The bet was made with the London-listed gaming firm Sportingbet.com by Dominic Rushe, our US-based reporter, using his American bank account.
In Britain, such a bet would be of little interest to anyone. At 10-19, $10 on Indianapolis yields the grand total of $5.26, assuming the Colts win the NFL football game.
But as far as the US authorities are concerned, the bet is a very big deal indeed. Gambling in America has long been a “hot-button” issue where the industry is pursued with puritanical zeal by the vocal and politically powerful Christian Right.
Now, with mid-term elections looming, US legislators are lining up to take on a new evil — gambling over the net. And it is already a multi-billion- pound industry in Britain, thanks in part to American punters who are barred from betting at home.
Our reporter had no difficulty placing his bet. But minutes after his card was charged, his bank, HSBC, was on the phone.
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Had Mr Rushe placed a bet with Sportingbet.com? Did he know this was illegal? Should Mr Rushe attempt to do this again, his account would be frozen and he would be unable to use his card to make purchases or withdraw cash, said a bank representative.
America is taking the clampdown on internet gaming very seriously indeed.
The fight claimed its latest victim last week when Sportingbet’s chairman, Peter Dicks, was arrested by the US authorities and charged with running an illegal gaming enterprise as he touched down in New York on a business trip.
He is the second British executive to be seized by the US authorities as they put the squeeze on the $12 billion (£6.4 billion)-a-year internet-gaming industry. He joins a growing band of British executives who have been caught out by America’s enforcement of its laws on foreign businessmen.
Dicks’s arrest wiped hundreds of millions of pounds off the share prices of British online-gambling firms last week. Sportingbet makes two-thirds of its profits in America. If the arrests continue, some executives are wondering whether they can afford to do business there.
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It is not just snappy-suited frequent flyers who are worried. Fund managers are also eyeing events across the Atlantic because they have invested heavily in the industry in the hope of handsome profits. They also face arrest under America’s draconian laws.
“I’M very relaxed about how 2006 is starting and how it’s going to end,” Nigel Payne, chief executive of Sportingbet, told the newsletter Warren’s Washington Internet Daily back in January.
The newsletter is an insider’s must-read for telecoms and internet lobbyists in Washington, where Payne has been campaigning in recent years to have the laws on internet gaming relaxed. He is a chartered accountant by training and has positioned himself as the acceptable face of internet gambling.
In November last year he appeared on CBS’s 60 Minutes television news programme.
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Some 12.5m Americans were gambling online, Payne said. “There will be more online poker games per day at the end of this year than all of the casinos in the entire world put together. It’s a huge business.”
The US authorities should regulate the business instead of trying to prosecute it, he said.
“Do you think the internet’s suddenly going to go away? So what are we going to do in 10 years’ time when this industry is 10 times bigger than it is today? I often say to people, ‘Please give me one solid, plausible argument why you shouldn’t regulate it’.”
The British executive has a home in Florida and, friends said, intended to take up lobbying full time when he stepped down from Sportingbet.
Now Payne and his colleagues have been informed that they, too, will be subject to arrest if they step on American soil.
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Dicks’s warrant was issued by the state of Louisiana, one of eight US states that have laws that explicitly prohibit internet gaming (see panel).
But it is not just those states — the Justice Department has also consistently said that online gambling is illegal.
In July the FBI seized British-born David Carruthers, chief executive of Betonsports, at Dallas airport.
At the time, many in the gaming industry argued that Carruthers’s arrest was a problem specific to his company. Betonsports was founded by Gary Kaplan, a controversial and colourful American who once put a bullet into a computer in his office after losing a bet. Kaplan is now on the run, charged with 20 serious offences, and his firm has been linked to companies controlled by the Mafia.
On top of that, Carruthers was widely seen as having antagonised the US authorities, thumbing his nose at the law by parking a bus advertising his firm outside American football games.
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“Peter Dicks’s arrest is different. He was non-executive chairman and not an industry figure. If he has been arrested, nobody is safe,” said one American gaming executive.
Dicks, said a former colleague, is an “upstanding West-Country gent with a great — perhaps slightly geeky — interest in technology”. A venture capitalist and founding investor in Google and Ebay, Dicks is a director of various British and American companies, including Polar Technology Trust and Standard Microsystems. He had little influence over Sportingbet’s day-to-day operations.
According to the US authorities, Dicks was apprehended at JFK airport after customs officials carried out a routine check, and discovered the outstanding warrant issued by the Louisiana State Police gaming enforcement division.
This weekend Dicks is out on $50,000 (£27,000) bail awaiting a hearing next Thursday to determine if he will be shipped to Louisiana.
One American gaming executive said he found the story of Dicks’s arrest hard to believe. “There are thousands and thousands of outstanding warrants out there,” he said. “If they were all checked like this, no plane would ever get off the ground.” He said that the industry now believed a black list of internet-gaming executives had been drawn up and those people would all be subject to “routine” name checks followed by arrest if they came to America.
