Industry in distress: How did it come to this?

Jan 31, 2007 |
Industry in distress: How did it come to this?
The government is winning the war on online gambling in America. (AP)
The government is winning the war on online gambling in America. (AP)

It took a decade of legal manipulating, some short-sighted and conflicting government policies, dirty politicking, a perfect storm of Congressional ineptitude, and a heaping helping of righteous indignation, but the government is finally getting some results in its war against online gaming.

On January 16, 2007, the Department of Justice announced that it was charging two founders of Neteller, Stephen Lawrence and John Lefebvre, with laundering billions of dollars of Internet gambling proceeds.

Neteller is a company that was founded in Canada, a sovereign country, in 1999. Neteller later moved to the Isle of Man, and is publicly traded in the United Kingdom. Both are Canadian citizens. These two gentlemen no longer even work for Neteller.

Lawrence and Lefebvre are both charged with conspiring to transfer funds with the intent to promote illegal gambling. If convicted, both defendants face a maximum sentence of 20 years' imprisonment.I am not making this up. That information is all contained in the press release provided by the DOJ.

Twenty years in jail. Twenty years.

These are all facts that I don't even think the DOJ could refute:

· Neteller is a legal company in the Isle of Man, publicly traded in the UK, and operates in a manner consistent with the laws of its jurisdiction.

· Neteller is operating within the stringent rules necessary for publicly traded UK corporations.

· Neteller provides services to willing customers.

However, one of the services that Neteller provides is that it enables willing Americans to gamble with their own money online.

And for that, the DOJ feels it needs to make an example of these two men. They need to be prosecuted to the fullest extent of the law. A law that doesn't even really exist, at least not yet. The Unlawful Internet Gambling and Enforcement Act (UIGEA), passed without reading or debate as part of the Safe Ports Act last September, doesn't even take effect until July of 2007.

Whatever happens to those poor guys, and under what statutes they will be tried, doesn't seem to matter. It's too late for them, they will have to spend a fortune defending themselves, and they still might get thrown in jail for 20 years.

The tide has turned

The feds are winning the war on online gambling in America.

Just like they finally figured out how to put Al Capone in jail using tax laws, the DOJ is finally figuring out ways to curb online gambling in America.

Gambling needs liquid currency to survive, and they can freeze that liquidity. They are freezing the banks. They are freezing the middlemen. They are freezing the casino owners. They can't freeze every drop, but they can get most of the juice.

Will they ever stop gambling? No, of course not. And they don't want to, anyway. Gambling has become a major form of business and entertainment, and a huge tax base in America. Online gambling doesn't really happen in America, though you'll never hear a prosecutor admit that.

Will they completely stop online gambling by Americans? I really doubt it. But they can make it very difficult for most of us to gamble online. They can make it a chore. They can suck the fun out it. And for most of the customers, and most of the online casinos, that's bad enough.

Sure, there are a lot of you out there who've been around for a long time. You might remember a time when you had to go to the dankest local pub and find the guy sitting next to the payphone if you wanted to place a bet. He smoked unfiltered Marlboros and his name was usually something simple and monosyllabic, like Jack or Nick.

But you know what? You are in the minority now.

There is a whole generation of poker players who never met Jack, and they don't ever want to meet him. Hell, I don't even know why I'm directing this column at you. I should be directing it at them.

They are pure recreational players. They bet $10-20 a game, $50 max. They want to be able to sign up online, give their credit card number, and start playing within 10 minutes.

The only credit they want is on a credit card. They are used to owing money to Citibank. They don't want to owe money to some guy in a bar.

Who wants to run to the bank for some cash and then run to Western Union to wire it to some numbered company in another country, and then wait 24 hours just to actually sign up for an online account?

That wasn't part of the deal.

They want - no, expect - convenience. If it's going to be that hard to place a bet, they'll just go back to playing fantasy sports, thanks.

And while you, yourself, might be willing to jump through those hoops, I can tell you that you are in a small enough minority that the industry simply can't survive on you and your likeminded friends. Not in its current state.

Sure, the Internet will keep evolving, and new payment methods will keep popping up. And the feds will just keep plugging those holes.

That's the funniest argument - that the government can't keep up with evolving technology. They don't have to. At least not right now. There's no technology out there they have to worry about, is there?

Right now in America, there are only a few ways people can transfer money: cash, Interac, plastic, checks, money orders and bank-to-bank transfers. Unless there is some new super-magical ecommerce money transferring application looming on the horizon, the government can just bide its time and wait because they've already staunched a lot of the flow.

Consolidation looming

Even if there was some super application about to be unveiled, it would have to roll-out and be accepted even faster than the iPod to make a difference within the next two years. And while that's happening, the government will just write another law to make that illegal too. Along the way, they'll keep finding other smaller loopholes and figure out how to close them as well.

Sooner or later, unless people are willing to send hundreds of dollars in cash through the mail to another country, it only leaves wiring money and money orders as real options. And both of those are very inconvenient for newbies, not to mention also technically illegal.

Frankly, no matter what a lot of people are saying, it looks bad out there for American online gamblers. Don't get me wrong. The sky isn't falling, but it's raining pretty hard outside.

This is nothing new, as many of you know.

The difference is that we have reached a sort-of milestone. This time, the industry has officially stopped growing, and will be forced to contract and consolidate. We've already seen the publicly-traded companies run and hide from the American market, and consolidation will begin happening shortly after the Super Bowl or March Madness.What's going to be left are a few strong-willed and resourceful companies, willing to operate "outside the law", to continue servicing American customers.

