Bentley College Marketing- Honors

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Tuesday, March 21, 2006

New Legislation May Cause Online Casinos to Fold

This week on Marketing Shift, John Gartner made a short posting entitled, ‘Congress Bets on Closing Casinos’. In it, he describes a piece of legislation that seeks to put stop to the hundreds of millions of dollars that flow from the 8.5 million regular online players in the U.S. through internet poker rooms and casinos daily to places like Antigua, Gibraltar, Costa Rica and the United Kingdom. Gartner’s post is quite short, but it links to an article on Reuters which goes a bit more in depth.

The article explains that the bill which originated with the House of Representatives Financial Services Committee, would make it illegal for an online gaming business to accept money (in the form of a credit card deposit, wire transfer or otherwise) from a resident of the United States in a state where online gaming is prohibited. The law does not outlaw horse racing or fantasy sports. The bill will soon be open for consideration on the House floor.

Online gambling has become big business, to the tune of $12 billion per year according to Reuters. Party Gaming, the corporation who controls Party Poker, went public on the London Stock Exchange for over ₤5 billion last year and over ninety percent of their revenues come from the United States.

There are some major issues involved with this that I would like to discuss. It is already illegal to participate in online gaming because it is considered a form of money laundering under the Federal Wire Act. However these entities, online poker sites in particular, have been advertising primarily during poker related television programming. They do this by promoting .net sites at which players can only wager ‘play money’. The real wagering goes on at the .com sites. The problem with this is that the .net sites incur huge losses (₤70.6 million in 2005 for Party Gaming), and the only way they generate revenue for the company is to transfer people to playing at the real money sites where the companies collect ‘rakes’ by hand in cash or ‘ring’ games and entry fees for tournaments. Most players find the quality of play on the .net sites to be poor, and become annoyed or successful and ultimately try their hand at the .com, real money versions.

It is interesting that these sites operate in a gray legal area at best but are still allowed to advertise on national television and promote their sites in various other ways. It seems as though they have found a serious hole in the legal system and are driving their armored trucks loaded with cash right through it. As of now this is draining money from the American economy in that tax revenue is lost. In addition, the revenue from poker, which is an American creation, on the internet, another U.S. innovation, goes outside our borders.

The meteoric rise of poker, including online poker, has coincided with the nationwide, highly suggestive “What Happens in Vegas, Stays in Vegas” 'Only Vegas' campaign. The advertisements promote using fake identities, and show awkward situations where people describe their trip to Las Vegas, leaving out what might be inappropriate to discuss with others. Is gambling illegal? In most places. Is it immoral? By the general consensus… probably not anymore. Poker video games have been rated ‘Everyone’, meaning they are appropriate for children. In the ‘wired’ age where almost everything is convenient and instantly accessible, why should gambling be any different? If Washington were to cast down this bill and legalize online gaming in addition, it would entice businesses to move from their offshore locations into the U.S., bringing their tax revenue along with the 60% margins that the sites operate with back to U.S. soil. The United Kingdom has already done so.

There are clear taboos about online gambling. One is that they target people with a problem, just like tobacco and alcohol companies. However only one of the former is publicly persecuted. Is online poker 'Evil, harmful and addictive' like tobacco, or 'Enjoyable! (harmful and addictive)' like alcohol. My feeling is that people can squander money or place wagers plenty of ways, and in turn outlawing online gaming will not solve the problem of problem gambling. Whatever the decision, the government needs to eliminate the gray area that these websites operate in so there is some grounded legality for the matter, even if the morality remains uncertain.

My critique of this piece is that it was very short and since I am very interested in this topic it left me wanting me more information. As a result I did my own research on Sports Illustrated, Lexis Universe, and Wikipedia.

16 Comments:

Blogger Susan said...

there's a boston globe article today on this same issue. check it out.

susan

Thursday, March 30, 2006 3:40:00 PM  
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Friday, March 31, 2006 11:46:00 PM  
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