US Legislation Devastates On-Line Gambling Stocks

America has a gambling problem, or more accurately, a problem with regulating gambling. It seems that, in an election year, the Do-Less-Than-Nothing Congress attached the Unlawful Internet Gambling Enforcement Act to a port security bill and passed it. As a result, stocks in some of the cyber-gaming companies fell by a third or more.

Gigi Levy, chief operating officer of 888 Holdings (one of the companies affected), summed it up when she said, “It has a specific criminal offence for taking these funds which is something completely new. It is quite clear that the bill as is has a very clear implication on the legality of our activities in the US.” Her company’s stock dropped 35% after the bill was passed. Shares in Partygaming fell by 57%, Sportingbet shares by 60%, and Empire Online 31%.

Mr. Bush hasn’t signed the bill yet, so it isn’t actually the law of the land. That didn’t stop Senator Bill Frist (who has hugely disappointed this journal in his time as leader of the GOP in the Senate), from saying, “The bottom line is simple. Internet gambling is illegal.” Given a few days, it will be, though, since it is hard to believe Mr. Bush would veto the port security aspect of this bill. That would be a gift to the Democrats ahead of the election.

For those bookies with real-world operations, this is an inconvenience, but it won’t kill their business. Britain’s William Hill, turf accountants to a great many, is in the process of shutting down its US gaming business while the legal technicalities are settled. But with thousands of corner betting shops in the UK, the company will stay afloat.

For the on-line only crowd, things are vastly grimmer. Partygaming, for example, gets 75% of its revenue from US gamblers. Few businesses could survive an overnight 75% cut in income. The rights and wrongs of the matter are more ethical than economic, but this is clearly a case of government killing off an industry, which is an odd thing for laissez faire Republicans to support.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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