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  Thursday, October 19, 2006

  A Divided Industry Enters the Prohibition Era

by Christopher A. Krafcik

"I do think that more private company operators are now going to take U.S. money. If you're going to take U.S. money, and you want to work on this, you have to put your money up, because we financed everyone 'til today. Now, I think there's going to be a shift in responsibility, while we continue to take responsibility."
- Mitch Garber
PartyGaming

H.R. 4411.

David Carruthers.

Money laundering.

Aiding and abetting.

United States Congress.

Bill Frist.

Unlawful Internet Gambling Enforcement Act of 2006.

Prohibition.

Exodus.

These and other words and expressions have permeated the idiom shared by the I-gaming industry, serving as palpable reminders of long-standing legal battles and financial woe, of furtive politics and changing interests. Following the enactment of the U.S. Unlawful Internet Gambling Enforcement Act of 2006, most financially transparent public companies have flipped the switch on their U.S.-facing operations, while others wait and watch as the 270-day prescription period passes.

Private companies, meanwhile, have been the subject of much discussion and speculation. Reports and rumors are circulating about the industry going "underground," that the new law will do little more than expel regulated, publicly traded companies, clearing the way for private gambling companies and offshore banks to gobble up U.S. dollars on untraceable transactions. Other reports suggest further that the U.S. legislation will, in time, render itself moot after billions in difficult-to-trace "financial instruments" find their way into crooked, criminal claws.

"It leaves an opening for some of the more unscrupulous companies coming in from unregulated places," said Frank Catania, past director of New Jersey's Division of Gaming Enforcement and president of Catania Consulting Group.

Many entrenched within the I-gaming community are drawing parallels between the I-gaming ban and the U.S. prohibition spanning 1920 to 1933, where, in 1919, the Anti-Saloon League, in collaboration with other parties, pushed the Eighteenth Amendment through Congress.

"You saw how the U.S. regulated booze," said 888 CEO John Anderson at this year's European I-gaming Conference and Expo (EiG) CEO panel discussion in Barcelona, Spain. "That shows you what they're like."

Shortly thereafter, a panelist interjected, "The U.S. regulated booze, though."


"From a practical point of view, generally, prohibition precedes regulation," said Rose. "So what you will see is regulation that follows in due course."
- Lewis Rose
CryptoLogic

"Yeah, after seven years," Anderson retorted. "I think there will be efforts to fight the legislation, but I wouldn't hold your breath."

"Never underestimate an American politician," he quipped.

Such is the language of the Prohibition Era. And with it, privately held companies with U.S.-facing interests are being tagged as the next bootleggers.

Whether the rift between public and private companies will grow is now becoming a matter of increasing delicacy.

During the EiG CEO panel discussion, the atmosphere was tense as Lewis Rose (CEO, CryptoLogic), Mitch Garber (CEO, PartyGaming), Anderson and Eduardo Agami (president, SBG Global) squared off on the issue. Their discussion was imbued with professional divisiveness, a public-private fissure that was as evident in their conversation as their seating arrangement. (Agami was flanked by Rose, Garber and Anderson.)

Agami brought to the panel a message of strength in numbers: a call to I-gaming companies--both public and private--to band together and create a booming, single voice.

"This industry has always been pursued legally by all sorts of different forces," Agami said. "We should've shored our forces together a lot better, internationally, as a community."

"In response to Eduardo, nobody has done more than the people on this side of the table, or spent more money on lobbying and fighting the fight," Garber said. "I think that the private companies are going to have to do more; the public companies have done their share and continue to do their share. . . . I do think that more private company operators are now going to take U.S. money. If you're going to take U.S. money, and you want to work on this, you have to put your money up, because we financed everyone 'til today. Now, I think there's going to be a shift in responsibility, while we continue to take responsibility."

"I do agree with Mitch, I do," Agami said.

Agami, though, remained outspokenly skeptical regarding the effectiveness of lobbyists, saying that lobbying was no more effective than shooting a single pellet at an elephant. Agami likened other situations across the I-gaming industry--the dispute between Antigua, the World Trade Organization (WTO) and the United States, for example--to individual pellets, that, taken collectively, would not be strong enough to combat Congress.

"Now, if you take the situation in Antigua by itself, it goes to the WTO," Agami said. "It's another pellet launched at an elephant, and it's not going to work. But if we find some sort of vehicle where our associations and our companies can unite and consolidate towards an effort, absolutely, a lot of the operators are behind supporting an effort. We will put our money where our mouth is. I speak for SBG in particular, and, yes, we will; yes, we will."


"I think there will be efforts to fight the legislation, but I wouldn't hold your breath."
- John Anderson
888

The public companies, while not closed to the call to arms, announced during the panel discussion that they would be taking a measured approach, with a focus on diversification in gaming-friendly confines, especially the United Kingdom.

"From a practical point of view, generally, prohibition precedes regulation," said Rose. "So what you will see is regulation that follows in due course. I agree that the U.K. is going to be the model citizen . . . [and] we're looking to the U.K. to lead a practical, reasonable, commercially sensible regulatory regime. It's easy for us to stand up and preach regulation as opposed to prohibition; it's easy for us to say there's a much better practical solution. But the proof is in the pudding, and the U.K. has the opportunity to create a solution that is reasonable and not wholly bureaucratic. So, there is a balancing act that the U.K. can provide as an appropriate recipe for the future."

While Agami did acknowledge U.K. diversification as a sensible strategy, he stood by his original comments, this time likening the U.K. to a ".22 caliber bullet that still won't stop the elephant."

Garber later pointed out a problem that could adversely affect future relations between I-gaming companies and the U.S. The Long Tail: Operators taking U.S. money, illicitly or otherwise, damage the legal-channel efforts of public companies and, by extension, "paint the industry in a very, very bad light," Garber said.

"Look, we don't agree with [the U.S. legislation] and how it was passed," Garber reflected. "We still think there may be a ray of hope that your law doesn't apply to us, but we're going to abide by it in the interim, we're going to lobby and we're going to show [U.S. lawmakers] why it doesn't apply. Others are going to spit in the face of that law and ultimately get indicted. And that's why it's going to be very difficult down the road to let us become regulated."

Agami was put off by the implication that his and other private companies were dabbling in subterfuge.

"I think you're a very intelligent man, but I just disagree with you," Agami said. "Very simply, we're not looking to spit in anybody's face, and it doesn't necessarily have to be an underground operation."

"I want to make a call that we should get together," he added. "We should find a ground for us to meet and unite our efforts."

One voice or many.

Private or public.

Illegal or legal;

Fight or flight.

Disjunctions like these will persist, perpetuate and stew in the I-gaming idiom, gathering more weight as U.S. prohibition divides an industry.

FROM THE EDITOR: Tell us what you want to read about in IGN.

About the Author
Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.

 

More Articles by Christopher A. Krafcik

See Also

MECN Assesses the Impact of US Policy

Jowell Criticizes US Policy

The List

The Infancy of Prohibition - Who's In, Who's Out

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