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Internet Betting Stocks Take a Dive After US Gov...t Crackdown is Passed

By Eric Pfanner


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 U.S. 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 pounds ($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 U.S.-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 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 Rep. Jim Leach, R-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 GDP or makes America more competitive in the world,” 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.