• ONLINE CASINO ACTION TAKES BIG HIT

    04 October 2006

    Newspaper

    ACN NEWSWIRE
    Online Casino Betting Hit
    Australasian Investment Review

    Sydney, Oct 4, 2006 (ACN Newswire) – Yes it was sneaky and yes it is terribly ‘American” but all those investors and punting left lamenting the end of the online gaming industry should realise one or two things.

    Not many people care and the Americans have left a couple of areas of activity to be exploited for the simple reason that American gaming companies are already in those spaces.

    Late last Friday the US congress passed what is now known as theInternet Enforcement Act 2006 which relates to the processing and acceptance of financial transactions relating to certain types of Internet gambling which are considered unlawful under US Federal or State law.

    On the end of a bill on port security, after a clause on coastguard property in Maine, the US Senate tagged a law which effectively banned online gambling in America by making it illegal for financial institutions to process customer transactions.

    An online industry with sales estimated at $US 6 billion or more will disappear as a consequence.

    In an American election year the move attracted some major support from all sides of Congress, Republican and Democrat. There just aren’t any votes in helping people gamble on line.

    Rather than depend on making internet gambling illegal under the Wire Act of 1961, something which is doubtful legally,according to US reports, the US Congress simply banned American banks from processing any transactions involving on line gambling sites.

    The damage has been greatest in London where the online gaming business grew fastest, helped by easy regulation and a lax approach to corporate governance: two of the major online companies, 888 Holdings and PartyGaming were reported to have shared the same address in Gibraltar, which isn’t one of the most convincing of addresses for blue chip companies.

    London commentators said however that investors in the online companies have no justification for complaints because the various companies have made it very clear about the risks involved in dealing with the US.

    These risks have grown as US courts and states have taken a tough attitude to on line gambling (casino style games)

    In Australia, two local companies were marked down heavily by the market yesterday in the wake of the new US laws.

    Betcorp and Lasseters Corporate which earn much of their revenues in the US market, suffered sharp losses yesterday: Melbourne-based Betcorp fell 106.5c or 57 per cent, to 81.5c.

    Queensland based online casino operator Lasseters, which has over 80 per cent of its business in the US, lost 3.7 cents, or 51.4 per cent, to 3.5 cents.

    Both companies say they are studying the new legislation and its impact and it looks like both will abandon doing business in America with casino style internet games.
    Even shares in online gambling and wagering companies untouched by the new laws were hit – shares in eBet and CentreBet each lost about three per cent.

    But the law excludes online betting on horse racing and lotteries: and that’s the two outs, especially horse racing. eBet said it would now ramp up its small but highly profitable horse race betting activities because the US laws provided clarity on the legality of online horse wagering.

    Horse racing and Lotteries are exempt because US casinos and state TAB-like organisations already allow on line betting on horses and the buying of lottery tickets on line.

    CentreBet says its clients, and growth plans, are in Australia and Europe.

    Both companies made statements to the Australian Stock Exchange distancing themselves from the laws.

    Betcorp admitted that the changes were likely to hamper its profitability, telling the ASX “While management will take appropriate measures to mitigate its impact, the act is likely to have a material adverse effect on the operation of the company and its profitability.”

    Last month, Betcorp decided to stop accepting telephone bets from US customers, citing regulatory uncertainty: the company is also listed on the London Stock Exchange’s AIM exchange and plans to delist from the Australian exchange this month to concentrate on its British operations.

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    About Australasian Investment Review

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    Each morning (Sydney time) AIR’s team of experienced journalists present you with a concise digest of expert opinions and analysis on trends and backgrounds that matter in these markets. AIR is available free of charge.

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