New anti-gambling law won't stop online bettors

Will a new federal anti-gambling law end online wagering? Don't bet on it.

The Unlawful Internet Gambling and Enforcement Act of 2006, passed by Congress on Saturday, greatly pleased anti-gambling advocates. The act also battered the stocks of British gaming companies such as Party Gaming PLC, 888 Holdings PLC and Sportingbet PLC, which generate much of their revenue from U.S. online bettors.

But experts say this $12 billion industry won't go away; it will just nimbly adjust, as it has in the past.

"I think (the law) will have very minor effects," says Nelson Rose, who teaches at Whittier Law School in Costa Mesa, Calif., and runs a Web site called gamblingandthelaw.com.

Rose believes that Senate Majority Leader Bill Frist, in pushing the measure through Congress as part of a port security bill just prior to adjournment last weekend, seemed more intent on pleasing social conservatives than truly gutting online gambling. The way Rose reads the bill, it doesn't expand the list of illegal online gambling activities, as a House-passed version did in July. Nor does it criminalize online gambling for consumers or financial intermediaries.

It doesn't do much of anything to clear up this gray area of law.

Federal prosecutors already had gone after online gambling firms selectively, based on existing laws -- principally, the Wire Act of 1961. In recent months, they arrested the chiefs of two British firms, Peter Dicks of Sportingbet PLC and David Carruthers of BetonSports.com.

"This (the new law) doesn't expand the definition of illegal gambling," said Rose.

Joseph Kelly, a law professor at Buffalo (NY) State College and an attorney for online gaming concerns, calls the law "highly unenforceable." The act makes it illegal for banks to transfer money from customer accounts to online gambling firms. But for the most part, bettors don't pay their online bookies directly. Payments usually are routed to offshore firms through an online intermediary such as Canadian-based Neteller, the biggest money-transfer firm in this sphere. In addition, American banking lobbyists insisted that the most basic form of payment be exempted if the industry was to support the law. That's the good old-fashioned check -- both paper and electronic versions -- whose volume made them impossible to monitor. So checks are exempted.

One result of the legislation, some observers feel, is that the more accountable publicly traded firms such as Party Gaming PLC, 888 Holdings PLC and Sportingbet PLC will be driven out because investors will desert them. That will leave more opportunities for sleazier operators to fill the void.

In that respect, the law could unleash something akin to Prohibition, whereby a social crusade drove an industry into the arms of the underworld.

"The U.S. government has taken indeed a giant step backwards towards a time in our history that we should have learned from," wrote Kenneth Weitzner in his online wagering information Web site, Eye On Gambling.

The difference between this and Prohibition, Weitzner added in an interview, is that "the online gambling industry has always been one step ahead of the government, in terms of transactions."

The current reigning model -- using online intermediaries such as Neteller -- developed when credit card transactions became illegal.

"There are many loopholes that will be found and have already been looked at," said Weitzner, whose online handle is "The Shrink."

The law, nonetheless, already has had a chilling effect, he added. In checking with one online site yesterday, Weitzner found customer withdrawals were up 10 percent, and the action on "Monday Night Football" was down.

Two things "The Shrink" would like the gambling public to know: 1.) It's still not a federal crime to be an online bettor, just to be an online bookie; and 2.) The measure isn't effective until the promulgation of its final regulations, by statute up to 270 days after the bill's signing into law.

The NFL season will be long ended.

John Helyar is a senior writer for ESPN.com and ESPN The Magazine. He previously covered the business of sports for The Wall Street Journal and Fortune magazine and is the author of "Lords of the Realm: The Real History of Baseball."