MITCH GARBER

News Web

The New York Times: Online-Gambling Shares Plunge on Passage of U.S. Crackdown Law

LONDON, Oct. 2 — On a Black Monday for the online-gambling industry, companies that operate Internet betting sites and payment systems lost billions of dollars in market value after the United States government moved to criminalize the processing of online wagers.

Congress passed legislation over the weekend that would make it a crime to use credit cards or online payment systems for Internet betting. As a result, several online-gambling companies said Monday that they planned to stop doing business with customers in the United States — by far the largest market for Internet gambling.

Analysts said the measure would effectively bar online-gambling companies from operating legally in the United States, fundamentally altering their business models and perhaps forcing some companies out of business. Shares of many of the companies plunged, with some losing more than half of their value within minutes Monday morning.

“This development is a significant setback for our company, our shareholders, our players and our industry,” said Mitch Garber, chief executive of PartyGaming, the largest online-gambling company.

On Monday, shares of PartyGaming, which is based in Gibraltar, fell 58 percent, erasing about £2 billion ($3.8 billion) of the company’s market capitalization.

Over the last few years, Internet gambling operators, many of them based outside Britain, rushed to list their shares on the London Stock Exchange, taking advantage of a change in British law that legalized and regulated the business.

PartyGaming, which generates 78 percent of its revenue in the United States, said it would suspend all “real money” transactions with United States-based customers if President Bush signs the bill into law, as is expected within the next two weeks.

Another publicly traded online-gambling operator, 888 Holdings, said it would also stop doing business with bettors in the United States, pending Mr. Bush’s signature. The company, also based in Gibraltar, generates nearly half of its business outside the United States. Its shares fell 26 percent on Monday.

The legislation, championed by Representative Jim Leach, Republican of Iowa, was added to an unrelated bill on port security and passed in the rush to complete business before a Congressional recess in advance of the Nov. 7 elections.

“There is nothing in Internet gambling that adds to the G.D.P. or makes America more competitive in the world,” Mr. Leach said. “Everyone loses if this industry continues its remarkable growth trends.”

Concern about regulatory and legal risks grew over the summer, as executives of two online-gambling companies were arrested while in the United States.

David Carruthers, who was later removed from his position as chief executive of BetOnSports, pleaded not guilty to charges of racketeering, fraud, tax evasion and conspiracy after his arrest in Dallas in July.

Peter Dicks, who stepped down as chairman of Sportingbet, was released from custody Friday after Gov. George E. Pataki of New York refused to endorse a request for extradition to Louisiana.

Online operators said details of how the new legislation would be enforced remained unclear; the bill would require the Treasury Department and the Federal Reserve Systemto put in place procedures to bar transactions with online gambling sites within 270 days. Many American banks, credit card issuers and online payment systems, under pressure from the government, already block such transactions.

Online operators based in Britain complain that Washington has been inconsistent in its opposition to online gambling, allowing horse racing operators and state lottery systems to run Internet operations, for instance. In a case pitting Antigua against the United States, the World Trade Organization has already ruled that such exceptions were inconsistent with global trade rules.

Sportingbet said Monday that it was examining whether to seek W.T.O. action over the Leach bill if it is signed into law.

As the United States puts up more barriers, online gambling companies have been emphasizing growth in other markets. 888 Holdings said 68 percent of new customers who registered on its sites in the first half of the year were from outside the United States, 56 percent more than a year earlier. PartyGaming says it now has as many players outside the United States as it had in America in 2004.

- By Eric Pfanner | International Herald Tribune

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