Partygaming steals a march on US casinos - Sunday 12th of June 2005

It seems bizarre but one of the biggest companies on the European side of the Atlantic is banned from operating on the American side.

Partygaming, the internet poker company that floated on the London Stock Exchange this week, is believed to have a worth greater than many blue chip companies - but US law-makers are adamant that it breaks the law.

Online gambling is banned in America, so Partygaming which was set up by an American is based in Gibraltar with no assets in the US.

Its prospectus concedes: "In many countries, including the United States, the group's activities are considered to be illegal by the relevant authorities."

But, it adds the crucial clause: "Partygaming and its directors rely on the apparent unwillingness or inability of regulators generally to bring actions against businesses with no physical presence in the country concerned".

In other words, even if Partygaming were illegal, what could the authorities do?

Compulsive pleasure

Not that Americans are exactly shunning the website.

It's estimated that nine out of every 10 of its dollars last year came from the US.

At $600m those revenues are hefty and generated a profit of $350m in 2004.

When the dotcom bubble burst five years ago, not everything was destroyed - online gambling quietly thrived.

And then noisily thrived.

Partygaming was founded by Californian lawyer Ruth Parasol, who is now based in Gibraltar.

She teamed up with an Indian software engineer who designed a programme that would allow thousands of people anywhere in the world to simultaneously take part in internet poker games.

Their timing was impeccable.

Partypoker exploded as a game in 2002, driven partly by television coverage of big money contests with cameras under a glass table so viewers could see the players' cards.

It was a compulsive, vicarious pleasure that hooked multitudes of prospective customers.

Organised crime

Every estimate now predicts that growth will be phenomenal, perhaps from an annual billion dollars spent globally today to 10 times that amount in five years.

American poker players go online regardless of US law

Much will turn on the law in its biggest market, the United States.

The Interstate Wireline Act was passed nearly 50 years ago in an effort to stop organised crime rigging gambling.

Under it, "wire communication" of bets was outlawed on "sporting events or contests".

Legal disagreement

But poker clearly isn't a "sporting event" so is it a "contest" as defined by the law?

American lawyers are divided.

In 2001, a judge in Louisiana ruled that the act "does not prohibit internet gambling on a game of chance", a ruling that was sustained by a higher court.

Other states take a different view.

The Attorney General of New York, Eliot Spitzer, pursued finance houses that allowed their services be used to pay for online gambling - so firms based in New York have now blocked the use of their credit cards for online gambling.

Laughing all the way to the bank

So state law varies while the Justice Department maintains that federal law is unambiguously opposed to on-line gambling.

On top of that, the World Trade Organisation may have something to say about it.

In the past it has ruled that American attempts to criminalise some companies offering online gambling from the Caribbean broke rules of fair trade.

And some American companies based in Las Vegas may now be worried that they cannot get involved in what is a very lucrative expansion of their business from real casinos to virtual ones.

They have assets in the US which the authorities could come after if they break American law, so they are tied to real bricks-and-mortar casinos on terra firma rather than imaginary ones in cyberspace.

Which leaves the owners of Partygaming laughing all the way to the bank - whatever American legislators might think.

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