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July 18, 2006

BetOnSports guy arrested, Tues., July 18, 2006, 5:54 PM

Online gaming is the thin edge of the wedge as far as I am concerned. Bigger social issues are involved.

Today the U.S. authorities arrested a non-American on U.S. soil because he heads online gaming company BetOnSports.com (SportBet).

Talk about going from billionaire's row to the jailhouse in a single meeting. Even Mikhail Khordokovsky, once Russia's richest person and 16th wealthiest in the world because of his ownership in oil giant Yukos, knew the Kremlin was pursuing him and that his future was likely to be spent in a Russia Far East gulag. But BetOnSports.com's CEO David Carruthers was nabbed by the FBI in Texas today along with 10 others (on racketerring, conspiracy and fraud charges) shortly after U.S. legislators changed the law on online gaming. Suddenly the whole industry is a dubious one for traders who are long.

And PartyGaming shares collapsed today as well. Isn't it interesting that in 2005 I wrote such a negative piece on PartyGaming. Do you recall my words?


"If there ever was an IPO I'd like to see go Dot Bomb, this one is it. PartyGaming.com or is it PartyGaming.con?"

Of course, what I was railing about was the unchecked use of the Internet to spam the world with material that is considered unacceptable in many parts of the world. So I was asking for regulation, and like anything lse, you must be careful what you wish for.

Today I am still opposed to spam, but I am less inclined to have the Internet regulated. That's because the regulations over media are always put in place to protect certain vested interests and not the public. We need a free and open Internet. We also need laws against unacceptable use of it.

Those standards are up to individual countries, and if people like BetOnSports.com's Mr. Carruthers wish not to ever travel to those countries, that's fine by me. And if they do, and they have been found locally to be a law breaker, then they ought to be arrested.

It would be amazing how quickly this spam problem could be cleaned up without having to bring in regulations that serve vested interests.

At the end of the day, it is traders who buy the shares of these companies who permit them to grow. So rather than arresting just Mr. Carruthers, why not arrest the corp finance team at Goldman Sachs and other Wall Street firms who invested in his company knowing full well what he was up to was illegal?

These people on Wall Street seem to be "made".

Below are the historical share price charts of PartyGaming and a few of the peer companies that trade in the U.K. Most have been halved in a couple months. After today they will drop a lot lower.



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Now that the authorities are in action, why not look into the Canadian gaming software company Cryptologic (TSX: CRY and NDQ: CRYP) which licenses offshore operators. Their royalty deals effectively make the licensor to be fronts for this company, and the company is the principal. How the authorities missed this is beyond me.

I note that Bay Street broker-dealers have already sent their analysts today to ROBTV to protect their interests, saying that "Cryptologic does not run a sports book but merely sells gaming software for online poker". Hogwash.

When we see something waddle and quack, why can't we just call it what it is? Why the nonsense, just because money is on the line?

Anyway, I'm happy to see the market smashed Cryptologic stock today.

Posted by Posted by Bill Cara on July 18, 2006 05:54:26 PM | Category: Situational Investing

Discourse

Isn't it amazing how LONG and how much $$$$$$ is allowed to be made, before the high and mighty finally pretend to do something about it?

Hey and nothing to worry about. Look at this.

13-07-2006

Nothing has changed

According to analysts at ABN Amro "nothing as changed in the wake of the US online gambling bill passing through the House of Representatives," and "PartyGaming and others can continue to operate as they currently do." Dresdner Kleinwort went on to say that the current status quo would remain unchanged for "many years to come."

Posted by: procol [TypeKey Profile Page] at July 18, 2006 6:17 PM [link]

BetOnSports and PartyPoker (and the rest) have nothing to do with spam. They are online gambling sites.

The legislation attempting to outlaw these online sites so that US citizens can't access them is pure partisan politics in a mid-term election year.

The Republicans who fronted this bill cited morality as the prime driver. They say they are trying to protect good Americans from the venalities of gambling.

This has nothing to do with morality and everything to do with politics and taxation.

If these Republicans were truly concerned about morality, we wouldn't have casinos in nearly every town and city in the U.S. Not to mention state-run lotteries in almost every state, a hundred or so racetracks, thousands of poker clubs, etc, etc.

