Game Over For Online Gambling?
There’s seldom been a day like it. A new US law has decimated an industry, inflicting the biggest share price fall in living memory.
When news hit London that Republican Senate leader Bill Frist had unexpectedly pushed through a bill to prevent banks from processing online gaming payments, the blood-letting was swift: 70% of market value was wiped off shares in the likes of PartyGaming, 888.com and SportingBet.
Big investors in the sector included Fidelity, M&G, New Star and Merrill Lynch - and through them thousands of small investors and pension funds have lost too.
Ultimately, shareholders haven’t a leg to stand on. Company prospectuses detailed the risks explicitly. Online gambling has always been a grey area under US law, and investors ignored repeated warning signs: insider stock sales, exotic domiciles, management departures and, latterly, the arrests of two British executives at US airports.
Gamblers are eternal optimists, but there’s no doubt this bet has failed spectacularly. Industry players have been frantically shoring up alternative markets in Europe and Asia to counter the US threat - but three-quarters of PartyGaming’s revenue comes from the US, and it would be naïve to think the non-US business can carry on growing at the same rate.
Poker sites need a big pool of players: the removal of 70% of them is a major turn-off for the players that remain. Some operators may now consider selling out to land-based players at a knockdown price. But for the foreseeable future, online gaming looks like a busted flush.
What’s shocking is America’s rank hypocrisy. The US cries foul when China tries to censor its search engines, yet thinks nothing of clamping down on the internet threat to its own physical gaming industry. It preaches morality, guns down these largely London-listed invaders - and then expects Britain to welcome US casino operators.
As with Prohibition, the effect of the new legislation will not be to kill off online gambling but to drive it underground - until it is eventually re-legalised in a regulated form, with most licences doled out to American firms.
Free trade? Fine… so long as it works to America’s advantage. This calculated attack is one of the worst examples of protectionism seen this century.