Roadmap to USA Gambling Regulation

The pathway to a regulated gambling industry in the USA is, in our opinion, made up of a number of key steps. Of these steps we believe that we we have entered the second stage, and as far as the gambling sector is concerned we expect to see equities become fairly priced as further positive regulatory developments are factored into the gambling stocks prices.

Stage One

in our opinion the first step for industry regulation as the victory (perceived and / or actual) by the regulators against historic protagonists of 'illegal' offshore online gambling. This process is well underway and could move someway to being finalised during 2009.

The settlement by NEOVIA Financial (called Neteller at the time) with the US DoJ in July 2007 paved the way for additional entities and individuals to begin negotiations with the DoJ.

The NEVOIVA settlement was followed by ESI Entertainment in June 2008 for the activities of Citadel Commerce online payments solutions for $9.1 Billion.

The co founder of PartyGaming, Anurag Dikshit, pleaded guilty to one charge of online gambling in December 2008, effectively drawing a line under the legal threat hanging over him and resulting in a personal forefeiture of some $300 million.

Most significantly, Party Gaming Plc itself announced a settlement with the US Authorities (non prosecution agreement) on 7th April 2009, detailing a $105 million fine payable over three years.

This shows the DoJ's perceived willingness to negotiate financial terms with both individuals and companies relating to online gambling activities. We expect Sportingbet and 888 to conclude their own successful negotiations over the next three to four months.

Although this will not lead to an immediate opening of the USA online gambling market it does, in our opinion, provide a meaningful step towards removing market and political uncertainty and signifies the move towards a regulated industry.

Stage Two

We would regard the second step as the 'need for high level support' for assessing the need and potential for a regulated online gambling market in the US.

Our greatest confidence that this 'step' has been taken comes in the form of Massachusetts Democratic Representative Barney Frank who is currently Chairman of the Financial Services Committee. This gives Frank in depth exposure to the financial issues affecting the US economy currently, as well as providing genuine impetus to his ongoing desire to regulate rather than prohibit US online gambling.

Frank introduced the 'Payments System Protection Act of 2008' in September 2008 and was subsequently passed by the Financial services Committee. The key directive of this Bill was to prohibit the introduction of UIEGA that, in Frank's opinion, failed to truly define the term 'unlawful internet gambling'.

Although this does not consitutue a major attempt to regulate online gambling, Frank is considered a supporter of regulation, compounded by the work of Democrat Nevada Congresswoman Shelly Berkley.

Berkley is campaigning for a major study to be undertaken into the regulation of US online gambling and introduced a Bill, the 'Internet Gambling Study Act' in May 2008 (co-sponsored by 73 Representatives), calling for a study by the National research Council and the National Academy of Sciences.

Although this was discharged by the Subcommittee on Crime, terrorism and Homeland Security (!!!), we expect the campaigning by Frank, Berkley, their cosponsors and the likes of the American Gaming Association and Nevada-based offline casino operators to continue campaigning aggressively for industry regulation.

Stage Three

The combination of forefeitures, prosecutions and high level political support need to be brought together by lobbyists and campaigners to demonstrate the opportunity cost to the US economy and social spectrum of not regulating the online gambling industry in the US.

To this extent, we expect heavy campaigning within a Democrat-weighted Senate and House of Representatives, leading, ultimately, towards a hearing in both Houses on the merits of either studying or implementing a regulated online industry.

At present, no pro-regulation Bill has passed through either Houses.

Ultimately. stage three will require the impetus and, more importantly, financial backing of a Bill that clearly demonstrates the benefits of a regulated and taxed industry.

In order for a Bill to pass, the pro-regulationists will need to rally the financial and Political support for legislation to be attached to a single, fully funded Bill.

Although we believe the support is there and, in our opinion, there are irrefutable financial benefits from implementing a tax regime, we cannot estimate when a suitable Bill will emerge for passage through the Houses and into law. However, we remain confident that it will, in due course.

Obviously as stage three edges closer we fully expect the collective stock price in the gambling sector to seemlessly factor in the developments with a positive vertical push.

Stage Four

The fourth and final step would involve the implementation of the new legislation. Again, timing and details are impossible to predict. However, at best, we would assume the industry will not be regulated until the latter stages of President Obama's current term (ending 2013), based on a Bill mid-term (second Congressional sitting from 2011) and 12 months for implementation.



Users Comments

Re: Roadmap to USA Gambling Regulation
Posted By monkeyman 1 May 26, 2009 05:09:50 PM

So you guys at onlinecasinosniper reckon we're at stage two? I can't see that we're anywhere near this stage as Barney Frank's new bill has only just been submitted to congress and we still have the problem that only a handful of companies like partygaming have made any sort of settlement with US DoJ. I mean, look at sites like PokerStars and Full Tilt. I know they are poker and not online casinos but they still fall under the same regulations. I don't believe we can even begin to think about 'stage two' until these sorts of operators have paid their dues. We are not living in the 1930's and they are not Al capone. They must pay their dues like every other dude taking bets online.
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