When the UIGEA gets overturned a lot is going to change.
First of all, the value of certain companies is going to go through the roof. Remember that Party Gaming, pLc, the parent company of Party Poker lost about 65% of its value overnight – literally, over night. On October 13, 2006 (the date that PartyGaming began to enforce the UIGEA) PartyGaming stock dropped almost 65% on the London Stock Exchange.
And why not? At that point, basically all of the online gaming business in the world was centered in poker’s birthplace, the United States of America. Take the American business out of the equation and what business do you have left? A fire sale.
But PartyGaming did not go up in flames. They moved overseas and began an aggressive campaign to court European audiences under the lead of chairman Michael Jackson (not that Michael Jackson) and industry guru Mitch Garber. They re-structured the company internally, streamlining it to reduce costs and maximize on the few customers they could scrounge up at the time. And they held on. And they planned for the future. And they grew.
Today, without the benefit of the American market, Party Poker has not only recouped all of its lost value and established a strong foothold in the international market – it has grown. Total revenue in 2007 was up a whole 41% from 2006, going from $325 million to $457.8 million. The most pronounced sector of growth occurred in the casino going from $52.0 million in 2006 to $146.7 million in 2007 for a whopping 188% increase. And despite the loss of the entire American market, the single greatest spending force in the history of the planet earth, Party Poker went from $268.4 million in 2006 to $296.0 million in 2007 for a 10% growth. This is rather incredible – a company whose stock plummeted nearly 65% in one night not only staved off bankruptcy but grew its total revenue by 41%! This is Harrison Bergeron, this is 1988 Kirk Gibson – this is Forrest Gump running fast with leg braces still on.
What exactly are those leg braces – what exactly is the UIGEA? As it turns out, no private citizen is legally allowed to know.
Passed in late 2006, the Safe Port Act was pushed by then Senate Majority leader Bill Frist through Congress in hyper-speed. It was designed to curb terrorist activities in ports by subjecting them to firmer rules and more Government regulation. But a little piece of pork was attached to that bit of Homeland Security Legislation – the Unlawful Internet Gaming Enforcement Act.
Title VIII of the Safe Port Act is as long and densely polysyllabic as the rest of American Legislature but its Achilles Heel comes down to this sentence:
“Sec. 5363. Prohibition on acceptance of any financial instrument for unlawful Internet gambling:
`No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person in unlawful Internet gambling’”
This means that the enforcement mechanism of the UIGEA is focused on the financial institutions that process the transactions between the private bettor and the larger gaming entity. The police cannot come knocking on your door for playing poker online – they go to the bank’s door. This has not made the American Banking Association (who control 95% of the banking dollars in America) too happy. But more on that in a moment.
Onto the legally enforced shroud of mystery:
So there are a number of exceptions made to what constitutes an illegal wager. Poker is all bad, blackjack, slots – all not allowed. But betting on horse racing is totally legal. Why? Because according to the UIGEA, betting on horse racing is not gambling.
It is at this point that I am reminded of Sir Walter Scott, 18th Century poet extraordinaire: “Oh what a tangled web we weave when first we practice to deceive.”
Of course, there is a transparent paper trail leading from Bill Frist’s campaign bank account to a few fellows from Kentucky (and what would someone living in Kentucky have to do with horse racing?) which has spawned some interest from journalists. One journalist in particular, Ed Brayton, wanted to know exactly what happened on the road to the creation of the UIGEA. So he asked.
Ed Brayton wanted to investigate the business circumstances surrounding the birth of the UIGEA. So he formally requested a copy of the agreement reached between the United States Trade Representatives, foreign countries and major corporations (it’s called a Freedom of Information Act.) He was not surprised to hear a resounding “No” from the US Government, but he was surprised to hear this:
Please be advised that the document you seek is being withheld in full pursuant to 5 U.S.C. § 552(b)(1), which pertains to information that is properly classified in the interest of national security pursuant to Executive Order 12958.
Ladies and Gentlemen, the UIGEA is a matter of national security. Have we reached the Orwellian apocalypse yet? Not if Barney Frank has anything to say about it.
Rep. Barney Frank is the leading Congressional dissident of the UIGEA. He has held almost half a dozen formal proceedings concerning the UIGEA. Everyone from Harvard business professors to the ABA has been provided with a forum to express their UIGEA views. The most recent of which occurred in early April of 2008 and featured a number of outspoken opponents of the UIGEA, most notably the ABA. Look him up on YouTube, you can find a large amount of the actual proceedings.
How do I know that the UIGEA will be overturned? Well, I don’t. But keep in mind that it’s one thing to mess with a bunch of online poker players – it’s another thing when the guys who control 95% of the banking in America get involved.
And the UIGEA has predicated serious pending lawsuits from the European Union (we’re talking BILLIONS of dollars) not to mention the $21 million annual copyright infringement protection that Antigua has already been awarded (every year Antigua can ignore up to $21 million worth of American copyrights, so that could be movies, books, whatever they feel like.) Haven’t heard about that on CNN or Fox News? Don’t worry, I’m sure Britney Spears will get another haircut.
And perhaps most importantly, this is an election year. Citizens get uppity in election years and politicians can be forced to become actual legislators for a minute or two.
So I’m not seeing a recipe for continued regulation. Only a guess, but in a year, maybe 18 months, there will be no UIGEA.
It stands to reason that when the flood gates are re-opened, and the American Banking Association is no longer forced to police its own patrons, the value of the PartyGaming stock might just rise. It might just rise a good deal.