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USA Online Gambling Update


New bill seeks to overturn UIEGA

On 6 May 09 Senator Frank introduced a new Bill to legalise online gambling in the USA at state level. We'll refer to it as the IGRA but what does it actually contain and is it as far reaching as expected?

Everyone in the world with more than a passing interest in casino, poker and all forms of online entertainment will have heard of the UIEGA, a protectionist piece of legislation bore out of an ultra conservative Bush administration. The specifics of UIEGA were always a little sketchy and US Seanator Barney Frank has been at the forefront of seeking to repeal this legislation.

With a new administration it seems as though Senator Frank's time has finally come and on 6th May 2009 he introduced a new Bill to congress called the IGRCPEA - internet gambling regulation, consumer protection and enforcement act - or simply IGRA as we shall now refer to it.

It certainly sounds great and has refocussed marketing dollars on this lucrative continent but what exactly did the Bill contain and how does it propose to legalise online gambling in the USA?

  • It appears as though the IGRA is aimed at allowing individual states and Indian Tribes to seek to implement their own licensing bodies, with States and Tribes allowed to give out licenses rather than just the federal Government. There would be a carve out for States that do not want to have online gambling in their territory.

 

  • In essence, if it passes, this legislation would allow individual states and Tribes (such as California and Nevada) to give licenses to operators to offer online gambling to individuals so long as the consumers are located within that State or Tribal boundary. Persons located in non regulating states would not be allowed to gamble online.

 

  • Licenses would be for 5 years and would go to upstanding, financially healthy groups that can prove they have the technology to ensure they know the location of an individual and have safeguards against fraud, money laundering and problem or underage gambling.

 

  • The our humble opinion (!) it is not neccessarily a certainty for PartyGaming to gain a license as its still has founders and substantial shareholders who have not yet settled with the US Department of Justice relating to historical US gambling activities.

 

  • The need for transparent accounting as relationships with local licensing bodies favours the large US listed groups such as Harrah's, MGM and Wynn.

 

  • There is also a carve out for sports betting. Licensees would not be allowed to accept bets on sports, except for fantasy leagues and virtual sports (in deference to the all powerful US sporting leagues).

 

  • regulations would be finalised within 180 days of the Act being passed (it needs to be approved in the House of Representatives and the Senate) and onlinecasinosniper learns that Barney Frank is pushing for a vote prior to the August Congress break.

 

  • Frank has also sought to extend implementation of the UIEGA from 1st December 2009 to 1st December 2010, providing time to seek implementation of the IGRA.

 

  • While this Bill provides a great boost to the industry the two clear caveats to genuine upside potential are - the need for the Bill to pass into law (we predict Q2 2010) - and the need for individual companies to secure a licence.

 

  • It is too early to determine the likelihood of each issue, but, in the interim, we maintain a bullish outlook on gambling stocks in general. And while the Bill may not pass into law as a standalone piece of legislation it could easily be attached to another of Frank's fiscal stimulous packages that will almost certainly pass into law.

 

  • An element of this potential upside has, we imagine, already been factored into the share prices of companies such as PartyGaming, but, with the potential upside of gaining a license in California for example (adult population in excess of 38m) driving a target price of nearer 400p - 500p the prospect of any tangible upside from this Bill (as well as potential benefits of a crackdown on PokerStars and Full Tilt) drive us to hold our positions for now and actively pick up further tranches in favourable price dips.

 

 

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