Congress stuns online gaming firms

Anti-gambling laws unexpectedly passed by legislators in the United States threaten to cripple online gaming businesses and will send their shares into freefall today.

The bill, which makes it illegal for banks and credit card firms to process payments to internet gambling groups, was unexpectedly approved by Congress late on Friday. It deals a devastating blow to online giants such as PartyGaming, 888 and Sportingbet which rely on the lucrative US market for much of their business. The internet gambling provisions sailed through Congress after being tagged on to an unrelated bill to secure US ports.

The bill now needs only to be signed by President George Bush to become law, ahead of the 7 November congressional elections.

The boards of internet gambling companies held emergency meetings at the weekend to discuss the news. Several firms are expected to issue statements to the stock market today to update investors on the situation, with 888 believed to be preparing to suspend its business from the US.

Sportingbet is expected to say: "We are digesting the information and the facts and will make a future announcement when appropriate, but at the moment it is too early to make any comments."

PartyGaming, headed by chief executive Mitch Garber, said yesterday it was evaluating the situation, but refused to comment any further.

The sector has been rocked this year by several arrests of high-profile internet gambling executives as part of a clampdown by the US authorities. Until now, only betting on sports via phone across state lines is explicitly banned under the 1961 Wire Act, but the US Department of Justice has made clear it views all forms of internet gambling as illegal.

The online gaming companies have been careful to base themselves offshore - in places such as Costa Rica, Antigua and Gibraltar - to escape prosecution while the biggest groups are listed in London. They have also been trying to lessen their reliance on US punters by expanding in Europe and Asia.

The Poker Players Alliance, a US grassroots organisation consisting of 50,000 members, said: "This last-minute deal reeks of political gamesmanship. The American people should be outraged that Congress has hijacked a vital security bill with a poker prohibition that nearly threefourths of the country opposes."

The banking sector has voiced strong opposition to the provisions that require banks to block the transfer of electronic funds or e-check payments to online gambling sites. The smaller banks will find it very costly to enforce the bill if it becomes law.

The legislation leaves out an additional provision of the original bill passed by the House of Representatives that would have clarified that the 1961 Wire Act also covers online gambling.

That came as little comfort, though, to a sector reeling from the arrest of the then Betonsports chief executive David Carruthers and the former Sportingbet chairman, Peter Dicks. Mr Dicks was held in New York for three weeks on Louisiana charges of "gambling by computer," but was set free and allowed to return to Britain on Friday. However, Louisiana police have warned online gaming companies to stop accepting bets in the state.

While internet gaming businesses warned investors of the potential legal risks surrounding their US operations in the small print of their listing prospectuses, few took heed last summer when PartyGaming floated amid much fanfare.

The Democrats have criticised the Republican-backed bill as an election-year appeal to the party's conservative base, particularly the religious right. But Democrats accepted the port security legislation, despite opposing the gambling provisions, as they did not want to lose the core of the bill.