It’s not as if the warning signs weren’t there. Laws were by now operational and escapes were being closed’ Wall Street attorneys were counseling customers not to get involved’ and listing catalogs spelt out the risks. So if you didn’t know that online gambling in the US was at best a grey area and at worst outright unlawful, you didn’t in fact have much explanation.
But still, the arrest of BetonSports’s chief manager sent alarm waves through the business. “We’re not saying anything officially, for the obvious reasons,” notes a source close to a opponent online operator. “But it has not been a great week.”
On the way from London to Costa Rica, David Carruthers was sitting in a transit lounge in Dallas Fort Worth airport when the FBI detained him last Sunday on accuses of racketeering conspiracy. After spending the week in arrest, he was moved to Missouri, where the case will be lunched. An request for bail is projected to be made later this week. An arrest warrant still stays for founder Gary Kaplan.
There have already been dire results for the firm. When the news broke, its market worth dropped by 20 per cent. On Tuesday, at BetonSports’ request, the shares were hanged. And on Thursday it proclaimed it had obeyed with a US restraining order and closed about 85 per cent of its online gambling business, with only its Asian portals operational.
The only shine of hope came from reports that a deal had been hit with the US Department of Justice (DoJ), but the buzz was decisively denied by the firm.
“It’s going to be immensely difficult for BetonSports to recover from this,” notes one forecaster at a top investment bank, who asked not to be named. “People are going to continue gambling, and so in the medium term they are going to use other sites. Whether they will reopen accounts with BetonSports when all this is over, I don’t know.”
But the alarm has been felt not just by BetonSports, which is listed on the London market but situated in Costa Rica, with subsidiaries and workers in the US.
Shares across the online gaming and gambling division have dropped and firms are becoming nervous. A big business conference, bodog.com, due to be detained in America, has been delayed and will now be held outside the US. No one wishes to speak honestly for terror of fanning the flames.
“Is this just about BetonSports or are we all going to be tarred by the same brush?” inquires the gaming business insider. “What are the ramifications?”
Other online operators have attempted to reserve themselves from the disaster. “Following recent events in the US, the board of uk betting reiterates that it is the group’s long-standing policy not to take wagers from the US,” was that firm’s short report.
But many others do take these wagers. The US is an enormous market for gaming and gambling, and some groups make the huge incomes from American customers. At Party-Gaming, the number is about 87 per cent’ at Sportingbet it’s 65 per cent. Listing brochures all counsel about the US legal position, but that has not halted shareholders piling in.
The related law is the Wire Act, introduced in 1961 to crack down on gambling networks run by organized crime. Under the Act, it is unlawful for a business to take wagers on a sporting contest over any form of wire communication. As the business has moved on, though, the Act has turned into unclear. For instance, what about noir sports gambling, sues poker? And while is a extensive approval that the Act applies to the net, the growing accept of wireless links is now mining this.
Which are why, to the gloom, most executives are situated abroad. This signifies that the country’s authorities should have no jurisdiction over their trading activities, and that management will be secure - as long as they stay out of the US. But with the City already on edge over the Nat West Three and the hot Extradition Act, few are taking anything for granted.
Then there is the so-labeled Goodlatte-Leach Bill. Showed by two anti-gambling Republicans, Jim Leach and Bob Good-latte, the Bill is intended to extend the Wire Act’s scope, permitting the DoJ to fallow all kinds of online gambling and not only sports wagering.
Congress approved the Bill previous this month. But shares in the sector in fact increased as analysts estimated that, in a busy election year, it was doubtful it would pass through the Senate and into law in the near term.
Most also thought that with the Bill just lately accepted by Congress, any lawful action against the sector under the present Wire Act would be postponed until it had gone through the Senate. “I was surprised. Everyone was,” says the analyst.
The most pressing query for firms presently, though, is whether this is about the US market generally or a BetonSports-only investigation. Producer Gary Kaplan, for example, has been detained before - on gambling charges in New York in 1993 -and BetonSports has faced civil proceedings in New Jersey for running books on sports events, though it stated in its listing brochure that the action seemed to have “lapsed”.
Many are hoping to this. States one business person, who inquired not to be named: “If you read the indictment, nearly everything relates to sports wagering. The intimation I’m getting is this is isolated to BetonSports and the way it has conducted its business.”
Party Gaming was at pains last week to indicate that it is not involved in sports wagering.
Others, though, are more pessimistic. “Some of this is obviously specific to BetonSports,” notes the analyst. “But other parts of this are a benchmark. “It’s a testing-about how the DoJ is going to interpret the Wire Act.”
And on one thing he is ada- mant: “The DoJ is making a clear statement about its attitude to online gaming.”
Should the Goodlatte-Leach Bill turn into law, the omens are not good. Even before this, Wall Street attorneys were advising shareholder customers to oppose the boom and evade the sector. Now it looks as if they could confirm to be right.
“The news is negative for the US-facing online gaming names,” says Patrick Hargreaves, an forecaster at Goldman Sachs. “Although the arrests do not mean there is any certainty of conviction, they will heighten the uncertainty over the legal outlook for Sporting-bet, in particular, given the apparent focus on sports betting.
“In a worst-case scenario, it is not entirely in inconceivable that the US could cease to be a viable market for online gaming firms.”
In the past few years, online gaming and gambling has climbed in popularity, with both customers and the City. But those warning signs are becoming harder to overlook the party might be over.
Jun 03