Next week's big online gambling conference in Las Vegas may turn out to be a washout as a number of individuals invited are thinking of cancelling their trip in the wake of the indictments of senior directors at BetonSports. The annual conference, organised by Bodog.com, is a must-go event for industry executives, but the arrest of the BetonSports chief executive David Carruthers on entry to the US has made people think twice about attending.
Bodog.com's chief executive, the Canadian maverick bookie Calvin Ayre, is not shy of publicity he recently graced the cover of Newsweek and insisted there is nothing to worry about, but others are clearly frightened.
Mr Carruthers' arrest at Dallas airport on Sunday night, while he was changing planes on his way from London to the company's headquarters in Costa Rica, has sent shockwaves through the online gambling industry, which has hitherto been rather complacent about the threat of a US crackdown on the sector. Along with 10 other people, he was indicted on charges connected with running an illegal betting operation. BetonSports was ordered to stop taking bets from Americans and the shares were suspended on London's Alternative Investment Market.
The $12bn (£6.6bn) online gaming industry, which makes most of its money in America, was left reeling for a second day, with London-listed shares continuing their freefall.
The indictments came hot on the heels of an anti-gambling bill being passed by the US House of Representatives last week. The big question is whether the move against BetonSports is the beginning of a wider clampdown on internet sports betting groups, and even poker and casino sites.
Simon French, at Numis Securities, said: "Until we get some clarification from the Department of Justice whether this simply relates to BetonSports or is the start of a concerted campaign by the DoJ to go after the online sports books, markets are going to be very jittery."
While the US is the most lucrative market for online betting in the world, many of the biggest companies are listed in London and are based offshore to avoid prosecution. Under the 1961 Wire Act, online and telephone sports betting are illegal in the US but it does not extend to casino and poker. Confusion has arisen because the DoJ regards all forms of internet gambling as illegal, while the US states have some control over permitting gambling so, for example, horseracing betting is allowed in a few states.
David Harding, the chief executive of Britain's biggest bookmaker, William Hill, said: "It's very clear to us under the Wire Act that online sports betting is illegal but online gaming [poker and casino] is not covered by the Wire Act. We're known as a bookmaker and don't do aggressive marketing, but we don't block bets from Americans." William Hill gets less than 1 per cent of its business from the US, while Ladbrokes has been considering over the past few months whether it should enter the American market and will announce its decision next month.
Poker and casino games websites such as PartyGaming, 888 and Empire Online, which do not cover sports betting, are thought to be less vulnerable to a crackdown than sports betting outfits such as Sportingbet, though Sportingbet also has a successful poker website, Paradise Poker. Most are trying to reduce their reliance on the American market: PartyGaming boasts that as of March, 40 per cent of new customers came from outside the US.
BetonSports is seen as an easy target for the US authorities because its founder Gary Kaplan, who used the alias Greg Champion for many years, is a controversial figure. He has been charged with running illegal gambling operations since 1992 and failing to pay taxes on more than $3.3bn in bets taken. The US indictment alleges that Mr Kaplan and his new business partner Norman Steinberg took bets from undercover agents in St Louis who used pseudonyms to open betting accounts.
A DoJ spokesman said: "This is not a new policy. The Department of Justice has said consistently for years and has testified to Congress that internet gambling is illegal and that any businesses which engage in it are doing so at their own risk. It is entirely possible that there are other investigations ongoing. We are not able to prosecute every single instance, but we will when we have the evidence and an ability to prove it in court, and when we feel it is an appropriate time to charge."
Many in the industry sought to downplay the threat to other operators, insisting the action was targeted at BetonSports specifically and that online poker and casino are legal under current legislation. But sports betting companies appear vulnerable.
BetonSports and Mr Kaplan came under investigation in Missouri after a tip-off from a Western Union money transfer office in the state, which suspected wired funds were being used for online gambling. The case was pursued by the local office of the DoJ and the FBI, and will eventually be tried in St Louis. The indictment against the 11 individuals and four companies was handed down by a federal grand jury.
BetonSports has courted controversy before. Two years ago it bought the rights to the domain name gamcare.co.uk and gamcare.com and redirected people accessing these addresses who thought they were logging on to Gamcare, the support charity for problem gamblers to one of BetonSports' own websites. (The real address for Gamcare was gamcare.org.uk.) When charity officials found out, the company blamed an over-enthusiastic junior marketing executive.
While online gambling companies operate in a legally grey area in the US, no executive director of a UK company has been arrested before. There has been only one previous case of someone being tried and jailed in the US for running an illegal internet gaming business. Six years ago, Jay Cohen, the American former president of the World Sports Exchange, spent 20 months in prison for running an online and telephone sports betting operation from Antigua.
One theory in Washington was that the DoJ has been stung into taking a tougher line against individuals because of the high-profile campaign for new legislation to prevent internet gambling. Last week, the House of Representatives overwhelmingly passed a bill that would update existing laws to explicitly outlaw bets taken over the internet. It would also make it illegal for banks and credit card companies to make payments to online gambling sites.
The Republican congressman Bob Goodlatte, who sponsored the bill, said he welcomed the arrest of Mr Carruthers. "We are very encouraged the Justice Department is taking the signal that Congress is very serious about this problem."
But experts think that like other previous anti-gambling bills, the measure will fail to clear the Senate.
Mr Carruthers said in May: "In my view, if there is an unexpected accident everyone goes down with the ship, not just sports betting. There is no difference, in terms of the technicalities, in the minds of people who don't want online gambling if your are playing cards or betting on a game."
Suddenly, visiting the US becomes a high-stakes gamble for gaming sites' directors
Flying to the US has suddenly become a fraught affair for the host of City heavyweights who sit on the boards of any online gaming company with business across the Atlantic, following David Carruthers' arrest at Dallas airport.
Although the internet gaming industry was at pains to insist that BetonSports was being specifically targeted, privately many are concerned at the implications of the US authorities' first major attempt to flex its muscles in the multibillion-dollar gaming industry.
Bob Holt, the founder of the social housing group Mears, who was hired to lend credibility to the SportingBet board, admitted none of the company's directors had any plans to head Stateside. Nigel Payne, the chief executive, is a frequent US visitor and, like Mr Carruthers, has lobbied hard for the US to legalise online gaming.
"We're reviewing the situation daily but there are no plans at the moment [for any US travel]," Mr Holt said.
PartyGaming privately insists the incident is restricted to BetonSports' sports-betting activities - something the poker giant does not touch - but it has been caught up in the fallout. Michael Jackson, the outgoing Sage chairman who took on the PartyGaming chairmanship, and his fellow non-executive Brian Larcombe, the former chief of 3i, could compromise other businesses' activities by avoiding the US: Mr Larcombe sits on the board of Smith & Nephew, which has big operations in the US.
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