Executives at Sportingbet’s rivals were cancelling plans for US trips as their share prices plummeted.
“This isn’t going to do anything to improve consumer protection,” said Keith Furlong, deputy director of the US-based lobbyist Interactive Gaming Council.
“The only thing it is going to do is stop British executives from travelling to the US.”
One non-executive director said: “The case of Dicks is shocking; not only did we assume that the arrest of Carruthers was to do with other activity, but we thought that at least non-execs would be safe. It seems not. There’s no way I’m going to America — why would I risk poking my tongue out at the US authorities?” Nor was the panic restricted to gaming executives.
Fund managers have also become worried about America’s aggressive stance towards gaming companies.
Although many of the institutions have been careful to own the gaming companies through their UK subsidiaries, some American investors are still glaringly obvious on the list of shareholders.
Fidelity International, one of the world’s biggest fund- management houses, is also one of the biggest holders of gaming companies. As well as being the top shareholder in Party Gaming, Fidelity also holds nearly 15% of Sportingbet. The next largest is Deutsche Asset Management, with nearly 7%, followed by Merrill Lynch Investment Managers (4%), M&G (3.7%) and Morgan Stanley (3%).
All the institutions list their UK arms as the holders. But the register of investors also lists US holders, including some through Goldman Sachs in America and Tiaa-Cref Asset Management.
In the past few days the managers have been spooked by another federal law with similar wording to that of the Louisiana law. The Prohibition of Illegal Gambling Businesses Act states that: “Whoever conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business shall be fined under this title or imprisoned not more than five years, or both.”
Gaming-law expert Joseph Kelly, professor of business law at Suny College, Buffalo, New York, said it was extremely unlikely the act would ever be used against shareholders. “The Justice Department says there are a lot of laws that prohibit online gambling and those that aid and abet it, but I wouldn’t be too worried if I was a shareholder,” he said.
Kelly said the Justice Department would be too afraid of losing the case. In London the law is being scrutinised by worried investors. One lawyer said: “We have been swamped with calls from institutions about this phrase. It’s never been used before but nor have the other laws.” Some shareholders in the gaming companies were cancelling trips to America. One said: “Our lawyers say we are on firm ground. But I can’t see the upside of going, whereas the downside is gaping.”
THE trouble with prosecuting gaming companies is that there is “no body to be imprisoned and no soul to be damned”, said the famously anti-gambling law lord, Lord Denning. “That’s a real difficulty here for the US authorities,” said Kelly.
Arresting individuals makes the headlines and damages companies but it leaves the industry untouched, he said. “Even if you close down, say, Betonsports, it’s one down and 292,000 to go.”
Denning’s complaint about the difficulty of legislating against casinos was made in the 1960s before the introduction of strict controls. Next year the newly formed Gambling Commission will grant licences to UK gaming companies.
The more laissez-faire attitude of the British authorities is likely to cause yet more tension with the US. Internet gaming has become a huge industry in Britain thanks to American punters and the US laws that prevent American companies from competing. But for how long? For the moment, the bookies’ eyes are on Louisiana.
One adviser to the gaming industry said: “The grubby practicality is that Peter Dicks is going to be the one to clarify the law. The rest of us will sit tight, away from America, until it is cleared up.”
Online gambling in the US is a bad bet for foreigners
AMERICAN law is being applied to foreign companies and directors because US courts have ruled that a crime takes place where the wager is placed and not where the online bookmaker is based.
Gambling in the US is covered by a complex mix of laws that vary from state to state, and federal laws that cover the entire country.
The Federal Wire Act of 1961 has been the main prosecutorial weapon used against online gaming firms.
It states that: ‘Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.’
The Department of Justice argues that the act means that all online gambling is illegal. But US courts have ruled that it applies only to sports betting, not poker or online casinos.
Investors in online-gaming firms are worried about The Prohibition of Illegal Gambling Businesses Act of 1972. It states that: ‘Whoever conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business shall be fined under this title or imprisoned not more than five years, or both.’
The law has investors worried that US prosecutors could come after them, arguing that they are financing illegal gambling businesses. The law could also be used to prosecute directors of the firms and anyone who helped the company — from advertising to public relations. oThe legislation covering gaming was largely drawn up before the arrival of the internet. These concerns are being tackled by the Internet Gambling Prohibition and Enforcement Act now before Congress.
Also known as the Goodlatte-Leach bill, after the Republican politicians who are championing it, the bill would update the Wire Act to clearly outlaw internet gaming across America.
It would also prevent banks and credit-card companies from processing payments to internet-gambling sites.
A vote is scheduled for later this month and the gaming industry believes it has a slim chance of passing.
In addition, seven states — Illinois, Indiana, Louisiana, Michigan, Oregon, South Dakota and Washington — have legislation clearly outlawing online gaming.