Goodbye to Online Gambling for U.S. Citizens

A bill was passed by the U.S. Congress over the weekend, outlawing credit-card and money-transfer companies from accepting payments to gambling Web sites which in turn effectively halves the value of some large-cap online gambling stocks.

The online gambling sector was in meltdown in the UK (as UK is considered to be the greatest online gambling production unit) on Monday morning, as the fallout from last week’s moves in the US to tighten anti-gambling laws sent shockwaves through the sector.

The Legislation passed act in Washington on Friday now only requires the signature of the US president to bring it into effect, a move which is expected in the next two weeks.

But this two weeks are being preceded by several nerve-racking months through which online gambling companies have been put out of their misery in a most abrupt way.

PartyGaming, one of the world's biggest gambling sites, crashed 57%, to 46 pence (86 cents), in early-afternoon trading on the London Stock Exchange on Monday, while 888 Holdings fell 33%, to 98 pence ($1.83).

Both companies released statements saying that they would suspend their operations in the United States once President George W. Bush signed the bill into law, after which it will take up to 270 days before the new rules are fully enforced.

"We'll stick to the letter of the law," said a spokesman for 888. "As soon as he signs it, we'll stop taking bets from U.S. customers." Doing so will have a "material adverse impact" on 888's results for this year and beyond, the company said in a statement.

"The passing of the act was unexpected," said John Shepherd, a spokesman for PartyGaming. "But it's been clear for some time that various members in Congress were looking to take action against non-U.S. online gaming companies."

Other firms, including World Gaming Plc and Sportingbet, whose former chairman was recently freed after being arrested in the U.S. under anti-gambling laws reacted in pretty much similar fashion.

Sportingbet shares dropped 62% and World Gaming Plc was the biggest faller, losing 75% of its value after it also announced that takeover talks with Sportingbet had been scuppered by the act.

While the new act now categorically outlaws online gambling (the previous 1961 Wire Act was only used to charge firms that took sports bets), it is believed that American gamblers will still find a way to pay their online bets. That's because despite the new law, the majority of the more than 2,000 offshore online gambling companies and loads of onshore companies will continue to take bets from the United States.

With the Congress going pretty strong about the act it has attached the anti-gambling measures to the Safe Ports Act. Once signed into law, the legislation will make it a criminal offence to receive funds related to any online gambling activity that is illegal under state or federal law.

The firms under scanner said unitedly that any suspension would results in its results "falling significantly short of consensus forecasts" for 2006 and 2007.