The creeping threat of new laws to crack down on offshore internet betting in the US yesterday sent shares in PartyGaming, the world’s largest online poker firm, back below the price at which they floated in London last summer.
A committee of the House of Representatives passed Congressman Jim Leach’s unlawful internet gambling bill on Wednesday. This is designed to “cut the money flow from gamblers to internet sites by prohibiting the use of … credit cards, cheques or fund transfers to be used to settle wagers”.
Some 182m shares in PartyGaming, changed hands yesterday – equivalent to about 15% of the equity not controlled by the four founders. At one point, the share price dropped by 11.5p to 109p, before rallying to close up 0.5p, or 4.5p above the float price, at 120.5p. Other London-listed stocks to dip under the threat of a US crackdown were 888 Holdings, Sportingbet and BetOnSports.
All are based in offshore tax havens from where they are able to offer bets over the internet to American punters.
Another group to follow the fashion for a London listing this month will be Playtech, a gambling software developer majority-owned by Teddy Sagi, an Israeli online gaming entrepreneur. It plans to raise £175m in a float valuing it at £550m.
The US justice department considers online betting to be illegal under the Wire Act, which prohibits wagers on “sporting events”. However, it has failed to enforce this view. John Anderson, chief executive of 888, yesterday played down the chance of Mr Leach’s bill making it into law. “It has happened before. We are still in the House of Representatives … and there’s a long way to go.” 888, which makes just over half its sales in the US, believes online gaming does not breach any laws but online sports bets do. “As long as we are vigilant on the lobbying, we will be all right,” he said. “We have always been quite hot on the lobbying.” Mr Anderson was speaking after 888 posted a 59% rise in pre-tax profit to $65m (£37m).
888 and PartyGaming are members of the Interactive Togel Hongkong Gaming Council, a Vancouver-based lobby group, which described Mr Leach’s bill as “tilting at windmills”. IGC claims regulating credit cards would be futile as few allow funds to be deposited with online casinos.
Nevertheless, the industry estimates that 12.5 million Americans bet online. “If all these people are betting all this money, they have found other ways to deposit funds into their accounts at internet gambling sites,” Rick Smith, IGC director, said in January. “If that many Americans enjoy this activity, nothing Congress can do will stop them.”
Another attempt to legislate against US online bets failed six years ago after IGC defended the industry aggressively with the help of the Greenberg Traurig consultancy and its star lobbyist Jack Abramoff. However, Mr Abramoff is now the focus of a high-profile justice department investigation into political influence-peddling, which has spread to Capitol Hill and into the White House.
Sportingbet, which offers sports bets as well as poker, retains another major Washington lobby group, Patton Boggs. Some analysts suggest a wealthier and consolidated online gambling industry is better able to fend off the challenges.
Much of this confidence is due to the Leach bill not defining unlawful gaming. The online firms rely on a 2002 ruling in what is known as the MasterCard case, which found that “the Wire Act does not prohibit non-sports internet gambling”.
Internet operators also suspect that infighting among established gambling interests could prove the undoing of any political efforts. Past attempts at legislation have offered so-called “carve-outs” to interests in the onshore gambling industry, such as horse racing, state lotteries and Native Indian tribes. The online lobby argues that it should be afforded the same rights and will plead international trade law in support.
The US political system may also work in the online industry’s favour. Mid-term elections are due in October and it is highly unlikely that the Leach bill, or a proposal by the Republican Senator Bob Goodlatte, could become law by then.
Mr Goodlatte’s bill attempts to ban all online gambling on games of chance and would reawaken one of the oldest debates of all: whether poker is a game of skill or chance.
A PartyGaming spokesman said: “All previous attempts have failed but we are not going to be complacent.”