Payback for Kentucky horse racing industry as Internet gambling regulations put forward

Payback for Kentucky horse racing industry as Internet gambling regulations put forward The Kentucky horse racing industry, along with all legal online gambling in the United States (such as pari-mutuel dog racing), may have got more than they bargained for, following the announcement today that Treasury Department has finalized regulations related to the Internet gambling ban in the U.S. and is trying to have them implemented in the remaining days of the Bush administration. Horse and dog racing industries in the country have long advocated against any other form of online gambling, the latest stunt delivered straight from the Commonwealth of Kentucky, where Gov. Beshear is requesting 141 online gambling domain names to be forfeited to the state.

But those who opposed legalizing online gambling an lobbied hard for the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) got much more than they bargained for, considering the fact the Treasury Department has submitted the UIGEA regulations, which also include protection of the banks for "over-blocking" online gambling transactions. For those not following the Internet gambling industry closely, the UIGEA in a nutshell forbids the banks from processing transactions to and from illegal gambling websites and forces them to block such transactions. But in order to "help" the banks, the law includes protection if banks "over-block" such transactions, i.e. if the banks block all online gambling transactions, including those to and from legal online betting websites. Such website is TwinSpires, the Churchill Downs' website for online betting on horse racing. And it's insane to believe that in the current state of the U.S. financial system banks will take the extra time and payroll to go through all transactions to weed out the "legal" from the "illegal". They will simply block them all and go about their everyday business.

With the over-blocking safety net, the banks will simply block anything related to online gambling in order to better comply with the law and the fact that illegal Internet gambling is yet to be defined in the UIGEA, the above scenario is far from impossible. The danger of the financial institutions blocking all online gambling transaction is so real, the American Greyhound Track Operators Association has also voiced a concern with the proposed regulations and the protection against bank over-blocking Internet gambling transactions. The American Greyhound Council has submitted similar papers to the Office of Management and Budget, and the Office of Advocacy of the U.S. Small Business Administration "submits this comment to the proposed rulemaking on the Prohibition on Funding of Unlawful Internet Gambling. The Office of Advocacy believes that Department of Treasury and the Federal Reserve System (hereinafter "the agencies") have not analyzed properly the full economic impact of the proposal on small entities as required by the Regulatory Flexibility Act (RFA)."

Clearly the regulations were rushed, despite the 2 years they have been in the works and the reality is much more grim for the legalized online gambling websites (horse racing, greyhounds, lotteries) than for the offshore online casinos and sportsbooks. As a matter of fact, the Internet gambling regulatory framework in its current state tends to benefit the offshore sportsbooks the most. Websites such as the popular online sportsbook Bodog have been dodging DOJ probes and money seizure, and they have became masters of hiding their transactions from being labeled as "online gambling" in any way. Actually, Bodog announced just a couple of days ago that it has managed to cut the withdrawal processing times for its customer in half! And this is one of the top offshore sportsbooks, there are literally hundreds of small offshore outfits which manage to operate under the radar without a problem. And with the increased chance that Americans will see their transactions blocked to and from websites such as TwinSpires, TVG and YouBet, guess where their customers will head to? No, it's not Las Vegas.

Of course, the online gambling industry will suffer offshore casualties, as well. In fact, the first victim has been taken down, even before the regulations have been enforced. Microgaming, one of the three biggest online casino software providers, announced that since November 10th all its licensees will stop allowing U.S. citizens to their properties. But Microgaming, although providing arguably the best casino software, has long been the most weird in their actions. The company last year stop allowing players from 11 U.S. state, with no apparent reason, and has never been nimble enough to provide good depositing and withdraw options. Although plenty of good Microgaming online casinos were lost, the company was clearly on its way out, anyhow. It's expected that a few other offshore sportsbooks and casinos will drop out of the U.S. in the coming months, but the majority would remain operational.

Survival of the fittest is what it boils down to with the current Internet gambling regulations and one thing is for certain - the online horse racing and greyhound betting websites are far from fit to compete with what will be an equal playing field of "lawlessness". In the eyes of the banks, both the transactions from Bodog and the transactions from TwinSpires will be seen as illegal and will be blocked. And with the offshore sportsbooks and gambling websites having a two-year head start in learning to operate in this kind of environment, it's only clear who will come out as a winner at the end, if the current Internet gambling regulations are put in place.

Published on 11/07/2008