POKER: US Shut Out from booming industry

http://www.ecommercetimes.com/rsstory/43956.html

Cell Phones Newest Gambling Players, But US Shut Out

By Mike Hughlett
Chicago Tribune
06/25/05 5:00 AM PT

Online poker is especially fast-growing. The average daily number of players in the Internet’s most well-traveled poker rooms zoomed from about 2,400 at the beginning of 2003 to about 60,000 in recent months, according to PokerPulse, a Web site that tracks online poker sites.

Poker has come to the mobile phone.

The service from PokerRoom.com, launched in March, highlights the fast growth and accessibility of online gambling. The business has grown so much that investment bankers are circling the major players seeking lucrative new stock offerings.

Yet any such offerings will not be in the United States — the result of Internet gambling’s great paradox. The U.S. market by far is the world’s largest, but the government remains adamantly opposed to Web wagering.

The stance has kept U.S. companies from venturing into a new market, but it hasn’t stopped people from betting online. And the government hasn’t shown the will to bust individual bettors.

Social Cost
So the U.S. gets no economic benefit from online gambling, yet it is still saddled with the potential social cost — a growing venue for problem gamblers to feed their addiction.

Online gambling is still dwarfed by traditional forms of wagering. Last year, online gamblers comprised about 3.9 percent of the US$237 billion global market, according to Dresdner Kleinwort Wasserstein, a European investment bank.

Dresdner’s London analysts see online betting rising to 6.5 percent of the total market by 2008. Online poker, an estimated $2.9 billion global business this year, is expected to double in size by 2008, Dresdner forecasts.

Poker is especially fast-growing. The average daily number of players in the Internet’s most well-traveled poker rooms zoomed from about 2,400 at the beginning of 2003 to about 60,000 in recent months, according to PokerPulse, a Web site that tracks online poker sites.

Karen, a 37-year-old Chicago graphic designer, is one of those players. She declined to be identified by her last name because of online poker’s murky legal status in the United States.

Karen picked up the game after watching her brother play. She owns a business and often plays online during lunch or late afternoon breaks.

“I’ve never lost a ton of money or made a ton of money,” she said. “I really don’t play super-seriously online.”

Going Mobile
Online games offer a way to practice for real poker games with friends, and they’re fun, she said.

“It’s very entertaining and very addicting,” she said, but adds “my personality is able to control getting out of control.”

Karen, who does not play online at home, says she’s not interested in PokerRoom.com’s mobile phone option.

PokerRoom.com appears to be the first Web gambling outfit to allow its game to be downloaded onto mobile phones. Other poker sites have been mulling the option, said Sue Schneider, publisher of St. Louis-based Interactive Gaming News.

“It’s kind of hard to say how it will take off. You can take up a lot of your allocated [minutes] playing poker,” she said. That could be expensive, given that airtime is pricier than computer time.

Sweden-based PokerRoom.com is the world’s sixth-biggest Internet card room, though it jockeys back and forth in rank with the fourth- and fifth-placed sites, according to PokerPulse.

PokerRoom.com was created by two Swedish medical school students with a penchant for poker. Their site started accepting bets in 2001, taking a small percentage — usually no more than $3 — off each wager, as is standard in the industry. About 80 percent of the site’s customers are in the United States.

Last year, PokerRoom.com’s parent company, Ongame, posted sales of $60 million and a tidy operating profit margin of 33 percent.

UK Focus
The company is grooming itself for an initial public stock offering, though a final decision hasn’t been made, said Patrik Selin, PokerRoom.com’s chief executive.

PokerRoom wouldn’t be alone in the public markets.

Gibraltar-based PartyGaming, which runs the world’s biggest Internet card site, PartyPoker.com, has hired Dresdner to look at an IPO. If PartyGaming goes public, it reportedly would be valued at nearly $5 billion.

Another site, EmpirePoker.com, said in April that it is preparing for an IPO on the London Stock Exchange.

And two other gambling sites, one based in Gibraltar, the other in London, are considering UK stock offerings. And Sportingbet, a British online gambling outfit, saw its stock double last fall after acquiring a leading Internet poker site.

“London is sort of becoming the Silicon Valley of online gaming,” said Dennis Boyko, head of Vancouver-based PokerPulse.

That status could get a boost from a new UK law that creates a clear legal framework for online gambling. The law, which went into effect in April, is welcomed by the industry.

“It will be very, very good for us,” PokerRoom.com’s Selin said. “It’s a stamp of approval.”

The legitimacy conferred by regulation should help poker sites attract a mass audience, he said. Now, the industry’s typical customers are “young, risk-taking men.”

With regulation, “my mother is more likely to contemplate playing poker,” Selin said.

WTO Ruling
In the United States, meanwhile, the regulatory climate seems to have gotten frostier. In March, a World Trade Organization appeals panel ruled that the United States can maintain many of its restrictions on Internet gambling, largely reversing an earlier WTO decision.

The ruling involved a complaint lodged by the Caribbean nation of Antigua. Both Antigua and the United States claimed victory, but gambling law expert I. Nelson Rose of Whittier Law School in California wrote that the United States got the best of the ruling.

The WTO upheld the key U.S. claim that it has the right to restrict Internet gambling to protect public morals or maintain public order.

The U.S. stance seems ironic given the huge expansion of legalized gambling over the past 15 years. But Internet gambling is unpopular politically, said William Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada at Reno.

States embraced casinos and lotteries because of tangible benefits such as jobs and tax revenues, he said. But Internet gambling entails far fewer jobs, and — like many Web-based commercial activities — is harder to tax.

Still, the U.S. stance on online gambling only keeps U.S. companies from capturing their home market, Eadington said. “What’s the point of a law that is predominantly symbolic and keeps any bona fide American company out and prevents any meaningful regulation?”

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