Online Casino Gambling In New York Times
Published: Monday, December 26, 2005 Online-Casinos.com
CHEERFUL READING ABOUT ONLINE CASINO GAMBLING
NY Times piece on online casino gambling receives wide coverage
New York Times writer Matt Richtel's piece on the online casino gaming industry received wide coverage in the mainstream media over the end of year holiday period, pointing out that although the U.S. authorities seem determined to classify Internet gambling as illegal, it remains an area for solid investment by top Wall Street firms.
The article reports that blue-chip investment houses like Goldman Sachs, Merrill Lynch and Fidelity hold hundreds of millions of dollars in shares of online casinos and betting parlours, which are publicly traded on the London Stock Exchange and headquartered in a diversity of offshore locations like Gibraltar, Alderney, the Caribbean and Costa Rica.
"The growing participation by American investors underscores a striking gap between the federal law-enforcement position on online casino gambling and the realities behind what has emerged as a booming business. It also highlights the difficulty of policing cross-border activity in the Internet age at the same time that electronic commerce and a global economy are creating fast economic partners across national boundaries," writes Richtel.
Discussing the legality of online gaming in the States, and by implication the confusing situation in America, Richtel quotes Jaclyn Lesch, a spokeswoman for the Justice Department, who said that the agency considered online gambling illegal but declined to "...comment on the liability or hypothetical liability of a company or an individual."
But online casino gambling analysts and company executives whom the writer interviewed said that the investments highlight how widely the federal policy is, in essence, being ignored.
Millions of Americans use the Internet to play games like poker, blackjack, craps and roulette, or to place wagers on sporting events. Online casinos and online poker rooms advertise in magazines and on cable television while filling big billboards in Times Square and other places where crowds congregate. Celebrities like Jesse Ventura, the former governor of Minnesota, hawk for them.
Online casino gambling's arch opponent in the USA, Rep. Bob Goodlatte, said that the federal government had essentially given up enforcing laws against offshore casinos. He noted, for example, that casino operators now travel freely within the United States, gathering at trade conventions even though, he said, prosecutors would be within their rights to arrest and bring charges against them.
He said that the involvement of investment firms could be part of a pattern of laws being flouted.
"It's very bad, and the Congress ought to investigate it," Goodlatte said, adding that it may turn out that the investment houses are knowingly supporting and promoting illegal enterprises.
However, the article points out for their part, the investment houses have taken the position that they indeed know there are legal risks involved in investing in offshore casinos, but that the risks are outweighed by the benefits of owning shares in growing, highly profitable businesses. Those shares can give a lift to mutual funds and other types of investments sold by the investment houses, meaning bigger returns for clients.
"Our analysis shows the gain from these stocks outweighs the very small risk of owning them," said a spokesman for one major investment house.
The ownership rolls of offshore online casinos read like a Who's Who of America's top investment firms. For example, public filings show that tens of millions of shares of SportingBet, a company listed on the London Stock Exchange that allows people to place bets on sporting events, are owned by Fidelity, Merrill Lynch and Goldman Sachs.
Fidelity Management holds shares worth about $363 million, or 14.1 percent of the outstanding shares. Those shares are largely held in mutual funds. Merrill Lynch Asset Management has $164 million in holdings, and Goldman Sachs Group Inc. has $137 million.
Similarly, Goldman Sachs and Morgan Stanley Securities hold big positions in Bet On Sports, another publicly traded firm in London that facilitates sports betting, according to public filings. Morgan Stanley has one of the biggest stakes worth around $25.6 million but the company said that the position is held on behalf of one large investor, whose identity it withheld.
The bottom line, according to casino industry executives and some financial analysts, is that the opportunity for profit may be too good for the investment houses to pass up. Overall, Internet gambling is projected to reach almost $12 billion in business this year, up from $8.3 billion in 2004, according to Sebastian Sinclair, a gambling industry analyst with Christiansen Capital Advisors.
