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Online Gambling Gone Wild: U.S. Crackdown Sparks Offshore Boom

Far from slowing its growth, a government crackdown on online gambling has sent many sites offshore, and many others underground. But it's a good bet that Internet poker will remain

[Update, March 31, 11:30 am. On March 30, the World Trade Organization said that the United States had failed to comply with an earlier ruling, which mandated that the U.S. lift its ban on online gambling. Experts say the WTO decision could result in possible commercial sanctions.]

Daniel Negreanu tends to understand the odds pretty well. As one of the most successful poker tournament players in the world, "Kid Poker" was in 1998 the youngest player to win the World Series of Poker -- an honor he held until 2004 -- and he continues to dominate high-stakes games throughout the poker-playing world.

Full Contact Poker, which decided to stay in the U.S. market, allows people to play with no limit.


Full Contact Poker, which decided to stay in the U.S. market, allows people to play with no limit.

However, in December 2005, wary of increasing government hostility toward Internet gambling, he knew it was time to fold. "Clearly, it wasn't going to be possible to live in the U.S. and run an online poker operation," he said. So he sold his successful online poker site, Full Contact Poker, to Big Stack Enterprises, based in Curacao.

Negreanu, as usual, was ahead of the game. It wasn't until 10 months later -- Sept. 30, 2006 -- that the shot heard round the online gambling world was fired when Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA) as part of the larger Safe Ports Bill. In less than two weeks, President Bush signed the bill into law, and the global online gaming industry -- which derived as much as 60% of its revenue from the U.S. market -- took a devastating hit.

The event couldn't have been timed worse from the point of view of Jez San, the former director of 3-D game developer Argonaut Software and the founder of PKR.com, a United Kingdom-based online poker site that was still in beta test at the time the bill was approved. Congress passed the legislation just 24 hours after San had finalized his first round of financing -- and after he had sunk $1 million of his own money into his venture. "We had to make a decision, and we made it immediately not to launch into the U.S. market," said San, whose company has never allowed any U.S. citizens to play for money. "I like America. I want to be able to keep visiting without getting arrested. It was very important to me that we were legitimate."


At PKR.com, players create their own avatars, complete with customized facial expressions and gestures to bring a real-life component to the game.


At PKR.com, players create their own avatars, complete with customized facial expressions and gestures to bring a real-life component to the game.

At the same time, passage of the bill caused a host of companies that had previously been operating in the United States to withdraw. These included some of the largest and most successful online gambling sites in the world, including PartyPoker.com and 888 Casino-on-the-Net, both publicly traded and listed on the London Stock Exchange.

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