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Business Comment

Jim Armitage: British firms could be big winners if online gambling returns to the States


Outlook Could seven years of darkness finally be lifting over European… well, primarily British, online gambling companies? Since George Bush in effect made their businesses illegal in 2006, banging up a fair few British businessmen on the way, the sector has been a shadow of its former frontiersman self.

Big personalities like Gary Kaplan, a New Yorker famed for his spectacular parties, ended up in US prisons. His British numbers man at BetonSports, David Carruthers, was caught in the net and also served time behind bars.

Arrest warrants are still out for some, like Isai Scheinberg, the Pokerstars founder, but the wheel of fortune does finally seem to be turning in the industry's direction. So hopes Bwin Party, owner of PartyPoker, which was one of the biggest online casino group in the US before the ban. Shareholders and directors got fabulously rich providing games to the poker-crazy nation before the gates came crashing down.

In December 2011, the US Department of Justice finally said the 1961 Wire Act, the piece of legislation it used to clamp down on the expanding online-gambling phenomenon, only applied to sports betting, and not poker, casino or bingo. You could hear the cheers from Gibraltar – tax-efficient home of Bwin and others – to the mainland. Now, perhaps, US states, hungry for gambling tax revenues, would welcome them with open arms.

Well, not quite. Nevada opened its doors to online poker. Delaware too. But both states are tiny in terms of their local populations. And as the Peel Hunt analyst Nick Batram points out, visitors don't head to Vegas to sit in their hotel rooms playing poker on their mobiles. Hardly an avalanche of opportunities.

However, the bigger state of New Jersey, with its population of 8.9 million and the no-windows slot machine hell (my words, not theirs) of Atlantic City within its borders, is also now about to take the plunge. In November, it will allow not just internet poker but other casino games too. If all goes to plan, NJ could be as big as Holland for the European firms, Mr Batram calculates. That's a lot of potential profit.

But there's a far bigger prize. Other major states of the US are watching the home of the Sopranos carefully. If the legalisation process goes well, other states could follow suit. I say "could" because many local legislatures remain extremely wary of Bwin and its ilk.

Perhaps the biggest prize is California, where poker vies with Nintendo or Wii in many a household as the family game of choice. That might be a slight exaggeration, but it's certainly hugely popular. If California lets the Bwins, Playtechs and 888s in, the good times could roll again for an industry at which, peculiarly enough, London-listed companies are world leaders.

Now there would be a route to a balanced economy: financial services, high property prices and gambling. Three perfect bars on the Chancellor's fruit machine.