The difference, of course, is that these gambling emporia are money-makers for the state and the offshore online sites aren't.

If someone can tell me how an online casino or poker room differs from a bricks-and-mortar casino or poker room from a moral standpoint, I'll be happy to change my tune.

Posted by: leewhee [TypeKey Profile Page] at July 18, 2006 6:29 PM [link]

If an American fly to Las Vegas to play porkers and casinos, you are a tourist. If he plays the game from desktop at home after work, he is a criminal. Does it sound ridiculous?

Posted by: SmallCapFan [TypeKey Profile Page] at July 18, 2006 6:38 PM [link]

leewhee,

I absolutely disagree with the premise there is no connection between spam and online casinos, or porn, etc. Through spam, these perps have flooded the world with ads for online gaming. Without doing so, their businesses would enjoy poor growth rates, and would not attract the trader capital they do. Through spam, they have been dialing for (anybody's) dollars, and there is no check and balance. Consequently, our mailboxes get filled with this garbage.

Casinos are legitimate taxable businesses. Legislate all electronic gaming by requiring licensed casinos to own them. Then force them into the same regulations as securities brokers.

As it is these online gaming companies are a law unto themselves. They are dealing in money and need to be regulated.

If they are going to derive great financial benefits from society and cause damage to a large part of it -- and they do -- then let them pay tax. Then, if these casino operators are in say Nevada or New Jersey, the 140 countries of the world can seek a percentage of the taxes levied from that jurisdiction on a pro rata basis -- based on the registered domicile of the users.

This is really a simple problem to resolve.

And if the licensed operator is spamming a country that wants it stopped, they can cause that to happen, simply.

Posted by: Bill Cara [TypeKey Profile Page] at July 18, 2006 6:51 PM [link]

Follow the money baby. It's all about taxation and political contributions. Give the uncle sam his piece and beltway whores their piece and this would all go away.

Posted by: cb [TypeKey Profile Page] at July 18, 2006 6:57 PM [link]

But cb, that's an unfair comment. Would you care to have somebody able to drive 200 miles an hour down your local highway and get away with it just because they come from a foreign country? I hope not. Or, would you want them to have the same regulations in place you face, which are mostly there because the public wants them.

When you go into a casino, you expect them to have a license and be continuously checked for fair practices. You don't mind the taxes the casino pays and you expect local society to receive the benefits as well as the problems associated with having the casino there.

I'm not against casinos; just unlicensed, unregulated, and untaxed ones. Why should they get a free ride?

Posted by: Bill Cara [TypeKey Profile Page] at July 18, 2006 7:12 PM [link]

I don't know who is right or wrong on this casino thing but the people who are spaming me 10 to 20 times a day touting pink sheet stocks are the real crooks.

I can not stop it, they use new names and adresses every time. I don't know who falls for this BS but I would be cheering if the FBI hunted them down.
I would also like to see that happen to the person or company who gave them my e-mail.

Andrew

Posted by: Andy [TypeKey Profile Page] at July 18, 2006 8:42 PM [link]

Bill,
I am in total agreement with you. I am just letting my cynical side out for a walk. My stance on internet gambling is that it should be legalized in the US and taxed.

Those who do not pay tax on revenues generated by US citizens would be breaking the law.

My problem with what happened in Texas is the hypocritical nature of the arrest. So what's good for Vegas and casino boats is not ok for the internet??

The federal government should pass a law and regulate the industry; not pass judgement and impose morality because they got to the party late and/or want to pander to the christian right.

As for spammers, turn on the junk mail feature of Microsoft Outlook-it works great. Also, use e-mail address that are not your primary when posting your address in "public", like this blog. It only took one day to start getting spam after I posted an e-mail address on this blog a few days ago.

Posted by: cb [TypeKey Profile Page] at July 18, 2006 9:15 PM [link]

I don't like spam either, is there consolation in profiting from the US right wing's attack on internet gambling?

ROBTV had a good piece on companies like FUN.TO, and ESI, CRY.TO, and OPMR, which provide software and services to gambling sites. It was said to be unclear if the crackdown will extend beyond sports betting sites, to "skill games" (including poker?) which are apparently exempted from the Housse bill.

