Can online gambling make you rich?
What is the
economics of online casinos?
The returns are excellent and makes brilliant business
sense. When it takes $300 mn to build a new resort
casino employing thousands, ICI's virtual casino was
developed for only $1.5 mn employing only 17
individuals.
Warren B Eugene, the flashy founder of ICI, became an
overnight celebrity in the world of online business.
He was offering gamblers returns almost three times
more than that offered by land casinos.
An estimated 30 mn to 40 mn people are currently
online and it is projected to surge to 160 mn by 2020.
ICI has received over 50,000 registrations since its
inception and gets over 7,000,000 visits per month at
its site.
According to the Economist the online gambling
industry has estimated revenues of $10 bn annually.
The online casinos have given rise to an industry that
grosses over $3 bn a year. Of the estimated 14.5 mn
gamblers online, almost 30% are from Asia.
The most recent estimates show that internet gambling
is growing at a rapid pace in the UK, fuelled by the
increased availability of broadband. According to
internet research company Nielsen/NetRatings, the
online gambling audience in the UK has increased by
45% compared with last year, with 3.2 mn people
visiting gambling sites in February.
The National Lottery is the most popular gambling
site, with more than 1.3 mn visitors in February 2005,
making it one of the top 40 most visited sites in the
UK. William Hill and Partypoker.com bagged the second
and third spots.
Developing software for online casinos is also a big
business. Companies like Wager Works, Microgaming,
OddsOn, Playtech and Cryptologic have majored in
creating gaming software though.
Pressured by the US government, Yahoo! and Google have
removed ads promoting online casinos. Most credit card
companies also don't allow payments to and from online
casinos. The online gambling industry has bypassed
these restrictions by using other forms of online
payment, such as Neteller, FirePay, 900Pay, Citadel
and the old bank drafts.
However many countries, like the UK and many South
Asian countries, have legalised online gambling
thereby generating useful tax revenue.
How do online
casinos bypass trade barriers and what's WTO's stand?
The biggest problems faced by governments around the
world is that the revenue generated from online
gambling and offshore betting sites may be channeled
to finance terrorism, crime, smuggling and mafia
operations. These may also become havens for money
laundering or fraud.
The US had raised its objections against proliferation
of online gambling. America, known for its
reservations when it comes to commerce through phone
or internet, banned online casinos on the grounds of
protecting "public morals".
The island state of Antigua and Barbuda, which hosts a
major chunk of these casinos, complained to the World
Trade Organisation (WTO) that the ban violates
free-trade rules for services.
On April 7, 2005, a WTO appeals panel reached a
decision that both sides have claimed as a victory.
The WTO agreed with most of Antigua's claims that
America's practices are inconsistent and discriminates
against foreign operators as the US allows online
horse race betting by operators authorised by the US
states. However, the WTO also concluded that America's
"public morals" exception is allowed, as
long as America resolves the horse-racing
inconsistency.
So in short the US may twist the law and continue with
the ban on online gaming.
The ruling will not affect the online gambling
industry in a big way as less than half of its
revenues flow from Americans. And the enforcement of
the ban is almost impossible.
The British Parliament passed the Gambling Bill in the
first week of April 2005. It created a new 100-strong
commission to monitor the domestic online gaming
industry. The commission will be empowered to regulate
their advertising to British consumers though they can
not ban offshore sites.
Andrew Guzman, a law professor at Berkeley, has said
in Economist that the WTO decision, based on public
morals, has a bigger implication on global trade as
the ethical clause may be used by other countries to
justify banning goods made by child workers and by
ecologically threatening ways.
Also from America's point of view regulating or taxing
online gambling makes more sense than triggering a
legal battle between states and the federal government
as many states have jurisdiction over gambling laws.
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