2006 Gambling Year Round-Up

2006 will go down as a bad year in the history of gambling, particularly of online gambling. It was a year in which governments across the world attempted to exert their right to control gambling within their territory and where prohibition rather than regulation was a recurring theme.

The passing of the Unlawful Internet Gambling Act was the main event of the year. The Act, which was signed into law by President Bush on Friday, 13 October, was widely interpreted as making online gambling illegal in the United States. While technically the wording of the legislation did not actually make online gambling illegal, it did seek to cut off banks from processing any financial transactions to online gambling companies by American citizens. The effect of the Act was immediate with almost every public company withdrawing from the US market and their share prices plunging. Party Gaming, the operators of the world’s largest online poker site fell from 115 pence to a low of 25 pence. Other companies who saw a similar slashing of their share prices included Sportingbet plc, 888.com, Leisure and Gaming and World Gaming. The latter went into liquidation, owing its bankers Barclays around $40 million.

The legislation followed hot on the arrest of two gaming executives by American law enforcement agencies. David Carruthers, chief executive of BetonSports, a London AIM market listed company, was arrested in Dallas and charged in Missouri, along with 10 others, of racketeering. Weeks later Peter Dicks, chairman of Sportingbet plc, was held in New York on a Louisiana filed charge of illegal gambling. A New York judge refused to extradite Dicks on the basis that he had never been in Louisiana to commit the offence but the arrest had a chilling effect on gaming executives, many of whom vowed not to set foot in the United States ever again. Carruthers, who it transpired was essentially a front man for a former New York bookie with organised crime connections called Gary Kaplan, remains under house arrest in a Missouri hotel.

While those public companies had a year to forget, a handful of privately-held companies decided to continue to cater to the US market. Jazette Enteprises picked up the US facing brands of Sportingbet – including sportsbook.com, playersonly.com and wallstreet.com - for a mere $1 while former Leisure and Gaming CEO Alistair Assheton did a rapid buyout of the US assets of the company and now runs brands such as vip.com and nine.com from the company’s Antigua headquarters. Others to decide to stay in the US market included Bodog, run by the publicity hunger Calvin Ayre, Poker Stars (which rapidly took on the mantle of the world’s largest poker room) and Full Tilt Poker.

Whether these companies can continue to exist in the coming years depends largely on how effectively the Act is implemented. Banks and financial institutions have 270 days to comply with the law and it seems that many are not going to have implemented suitable systems within the allowed time. With the US government apparently only putting aside $10 million for the enforcement of the Act, it looks possible that the window will be extended to allow banks to comply properly with the law. It also looks likely that banks and financial institutions with no ties to the United States may continue to process these transactions, especially operators of ‘e-wallets’. While Neteller, the leading electronic wallet for the online gambling industry, has said it will comply with the legislation it seems certain that there will be others who take their place.

Elsewhere prohibition and restriction of online gambling was a recurring theme. The French government arrested the joint chief-executives of German betting company BWin during a press conference at Monaco football club, where the company were shirt sponsors. A spokeswoman for the state-owned Française des Jeux, which runs the national lottery, the football pools and scratchcard games in France, said yesterday: “It is reasonable to assume that any other executive from an online bookmaker who came to France would also be arrested. We are doing exactly the same as the authorities in the US who arrested the British executives.”

The German government attempted to drive out private operators in their gambling market by passing laws protecting state monopolies and cancelling licences granted to companies such as BWin at unification by cash-strapped former East German states. The law is likely to come into force in January 2008. In both the German and French cases gaming executives plan to challenge the government rulings in the EU courts.

The Thai government forced ISPs to block access to online gambling sites and any site with gambling related information while the Chinese government continued to crack down on illegal gambling with a series of arrests of illegal bookmakers and corrupt government officials who had stolen public funds to lose at the gaming tables of Macau; one former mayor of Tangxia Township in Dongguan City managed to lose $13.9 million in 257 gambling trips to Macau and Hong Kong.

A small number of governments went in the opposite direction. Singapore awarded licenses for the first two casinos – to the Las Vegas Sands group and Genting Resorts – to be permitted in the city-state. Italy and Spain both decided to regulate their sports betting markets and allow outside operators to compete to run betting shops; the Italians started a series of auctions for the right to set up betting shops in a variety of regions. The Vietnamese government decided to legalise soccer betting and tax it, having realised that sports betting was endemic and almost impossible to prevent.

The British government pressed on with their plans for deregulation of the gaming industry, although original proposals were somewhat watered down as the Department for Culture, Media and Sport succumbed to media pressure and reduced their plans for six “super casinos” down to just one. Part of Britain’s so-called deregulation is the creation of a Gambling Commission, based in Birmingham, which many in the industry see as an expensive and unnecessary new layer of bureaucracy in the industry and which will be entirely funded by the UK-based gaming companies.

Macau enjoyed the best gaming performance of any territory worldwide with the opening of several new casinos and booming visitor numbers. The Chinese special territory is now widely considered to be the largest gambling market in the world having overtaken Las Vegas during 2006. 17.9 million visitors went to Macau in the first 10 months of the year.

The year saw plenty of takeovers and acquisitions within the gambling world. US gambling giant Harrah’s bought British casino group London Clubs International before becoming involved in a private equity battle itself. Genting Resorts bought UK casino operator Stanley Leisure. The British government announced they planned to sell the state-owned Horseracing Totalisator Board, better known as the Tote, to a consortium of interests from the racing industry, if they could achieve close to a market price. In Australia Tabcorp and Tattersall’s fought to buy Unitab, while Tattersall’s bought UK amusement arcade operator Talarius. Private equity groups continued to circle round gambling companies for their cash generative properties.

Corruption of sports by gambling was a continued theme throughout the year. Match fixing scandals in Germany and Italy saw referees jailed in Germany and some of the country’s top clubs deducted points for fixing match results in Italy, although in the latter case the motive seemed to have been less to do with gambling winnings than manipulating promotion and relegation chances. In December prosecutors named a further 21 Italian players who had placed bets and allegedly fixed matches. In Britain and Ireland several jockeys were accused of deliberately losing races for financial gain and Kieran Fallon, a former champion jockey and one of the world’s leading riders, faces a trial in September 2007 on the same charges; he is currently not riding following a ban for testing positive for cocaine prior to a race.

It was not all doom and gloom though. Results in soccer’s World Cup went the way of bettors in the early rounds with an inordinate number of favourites winning but the knockout stages were better for the bookies. UK horseracing was generally good for bettors and bad for bookmakers while there was a dearth of goals in many of the leading European soccer leagues. The bookies who catered to the US online market reported they had the best NFL season in seven years, a rare bright spot in an otherwise dismal year for them.