Might some of those sites not bounce back quickly? Ultimately, won't the large cap casino companies take over the leading online sites, as onlne gambling is inevitably legalized? (How long will governments want to forego the tax revenues? leave a growing business unregulated and beyond the law?)

Posted by: Jock [TypeKey Profile Page] at July 18, 2006 10:40 PM [link]

I agree that spam is a pain (8 out of 10 emails are junk, AOL receives 1.5 BILLION a day), though nowadays there's plenty of filters to get rid of the mess. I don't see too much reference to online casinos in this list though.

AOL's 2005 Top 10 Global Spam Subject Lines (spam categories in parentheses):

1. Donald Trump Wants You - Please Respond (popular recognition)
2. Double Standards New Product - Penis Patch (sexually oriented spam)
3. Body Wrap: Lose 6-20 inches in one hour (body improvement products)
4. Get an Apple iPod Nano, PS3 or Xbox 360 for Free (technology offers)
5. It's Lisa, I must have sent you to the wrong site ("personalized" correspondence)
6. Breaking Stock News** Small Cap Issue Poised to Triple (stock scams)
7. Thank you for your business. Shipment notification [77FD87] (bogus transactional spam)
8. [IMPORTANT] Your Mortgage Application is Ready (mortgage-related scams)
9. Thank you: Your $199 Rolex Special Included (high-end "deals")
10. Online Prescriptions Made Easy (pharmaceutical)

And which other formerly unregulated government industry can take you from being a pig farmer to a Waterloo student to a billionaire living in Costa Rica, or a college dropout to a Vegas World Poker Tour champion? Energy futures? (ouch.. that one didn't work too well)

http://www.1800-sports.com/bodog-calvin-ayre.shtml

This is totally about government lobbyists for the casino industry & big government, taxing a successful industry, and moving foreign $$$ back to the US, while using it as a trump card for the next election.

And speaking of speed limits, they are yet another way of taxation on the people. 10 km's over the speed limit = $100? In the States you bring your checkbook with you and state troopers fall out of the sky?

Germany has the right idea around speeding though.

http://gettingaroundgermany.home.att.net/autobahn.htm

Over 3,200 km of Autobahn now feature dynamic speed limits which are adjusted to respond to traffic, weather, and road conditions. These speed limits and conditions are indicated using a rather elaborate system of electronic signs (see below).

Despite the widespread belief of complete freedom from speed limits (and a lobbying effort that has the same influence and deep pockets as the American gun lobby), some speed regulations can be found on the Autobahns.

I'm sure more people have lost their life savings in the stock markets over the last 400 years or so than any poker game, and regular casinos seem to be taking more of my grandparent's money than any online casino. Teenagers have the most disposable income of any age group, and how is disposing of it to online gaming any different than buying CDs or makeup?

What ticks me off the most is the fact that they will be working with ISP's to block access to gambling web sites. Where are we, China?

Steve Wynn sits on the American Gaming Ass'n board of directors, the lobbyists who supported the bill. So does the CEO & another exec of International Game Technology. Surprisingly, IGT only dropped 0.31% today. Wynn's stock is up.

My biggest spam problem is those Nigerian guys with my long lost uncle's fortune sitting in a bank waiting for me. How come they can't just mail me a cheque?

http://www.haverford.edu/pols/faculty/glickman/Articles/CJAS_Text_final_1-35.pdf

Posted by: wavesmash [TypeKey Profile Page] at July 18, 2006 10:55 PM [link]

Some of the other bills the senator is sponsoring...

Arizona Sen. Jon Kyl has pushed forward a provision to add specific criminal penalties for building tunnels across the U.S./Mexican border.

http://www.bizjournals.com/phoenix/stories/2006/07/10/daily41.html?from_rss=1

Kyl said the tunnels, which have been discovered on the U.S. borders with Canada and Mexico, including in Arizona and California could also be used by terrorists.

http://www.bizjournals.com/phoenix/stories/2006/07/10/daily31.html?from_rss=1
Kyl, a Republican opposed to allowing less-expensive drug imports in the U.S., Tuesday voted against a measure that would prohibit U.S. Customs officials from blocking Canadian medicines coming in for individual use.

The Pederson camp on Tuesday pointed out that Kyl has received $200,000 from pharma companies during his tenure on Capitol Hill, including contributions from GlaxoSmithKline (NYSE: GSK), Pfizer (NYSE: PFE) and Eli Lilly (NYSE: LLY).

