Net gambling operators
Congress took substantial action this month against Internet betting, with a House committee approving a bill to curb online gambling and a nearly identical bill being introduced in the Senate.
Similar bills have been introduced in Congress before, but none passed both houses in the same session. With increased congressional interest now, the legislation may well reach the president’s desk this year.
Gambling site operators — many of them American expatriates in the Caribbean or Central America, where gambling laws are more relaxed — have already begun to make adjustments to the changing environment by shifting their marketing efforts to other countries and devising ways to circumvent new laws.
“Will the legislation hurt us? Yes,” said Dave, the owner of the online betting site triplecrownracebook.com, who would not give his last name. “Will we find a way around it? Yes. People will always find new ways to get money to us.”
Internet gambling has surged well ahead of most e-commerce categories, reaching more than $6 billion in global sales this year, according to Christiansen Capital Advisors, a gambling industry research firm. Of about 12 million online gamblers, 5.3 million are Americans.
The new legislation would bar credit card companies, banks and other financial institutions from sending money to online gambling sites at their customers’ request. How this would be enforced is not yet known, but congressional staff members said that federal officials would most likely identify gambling sites to financial companies and that those companies would then block users from paying the sites.
Congressional sponsors of the legislation said that organized crime is heavily involved in online gambling and that the sites are used for money laundering and are more likely to defraud customers than are licensed casinos. Online gambling operators vehemently dispute such accusations.
Credit card companies like Visa and MasterCard and online payment companies like PayPal have, over the last few years, largely stopped doing business with online gambling sites, saying they do not want their cards to aid what they regard as illegal activity. In most states it is illegal to run any form of Internet gambling.
The proposed legislation would seek to end any remaining flow of dollars from American payment-services companies to Internet gambling operators.
According to Sue Schneider, publisher of Interactive Gaming News, an industry newsletter, the financial services industry’s moves have already hurt the online casino industry, where users log on to play blackjack, virtual slot machines and other games.
Schneider said the revenue of many online casinos coming from the United States had dropped 50 percent or more in the last year, because casino players tend more to be casual gamblers than, for example, people who bet on sports, and are less determined to transfer money to the gambling sites. As a result, she said, some of the larger Internet casinos like Golden Palace and Casino on Net have shifted marketing dollars away from the United States to other countries, including those that allow online gambling.
The gambling dollars are primarily flowing across the Atlantic, said Marc Lesnick, the publisher of StartCasino.com, a site for budding Web casino operators. “Everybody’s concentrating on Europe now,” Lesnick said.
Asia is another potentially large market, with the number of online gamblers expected to grow from 4 million this year to 7.4 million in 2006, according to Christiansen Capital.
Not all online casinos have given up on the U.S. market, though. Some, like Golden Palace, still tell customers to use major credit cards to pay for their casino accounts by sending payment through services like NETeller and E-CashWorld. Those companies, and others that are based in foreign countries, filled the void created when PayPal began turning away online bettors, analysts said. PayPal is a unit of eBay.
Debit cards from foreign banks are another way that gamblers in the United States can pay, although David Robertson, president of a credit card industry newsletter, The Nilson Report, said the Internal Revenue Service had been scrutinizing holders of those accounts for possible tax evasion.
While analysts said the crackdown by financial companies and regulators will continue to hurt online casinos, sports betting sites are likely to fare better. Sports betting jumped again this month at sites like BetonSports.com, MVPSportsbook.com and others because of the NCAA basketball tournament. Some of the growth has also, however, been a result of better marketing.
MVPSportsbook, an operation based in San Jose, Costa Rica, for example, will increase its marketing budget again this year, spending millions on advertisements online, in print and on radio, according to the site’s oddsmaker, who uses the pseudonym Leo Shafto.
Shafto said this year would be the first in which the site secured advertising on radio programs produced by the Sporting News and syndicated throughout the United States.
“The big radio outlets are opening up their doors,” he said.
Shafto said none of the company’s principals had taken profits out of the business since it began five years ago. They have instead put their earnings back into the site’s marketing budget.
To stay alive, many online gambling companies have had to refine their marketing programs and operational efficiency. The owner of triplecrownracebook.com, which also operates from San Jose, said he now shared technical staff and clerks with other gambling sites based there and had adjusted the maximum payout amounts.
The rise of online sports betting has also affected the traditional gambling sector. “Sports book sites have basically put the corner bookies out of business,” said Adam Schoenfeld, an Internet consultant. “Internet wagering on sports has already eclipsed, by far, the total of legal sports books in Vegas.”
As for whether online gambling is the domain of money-laundering mobsters, Shafto says most decidedly not. “Our whole idea with this is to build the site to a level where we can cash in and live comfortably from that,” he said. “I don’t know if the U.S. will be receptive to the Bookie Foundation, or whatever it is I’ll create. But I’m approaching the age of 35, and I’d like to do something a little more noble with my life.”