- Reuters
A computer screen displays an online gambling website. Two British-based online gaming companies sold out for US$1 each Friday as U.S. President George W. Bush signed the Unlawful Internet Gambling Enforcement Act into law.

British-based online gaming companies began folding the cards on their United States operations Friday as U.S. president George W. Bush signed a bill banning Internet gambling there.

The closure of potentially the most lucrative market in the world is a severe blow to the nascent online gambling industry, with those companies not facing complete collapse still reeling from the costs of exiting the United States.

Caught by surprise

The North American market accounted for the vast majority of earnings of London-based Internet gaming companies and they were caught by surprise two weeks ago when U.S. Congress passed the Unlawful Internet Gambling Enforcement Act, making it illegal for banks and credit card companies to settle payments to online gambling sites.

Shares in gaming companies sank rapidly after that announcement and Bush provided the final hit Friday when he signed the measure into law as part of a bill aimed at improving port security.

Sportingbet PLC and Leisure & Gaming PLC both sold their U.S. operations for a token US$1 on Friday.

World Gaming PLC directors resigned, leaving the company in the hands of administrators.

PartyGaming PLC, the world's largest gambling company, said it had suspended all real money gaming activities to customers in the United States.

Empire Online PLC said it would focus on gaming outside the United States, while 888 Holdings PLC said it was considering its options.

The loss of U.S. business is crippling. U.S. residents account for half a market that is estimated to be worth US$15.5 billion this year in "spend" value, according to the Betting Research Unit at Nottingham Business School.

The spend value is the amount gambling companies win from their clients, or the amount gamblers lose and is much less than revenue because most of the revenue is recycled to gamblers in the form of winnings.

Analysts said the industry is now cleaving in two. On one side, are the London-based companies that are pulling out of U.S.-facing operations. On the other are private offshore companies located in the Caribbean, which find it easier to reach U.S. customers through third parties that are keeping their U.S. businesses.

Telephone transmissions

Although U.S. residents account for more than half of the business of online casinos, no major companies are based there because the United States has, since 1961, prohibited using telephone transmissions to bet across state lines.

Looming over the decisions by the London-based companies was the arrest of two executives while travelling through the United States. Peter Dicks, the former chairman of Sportingbet, was detained in New York but released after New York Governor George Pataki declined to sign a warrant extraditing him to Louisiana, where he was wanted on charges of illegal online gambling. Former BetOnSports PLC Chief Executive Officer David Carruthers remains under house arrest in the St. Louis area awaiting trial on federal charges from the U.S. attorney's office in St. Louis, based on the 1961 Wire Act.

Sportingbet offloaded US$13.2 million of debt Friday by selling its U.S. sports-betting, casino business and poker operations to Antigua-based Jazette Enterprises Limited. Jazette has agreed not to take bets from non-U.S. residents for two years, and not to take bets from customers outside the Americas for three years.

Sportingbet said the sale saved it the US$14 million cost of closing down the operations, which employ 500 staff.

Saddened

Andrew McIver, Sportingbet's chief executive designate, said in a statement that the company was "saddened to have to dispose of such a fantastic business as a result of political actions in the U.S. Congress."

"The sale however, prevents significant closure costs which would have been both expensive and time consuming. It also preserves the employment of ... colleagues who have worked so hard to build the U.S. operations into the highly-profitable business it is today," McIver said.

Leisure & Gaming sold all of the shares of its wholly-owned subsidiaries - VIP Management Services, Bon Bini Investments, EH Gaming Ventures, ECom ServCorp and Nine Holdings - to Stockdale Investment, a newly-incorporated company established by Alistair Assheton, former chief executive of the company.

Like Sportingbet, Leisure & Gaming said that sale was the best course of action for shareholders, given the alternative of liquidating the businesses at a cost of around US$6 million.

World Gaming instead appointed administrators to the business after the resignation of its directors.

"This decision (to call in administrators) follows discussions with all key parties and after receiving appropriate legal advice. These (U.S.) operations contributed to the overwhelming majority of the company's revenues for the year to date 2006," World Gaming said.

Real money gaming suspended

PartyGaming said it had suspended all real money gaming activities to customers located in the U.S. with immediate effect, but it added that its play-for-free websites will continue to be available to U.S. customers.

Sportingbet will retain the Internet addresses and intellectual property of wallstreet.com, aces.com and sportingbetUSA.com, but will not use them for any U.S. gaming purpose.

Sportingbet shares plummeted 10 per cent to 58.5 pence (US$1.09); PartyGaming shares dropped 4.2 per cent to 34.5 pence (64 US cents). Leisure & Gaming shares picked up 3.1 per cent to 8.25 pence (15.32 US cents). World Gaming shares were suspended at four pence (7.4 U.S. cents).

- AP