I feel kinda bad for the Dem. running against him.

In Arizona, more than half of the $6.3 million Democrat Jim Pederson raised to challenge Republican Sen. Jon Kyl came from checks he wrote to himself, according to campaign reports.

Kyl has some other interesting stories out there...

“Every senator has done it. It is no big deal to submit
material for the record. It is done every day,� he told the Tribune on Thursday.

http://www.eastvalleytribune.com/index.php?sty=69183&source=rss&dest=STY-69183

The matter hinges on what appears to be a transcript of a live discussion on the Senate floor on Dec. 21, 2005, between senators Kyl of Arizona, Lindsey Graham of South Carolina and Sam Brownback of Kansas.

They appeared to be speaking about the Detainee Treatment Act, which in part dealt with the limits of legal rights extended to terrorism suspects being detained at Guantanamo Bay, Cuba.

However, the scripted exchange never occurred.

Well, that's politics.... :)

Posted by: wavesmash [TypeKey Profile Page] at July 18, 2006 11:06 PM [link]

In the USA the entire gambling scene - any type - has become so overwrought and everywhere and pervasive that it is totally scary - from old pensioners bused to casinos to college kids blowing fortunes on credit-card onine gambling - you have to ask yourself - as an American - is this the kind of country we want. Maybe it is freedom of expression, but it also is a question of values and common decency for the population.

Sorry for the rant but it is a major problem and I doubt the US Congress will do much except butter their own palms.

Posted by: bbcmoney [TypeKey Profile Page] at July 19, 2006 12:01 AM [link]

http://online.wsj.com/public/article/SB114375000762012631-14PeRy_IGy_Ax75SChM_gejdynE_20070403.html?mod=blogs

This is a free WSJ article with David Carruthers making Congressman Leach look very uniformed.

Bill your issue seems to be with regulation. You can clearly see from the article link above that these sites would prefer to be regulated, especially the most legit ones, as owned by PartyGaming and BetonSports.

Although, since their service is basically a commodity, they in essence have had to regulate themselves. That is, logically speaking, the way these sites differentiate is through trustworthiness. When services are basically the same, most gamers go with the place where they feel their money is most secure.

I'm a bit confused as to what Online Gaming has to do with the spam issue. I'm not saying Gaming sites don't use this advertising tactic. But so do a lot of places (Orbitz comes to mind...) And aren't those popups condoned by many of the sites you visit anyway. Those spamming advertisements, keep a lot of the sites I visit free. And as far as I know, pop-up and moreso spam email is easy handled. Most major email services offer this free of charge. This, as far as I know it, is an advertising regulation issue. I mean, is it any different than the 4 credit card applications I get daily. Why draw the line with online gaming emails? Anyway, I got a bit off-topic here, but mainly because I feel the "spam" argue is unrelated to this issue.

Now, if the issue with gaming is religious or moral in nature then I cannot and do not wish to argue at all with you. But I do wish to inquire if your religion suggests to impose it's views on others. I ask this because in the states, a point was made of separating Church from State, although it is not always enacted effectively.

I of course default to the expert in the article for most arguments against these sites. But as some have already noted, enforcing blcoks of access to these sites from one's home is just one step towards total internet regulation. And Bill's been over the reasons why this is dangerous path to go down.

The only remaining argument of course is: "What if I have vested interest in US casinos?". Well then, yes then I can see clearly why you oppose them. But there may be an argument that online gaming is free advertising for Vegas and other B&M casinos. Did I hear the WSOP main event is estimating 7,000 to 9,000 entrants to the $10,000 main event later this month? I can find poker on at least six different cables channels. Every night of the week I can find one or more charity poker game at a number of different pubs. Maybe it's unique to my corner of the world but it's definitely a lot easier to find a group of people willing to head out to Vegas these days than it was several years ago.

I'm all for regulation and taxation, as for the path the government has chosen, I'm just not sure what or how they plan to achieve it. Maybe the impending case against Carruthers will serve to enlight us all about the real issues at hand and give us more direction in how to make these services better and safer.

Posted by: rusticuf [TypeKey Profile Page] at July 19, 2006 12:12 AM [link]