They presumably have already put in the time and effort in building out their own proprietary card processing systems. They will survive because there are enough Americans out there to support a few resourceful books, but not 50 of them.

The rest, which is the vast majority, of the books will look around and say, "Wow, there are 6.3 billion people in the world, and only 0.3 billion actually live in America. Why not sell our product to countries that actually welcome us?"

That's the smart decision, and that's what's happening right now.

So, how did it come to this?

Well, it took a decade of legal manipulating, some short-sighted and conflicting government policies, dirty politicking, a perfect storm of Congressional ineptitude, and a heaping helping of righteous indignation.

Perhaps even more disappointing and damaging is the fact that it also took a decade of industry hubris, mismanagement and terrible public relations blunders that really allowed the government to succeed. Not to mention a frank lack of balls on the part of every American online gambler who wants to gamble online but was afraid to make a public issue of it.

We can blame the government for pursuing this issue, but we did absolutely nothing to stop them. In fact, we did less than nothing. We didn't even bother to prepare for this day.

Just look at us. We're scrambling around, telling each other that everything is fine, which is exactly what we've been doing for the last 10 years. We said technology will always find a way to keep the industry thriving.

Where is that technology now? Maybe we should have been funding some of those ideas rather than lining our pockets during the good years.

Instead...

· We giggled when BetOnSports placed a motor home in front of a Tampa Bay Buccaneers game, flaunting the law to the authorities.

· We smirked when we heard sportsbooks being advertised on Howard Stern.

· We gave a knowing grin when Golden Palace started tattooing every boxer and streaker in the world.

· We were admittedly a little shocked when we started seeing dozens of sportsbooks advertising in every magazine on the stand.

· We were kind of surprised when online gambling companies started sponsoring televised poker shows, and anything else they could get their logos on.

· We were no longer surprised when Calvin Ayre got listed in Forbes among the world's richest men, and laughed out loud (sorry, Calvin) when People Magazine listed him in their Hottest Bachelors issue.

Basically, we've been thumbing our nose at the authorities for years, daring them to stop us.

This reminds me of the crowd that used to hack their DirecTV receivers a few years ago. Damn, that was cool, wasn't it? Free sports. Free pay-per-view. Every time DirecTV shut it off, the hackers would open it right up again within minutes. The techies would always win! You can't stop it!

Oops. When was the last time you got those free movies?

That's right, DirecTV used technology to close the loopholes. It works both ways, and it happens a lot faster when there are millions or billions of dollars at stake.

Likewise, we online gamblers enjoyed the naughtiness of the situation a little too much.

We didn't try to negotiate a long-term solution. We didn't hold rallies. We didn't petition Congress or the Senate. We didn't seriously lobby politicians. We didn't offer valid concessions or alternatives. We didn't go on Meet the Press, O'Reilly, or even Letterman.

Sure, we got on 60 Minutes once or twice, but even those segments had the angle, "We’re getting so rich and you can't stop us. So why don't you just deal with it and make it legal? That way we all can get richer."

That's not a negotiation. That's extortion.

They can't go into business with the same criminals who have been humiliating them at every turn. Maybe that works with some people, but it's definitely not the right way to deal with City Hall. Any novice gangster will tell you that the worst thing you can do is piss off The Man and back Him into a corner.

You want to piss off a cop or a prosecutor? Make crime pay.

You want to piss off a politician? Make him look powerless. Once you make it personal, it becomes a crusade for them.

Most cops, prosecutors, and even most politicians don't care about online gambling. In fact, if you asked them their personal opinion, 95 percent would probably tell you they think it should be legal, regulated, and taxed. And besides, the law says it's illegal, so it's black-and-white for them.

These guys are nothing if not passionate about the public's perception of their power. They have laws to enforce, and if they don't enforce them, they fear they will look weak in the public eye.

Now, they might be inclined to turn a blind eye to something that's not only not hurting anybody, but is off the public's radar. But once it starts to hit the mainstream, it begins to undermine their authority. They start to worry about whether the public will see them as "soft on crime".

And when society starts glorifying these "criminals" and turning them into minor celebrities, complete with TV shows and sponsorships, then it's simply gone too far for them to stomach. They have to stop it. There's no backing down at that point. It's too late for negotiation.

It's war.

And that's what happened.

This crackdown has nothing to do with terrorism, protecting children, right vs. wrong, or even lost tax revenue. It has everything to do with authorities being tired of having a criminal industry continually undermine their authority and make them look impotent in front of the public.

We made it personal, and the authorities made a point. They declared war on the industry. And they flattened 90 percent of our industry inside of six months. Complete annihilation. In sports terms, we had our butts handed to us.

We missed a huge opportunity to do it right, and now we'll suffer the consequences for a while to come.

What Now?

It's not too late. Believe it or not, we are only at an impasse.

The industry isn't dead, and it's never going to completely die. Those who really want to gamble online, can. But if we keep working at complete odds to the authorities, the industry is never going to be legalized either.On the other side, the authorities have saved face by proving they still have power. But they also know they'll never be able to completely end online gaming, and that means they are missing out on a huge financial opportunity for taxation.

A good ole Mexican Standoff, if I'm still allowed to use that term.

We once tried to use the big stick to force the government to legalize, and the government responded by making a power play. Now we are negotiating on a more level footing.

Let's talk.

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