Just a few short years after a wave of wagering swept across this Caribbean paradise and transformed it into the unlikely capital of Internet gambling, the island’s leaders are feverishly dam-building to prevent the tide from just as quickly rushing out. The reason: Major new players — most notably Britain — are joining the competition for what is increasingly seen as a thriving form of e-commerce rather than an unmanageable vice.
Britain's announcement on March 7 that it will legalize Internet sports betting was a shot heard round the online gambling world. Many in the industry see it as a sign that online betting will now quickly become a mainstream business.
“It’s gotten to a point where we have critical mass of ... countries that are legalizing this,” says Paul Lavers, CEO of the sports-betting information site Covers.com.
Britain’s shift also changes the terms of the cybergambling debate in the United States, where prohibition remains very much on the table.
Even before Britain’s move, Internet gambling was spreading rapidly around the globe.
In 1997, about 50 sites, mostly in the Caribbean, were estimated to handle less than $100 million a year. Four years later, there are at least 1,400 sites raking in about $3.1 billion a year — a figure that is expected to double in the next two years, according to analyst Sebastian Sinclair.
Legal and licensed
The number of governments licensing and, in some cases, participating in online wagering also has jumped sharply, from a handful in 1997 to more than 50.
Additionally, because no-tax or low-tax Internet sites offer higher payoffs than tax-paying land-based casinos, horse tracks and lotteries, several jurisdictions have seen gambling-derived tax revenue decline recently. Hong Kong’s Jockey Club estimated this year that offshore operators are costing it about $6.4 billion a year.
Antigua alone has nearly 100 licensed gambling sites operating in and around the bustling capital of St. John’s, making it the world capital of Web wagering. The rapid growth of the industry in just five years has prompted the island’s leaders to build a new high-tech center to try to attract other types of e-commerce.
Given such growth, it’s not surprising that the British aren’t the only serious players - both governmental and corporate - joining the fray.
Serious players join fray
South Africa is likely to begin issuing online gaming licenses later this year, and is expected to quickly become a leader in licensing of Internet casinos.
Assemblyman Anthony Impreveduto, a Democrat who co-sponsored the New Jersey legislation, says he believes regulation of online gambling should be considered a consumer-protection issue, since it would allow states to combat such problems as underage and problem gambling. He said a federal ban on Internet gambling, which is expected to resurface in the current Congress, would be “meaningless.”
But Rep. Bob Goodlatte, R-Va., who failed last year to get a ban through the House, predicts success this year in the battle against what Sen. Jon Kyl, R-Ariz., calls “the crack cocaine of gambling.” His optimism is attributable to a new approach crafted by Rep. Jim Leach, R-Iowa, that would attack online gambling by cutting off the payment systems like credit cards and wire transfers.
Mover to sever financial arteries
“If we can cut off the ease with which these companies can receive funds from U.S. consumers by making it very difficult if not impossible for them to use credit cards and checks and wire transfers … that will have largely the effect we’re looking for,” Goodlatte said.
Critics of the proposal say it would only be a short-term solution.
“What you’ll see is other e-cash products emerge … that offer anonymity as far as what those purchases are,” said Sue Schneider, president of the River City Group, which tracks the interactive gambling industry.
Congress also could run into new opposition from lawmakers in a handful of states that have passed laws “prohibiting” Internet gambling but exempting their own lotteries or state-licensed casinos, according to Whittier College law Professor I. Nelson Rose.
“It’s just too hard to draft one that satisfies everybody,” he said.
If Congress doesn’t pass a prohibition bill, many industry observers say it is only a matter of time until the U.S. gambling companies join the rush to electronically distribute their product and rapid consolidation occurs.
“Once that happens ... a very (small) number of competitors will actually make up a majority of Internet gaming commerce,” said Anthony Cabot, a Las Vegas attorney and author of the “Internet Gambling Report.”
That would be a worst-case scenario for tiny Antigua and other jurisdictions where Net gambling has thrived as long as the big players stayed on the sidelines.
It is an outcome they are determined to avoid.
The coming battle
Antigua foreshadowed the coming battle between small states and bigger nations with established gambling industries in a statement by the island’s director of offshore gaming, Nelson Simon, issued shortly after Britain’s announcement.
Simon stressed the competitive advantage that offshore jurisdictions enjoy over their prestigious but higher-taxed competitors, noting that operators in Antigua will be taxed at just 3 percent of profits compared with a 15 percent levy in Britain.
Antigua also is in the process of tightening its regulations to ensure that problems that cropped up in the early years - such as sites shutting down and disappearing with customers’ money - never return to sully the island’s reputation.
It remains to be seen whether such moves will enable Antigua and other smaller jurisdictions to successfully counter the prestige that countries like Britain, with its “gold standard” of regulation, will bring to cyberspace.
Surveys show trust remains the top reason many potential customers stay away from online gambling, and an iron-clad guarantee of payment by a trusted government may well transform the United Kingdom into “the hub of a global betting industry,” as one British bookmaker recently predicted.
Antigua’s hole card will be the loyalty of its operators, and the trust they have earned from their customers during the early years of online gambling, said Simon.
“We recognized the importance of the industry and we treated it as an industry which can be managed through regulation,” he said. “… And the industry, recognizing that we understand the importance, (has) stood by us.”