in the U.S. House of Representatives that would ban the use of credit cards to pay for online gambling transactions, has sparked fear in the industry that a federal crackdown, and something reminiscent of the dot-com boom and bust, is imminent.

If you are the kind of investor who likes to gamble, this may not matter. “Even if prohibition comes into effect, I don’t think there’s anything the U.S. can do to these companies as long as you stay out of the country,” says professor Joseph Kelly of the State University of New York at Buffalo, one of America’s top consultants on the Internet gaming industry. “You can’t enforce it. People will just use electronic cash entities like NETeller.”

Washington state may offer an example of what could happen if the U.S. federally prohibits online gambling. “Gambling online in Washington is already a class C felony, which is the equivalent of being accused of sexual assault,” says Kelly. “Will they ever enforce this? No, because no jury is ever going to convict.” In the entire U.S., he adds, only one person has been prosecuted for gambling on the Internet.

Analysts seem to agree that the U.S. also won’t have the appetite to prosecute online gambling firms. “There has been a history of convictions for online gambling,” says Matthew Gerard, a leisure analyst at Investec. “But the common theme is that they all have been accused of doing something else, like money laundering, tax evasion or racketeering.” With one or two exceptions, the U.S. Department of Justice has not gone after companies solely for their gambling exploits.

But challenges will still be ahead for big hitters like PartyGaming, 888 Holdings and Sportingbet, which take bets from the U.S. “Ultimately, this market will legalize in the U.S.,” says GamingVC’s Barlow. “When it happens, the fact that we’ve been a clean company and have been playing by the rules will be in our favor.”