07 October 2006

By Liz Benston / Staff Writer

Days after the contentious passage last weekend of a bill to block American financial institutions from processing online gambling transactions, observers have mixed feelings about what the legislation means for players who gamble at home and the related industries that benefit from the action.

Some poker advocates are fearing the worst and blaming the casino industry for not taking a stronger stand against a bill that could dampen a growing profit sector. Rather than challenge the ban on legal grounds, major gambling sites, some of them publicly traded on the London Stock Exchange, could stop taking bets from Americans like Party Gaming, which owns, plans to do once the bill is signed.

Before the bill’s passage, online gamblers and myriad support industries that have sprouted around them in the United States, such as marketing firms, talent agencies and event planners, hid behind the argument that the federal Wire Act only applied to online sports betting and even that was rarely enforced. Online poker and other casino games aren’t prohibited under the Wire Act, they say. But the bill, which allows for civil and criminal penalties for violators who process any online bet, could have a much broader chilling effect than its immediate reach would imply.

One irony is that the very online gambling sites that sought to be regulated in the United States and built credibility by going public in Britain are those that can least afford to flout the law. Several companies have lost more than half of their value, or billions of dollars in equity, since the bill’s passage.

Some gaming companies say the effect on their business will be minimal. Even for giants Harrah’s Entertainment and MGM Mirage, which probably have the most to lose as hosts of the biggest poker tournaments drawing large numbers of online players, poker represents a small, even tiny fraction of the bottom line.

The prospect of a dent in poker business requires making a host of assumptions that have yet to play out, including the notion that players will have fewer ways to qualify for casino tournaments online. There’s even a theory that curbing Web gambling will boost business for Las Vegas and other land-based casinos.

MGM Mirage spokesman Alan Feldman said the impact, positive or negative, will be small.

“If you wiped out every nickel we made from poker it would be a negligible effect on us economically,” he said. “The correlation between the player who plays online and player who goes into a casino is vastly overstated.”

That’s little comfort to online poker advocates, who believe crowded casinos have a lot to do with neophyte gamblers who got their first taste online. Some supporters are counting on an Internet gambling company to challenge the Justice Department.

Because the bill doesn’t attempt to clarify the Wire Act by stating what forms of gambling are legal and what aren’t, some experts say the time is ripe for an entity to force the government’s hand, so to speak, in court.

The most likely entity to do this would be an online poker site given the mainstream popularity of poker and the argument that poker is primarily a game of skill. State and federal laws generally define gambling games as games of chance.

This argument may be tenuous but isn’t out of the realm of possibility.

The bill’s sponsor, Sen. Jon Kyl, specifically left out language that would have clarified the Wire Act — language that has tripped up previous efforts in years past to pass an online gambling ban, That move allowed the bill to move forward in its present state. appease the casino industry and other groups who want to leave open the possibility that online gambling will be legalized in the future.

“Kyl has said he’s not going to decide what’s legal or illegal. He’s going to let the courts decide that,” American Gaming Association Chief Executive Frank Fahrenkopf said.

The gaming association didn’t support the bill because its members aren’t in the online gambling business. Some members aren’t interested in advocating for Web casinos. The association didn’t oppose the bill because it doesn’t outlaw any activities that are explicitly legal, such as the right of states to allow their own forms of gambling within their borders.

Besides a court challenge, the other, less likely option for online operators would be to lobby Congress to legalize Web gambling.

Those efforts, primarily pushed by a grass-roots association of poker players, failed to strike much of a chord with lawmakers. Given the political climate in Washington, where invectives against the gambling industry win political points in many states, legalization would take a sea change of public opinion.

The majority of Americans don’t appear to be morally opposed to gambling. Americans also don’t seem that excited about fighting for their right to gamble online.

While some sites will stop taking bets from Americans, other offshore operators may choose to flout a law they believe is flawed and ineffective.

Where there’s a will to gamble, there’s a way.

“I guarantee you that there will be some supply to meet that demand,” said Keith Furlong, deputy director of the Interactive Gaming Council. “That’s just how the economy works.”

One big question is how far U.S. regulators will go to force foreign banks and other financial institutions, who aren’t easily subject to American laws, from processing bets. Methods difficult for banks to track, such as paper checks, would be exempt from the bill. Many American banks and credit card companies began blocking gambling transactions years ago because of the federal government’s stated prohibition of Internet gambling — a de-facto ban that did little to curb the industry’s tremendous growth.

While online gamblers will no doubt be able to continue gambling anonymously from the privacy of their homes, casinos — Web and land-based alike — are once again on the losing end of a public war of words.

After years of trying to burnish their image in Washington, the industry must still face up to comments made recently by Senate Majority Leader Bill Frist, the Republican who pushed the bill through Congress in the few remaining hours of the session.

“Gambling is a serious addiction that undermines the family, dashes dreams, and frays the fabric of society,” Frist said upon the bill’s passage.

That’s not exactly Nevada’s state motto.
Liz Benston covers gaming for In Business Las Vegas and its sister publication, the Las Vegas Sun. She can be reached at (702) 259-4077 or by e-mail at


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