Offshore Betting: Can The Feds Stop Antigua?

Mike Godfrey, Tax-news.com, New York

13 March 2000

Internet bookmaker easybets.com, based in Antigua, which took $700,000 in 1997, its last year in Dublin as an earth-bound betting-shop operator, turned over $38m in 1998 and £60m in 1999. CEO Tim Lambe expects $150m in 2000. He says he understands the distaste most governments have for Internet gambling, but: "It's time for all to get real. There is no moral reason. All these countries have gambling, or betting on their soil, so it's a revenue issue. When the traditional bookmakers suddenly face competition from Internet bookmakers, they get scared and put pressure on governments and congressmen to protect their business."

If Tim Lambe is a successful cheerleader for the Internet gambling revolution, Jay Cohen, convicted in a New York courtroom last week of infringing the 1961 Federal Wire Act by offering Internet bets to New York punters, also from Antigua, may be one of its martyrs. Cohen is due to be sentenced in May, and could receive up to 19 years in prison; his appeal is thought to be far from a foregone conclusion, according to some prominent US lawyers. Gambling law expert Nelson Rose, a professor at Whittier Law School in Costa Mesa, Calif., said it was clear that Cohen was thoroughly convinced that what he was doing was completely legal, but believes the appeal is likely to fail. The Justice Department had astutely attacked only US citizens involved with companies that were clearly in violation of the Wire Act. "I don't think you need to have the word 'Internet' written into a statute to be able to prosecute people under traditional law," he said.

Legislation in the US House of Representatives to ban Internet gambling may succeed, and would represent an attempt by the United States to regulate the activity of foreign companies that have no physical presence within its borders. It has to be doubted, though, whether such a law would be effective. Only extensive snooping powers would give the Fed any realistic chance of stopping ordinary Americans from using the Internet to deal with foreign betting operators, and there is probably no willingness among Americans to accept such draconian interference with their freedoms. Prohibition sort of succeeded, but only because it could be imposed in the physical world; it never represented a consensus among citizens.

Meanwhile, other US operators are trying with some success to develop intra-State gambling business models within the existing law. Internet betting firms Virtgame and Youbet are hoping that Nevada regulators will approve sites which will be limited to sports, and which will accept bets only from Nevada residents. Expansion to casino games and to other states could follow.

Easybets.com, which has Chinese as well as Irish owners, is targetting Asian punters, who tend to spend more than Westerners per bet. Lambe expects Asian business to represent 35% of trading by 2001. Interestingly, easybets is aiming to make deals with media content providers, so that, for instance, a media company offering tennis coverage could offer bets alongside the action.

That is something. What would it do to Man United's share price if it had 30% of the profit on bets placed on its televised games? And what would happen to its share price if the regulators forbade such a tie-up?

Back in the USA, Birmingham Race Course is one of a growing number of US tracks that has sub-contracted its off-track betting operations to an offshore gambling service that handles racing bets for clients around the country. Racing and Gaming Services Ltd (RGS) in St. Kitts contracts with the Birmingham Race Course to supply it with bets. The Birmingham Racing Commission allows the track to operate as a "hub," or processing center, for other betting operations, including RGS.The client places a bet - either by phone or via the Internet - with the betting operation, which transfers it to the track

Claude Williams, executive secretary of the Birmingham Racing Commission, said that the Commission used to follow the track's relationship with RGS, but because money isn't being bet from Birmingham, and therefore is not subject to state and local taxes, it no longer does so.

It seems that similar arrangements are widespread throughout the US, although this is news - big news, apparently - to regulators. "I never heard of such a thing," said Racing Commissioner Gary White, "I'm going to ask some questions because I want to know about it."

Over to Sweden: - Boss Media AB designs and builds online casinos for clients around the world from its headquarters in Vaxso, southern Sweden, which it operates from a server in (guess where) Antigua. Boss Media, owner of online casino www.goldclubcasino.com, has forecast the number of online players will grow to about 16 million by 2002. Boss Media's shares have risen 700 percent since listing in mid-1999 to $40. Profits in 1998 were more than 25% on doubled turnover of $20m.

It may be that the US, in one of its periodic fits of moralising enthusiasm, will succeed partially in controlling the access of its citizens to offshore Internet gambling, but the operators won't be too bothered - they'll just switch to other parts of the world. Meanwhile, Antigua seems to have found itself a nice little earner.

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