New Legislation Seeks to Halt Internet Wagering in the US

President Bush has signed into law new legislation seeking to halt online gambling by making it illegal to transfer funds for the purposes of internet gaming. The Unlawful Internet Gambling Enforcement Act gives teeth to the administration's censorship of online gaming sites in the absence of an outright ban.

What the Act Does

The act attempts to ban financial transactions that fund internet gambling. In doing so, it places the onus of blame on the gambling site as having received funds for that purpose, but loosely leaves financial institutions and payment processor companies on the hook if the companies allow their computers or network to transfer the funds. The financial institution or payment processor could then be considered as having abetted an illegal transaction. It therefore requires financial institutions and others to block the transactions from occurring in the first place.

But of course, the requirement only applies to companies subject to US regulations. That leaves open the possibility that American gamblers will simply turn to companies that operate outside of the US for transferring funds to gaming websites. At least companies that do not have a problem flouting US law.

The Act authorizes a number of different arenas of gambling that were legal all along. Free gaming, where there is no exchange of cash, is still permitted under the law. In cases where gambling earns points or credit, the redemption must likewise be points or credits. Similarly, the law continues to protect most fantasy leagues, even those that offer cash prizes, as long as those prizes are announced in advance of sign-ups.

The states are expressly permitted to continue their established gambling practices, and tribal gambling is simply permitted to continue.

Practical Impact of the Act

The impact of the act, though, is measurable in dollars. The loss in revenue hits both online gaming sites operating within the US and payment processors. Most of the sports betting websites within the US are smaller operations that will be actually wiped out by the new regulations. Payment processing companies, like Electronic Clearing House Inc., have already announced that their operations will face a significant loss in 2007 when the enforcement period begins.

But even the larger companies that operate out of other countries are faced with the substantial loss of US customers. Some, including 888 Holdings PLC, will remove them implicitly from taking bets originating from the US The loss of revenue stream will severely hurt the value of these companies, and just the anticipation of the destruction has already taken publicly traded companies to take a huge hit in stock price.

In the states, as many as 23 million Americans utilize online gaming sites. The reality is that many of those American gamers will be faced with a dicey choice: obey the law, or go go around it. The true impact of the Act will be measured by the response of the American public in the coming months as their access to online gaming becomes more limited.

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Source by Andrew Marx