Internet Gambling Industry Stirs

In the wake of Italy’s recent reaction against Malta’s gaming authority website, one must wonder what looms ahead for European trade and world trade in general. To a very large extent, the opposition to internet gambling is fueled by the desire to protect some internal-run gambling concerns.

The World Trade Organization, in a case pitting Antigua and Barbuda against the United States, has determined that U.S. policy toward Internet gambling is inconsistent with international trade rules, because some American horse-racing operators are permitted to accept bets online. While the threat of retaliatory sanctions from tiny Antigua has not swayed U.S. policy making, analysts say, the stakes may be higher in any eventual dispute with bigger trading partners.

In Europe, Britain's open attitude toward gambling is already creating conflicts with some European neighbors, which take a more restrictive approach. Italy, earlier this year moved to ban foreign online gambling operators, like British sports-betting sites, from operating in that country. It is likely that the European market will open up given that court decisions have gone against national monopoly operators.

In the US, the American Gaming Association, a lobbying organization whose members include the big Las Vegas casinos, recently proposed a study to look at ways in which online gambling could be legalized and regulated.

However, conservative Republican leaders in the House of Representatives want to make Washington's opposition more explicit, outlining an "American Values Agenda" last week that places a statutory prohibition on Internet gambling atop the Republican legislative priorities, alongside proposals like a constitutional ban on gay marriage.

All of these make the future of internet gambling murky. As a result, share of companies in the gambling industry have slumped. The demand for online gambling continues to soar. Many analysts now say they see no sign of an end in consumer demand for internet gambling. Christiansen Capital Advisors, a U.S.-based consulting firm, says global online gambling revenue will rise to more than $24 billion by 2010 from $15 billion this year and $3 billion in 2001. Growth in Internet versions of casino games like roulette may have eased slightly, but poker is surging, and the World Cup soccer tournament is serving as a catalyst for online sports betting.

Offshore operators are moving to diversify their offerings, in an effort to attract more business from outside the United States. PartyGaming last week introduced a new site dedicated to backgammon, a game popular in Europe, Asia and other regions. A spokesman, John Shepherd, said the company was also considering a move into sports betting, which has been a big growth area for other online gambling companies. By offering a variety of gambling options, online providers can "cross-sell" different games and sports events to their customers, which will help with one of the big problems for these companies - a relatively high rate of customer turnover.

No country has come out yet with any credible reason for banning internet gambling. Any ban is more likely short lived as market forces are more likely to prevail in the end. While some investors have been worried about a possible U.S. legislative ban, legalization might actually be worse for existing online betting companies. These companies have benefited from the current murky regulatory status quo in the United States, where online gambling gets about 80 percent of its business, because it has proved difficult to stop Americans from visiting such sites.

We should begin to anticipate more competition and company mergers in the gambling industry in anticipation of the failure of current moves to ban gambling in US congress. If the United States were to officially sanction online gambling, American casino operators would be free to compete with the offshore companies. Given the strength of their brand names and their marketing know-how, they could eventually carve out a large portion of the business for themselves.

Government regulations while necessary to protect the society, in the end, market forces dictate the trend. That too will happen in the case of Internet gambling. Governments will eventually realize that the best way to protect the society is not in the restriction of the freedom of the people but in the creation of a fair environment and allowing human ingenuity and market competition to dictate the direction.

Posted on: July 2, 2006

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