Top Stories of 2001

1. Visa and MasterCard squeeze online gambling operators.
2. England positions itself to be the world's hub for Net betting.
3. A host of big-name companies take the industry by storm
4. New jurisdictions attract top-notch licensees.
5. The prohibition movement finds new life in America.
6. Efforts to regulate interactive gambling gain momentum in the States.
7. Australia relinquishes the keys to the future of online gambling
8. New media make their mark on the industry.
9. The industry reacts to Sept. 11.
10. Games of skill present a legal alternative to game providers.

No End in Site for the Credit Card Crisis

Efforts by major credit card networks to ban online gambling are by far the greatest threat ever faced by the interactive gambling community. Visa and MasterCard have both instructed their American member banks to deny all transactions involving online gambling services or face fines starting at $25,000 per violation. The policy was firmly in place by the close of 2000, but in 2001 Visa and MasterCard began heavily enforcing it. Visa has even gone as far as periodically auditing gambling sites to make sure the transactions aren't going through.

At first merchants and operators found ways to get around merchant codes that tag Net betting transactions, but methods of disguising the transactions became increasingly ineffective throughout the year. Very few, if any, operators have weathered the crackdown unscathed. Some have reported that as many as 80 percent of their transactions were being denied. In an IGN readers poll conducted in November, 22 percent of respondents indicated that revenues were down by more than 50 percent as a result of the policy.

The industry has scrambled for a solution, but has found none. It will either have to establish an effective non-credit payment system or convince Visa and MasterCard to change their policies.

Future Could Be Bright for England

Two major developments in 2001 could propel the United Kingdom into the status of the world's No. 1 I-gaming jurisdiction. The first came in March when Chancellor Brown introduced the country's new budget, which included a new plan for taxing wagering. The country's 9 percent betting duty had driven its biggest bookmakers to set up telephone and Internet betting operations in offshore, tax-friendly jurisdictions. Nearly all of them are coming back, however, thanks to the new policy, which has the 9 percent duty being replaced by a 15 percent company tax on gross profits. The new system went into effect in October.

England's next step will be the legalization of online casinos, which became a possibility in June when the Gambling Review Body released "The (Alan) Budd Report." In the report the panel offered numerous recommendations for updating England's antiquated gambling policy, one such recommendation was the legalization and regulation of virtual casinos. It's collectively understood that the government is in no hurry to address such legislation, but if it can be convinced to do so in the near future, the United Kingdom will surely become the world's leading jurisdiction.

I-Gaming Goes Primetime

Here's an industry trend that's sure to pick up even more in 2002: the arrival of more big-name companies. It was a break-through year for Net betting in terms of top brands getting in on the action. The pace was set in February when Playboy.com introduced a Playboy-branded online sports book. The group later added an Internet race betting service and an online casino. Also in the first quarter of 2001, Macau casino mogul Stanley Ho debuted his DrHo.com online casino and Sun International, the operator of Atlantis Casino in the Bahamas, announced that it was developing a virtual casino as well. From the United Kingdom, land-based operator Aspinalls went online in June, while Littlewoods Leisure geared up by acquiring an interactive gaming license. The biggest fishes to take a swim so far, however, are Nevada's MGM Mirage, which, along with Littlewoods and Sun International, received a license to operate an online casino out of Isle of Man, and Kerry Packer's Publishing & Broadcasting Ltd., which could launch the online version of Crown Casino as earlier as January.

Jurisdictions on the Rise

For years, off-shore (mostly Caribbean) jurisdictions have hosted the majority of the world's online gambling services, but it was considered only a matter of time before First World countries swooped in to steal the action. Amazingly it hasn't happened yet in the casino sector; Australia has turned cold on Internet gaming, Nevada must overcome federal prohibition efforts and the United Kingdom doesn't look to be moving forward soon. But in the meantime, a group of "second-tier" jurisdictions appears ready to reap the rewards.

At the forefront is the Isle of Man which enacted the necessary legislation in June and announced in September the issuing of Internet casino licenses to MGM Mirage, Sun International and Littlewoods Leisure. The British Channel Island of Alderney, a longtime hub for interactive sports betting, could be the next. It enacted a similar law in August and will soon announce the issuing of six three-year online casino licenses. In the South Pacific, Vanuatu will soon play host to Crown Online, the online version of Crown Casino in Melbourne, under the ownership of Kerry Packer's PBL Group. Additional European jurisdictions, such as Malta and Gibraltar, could follow suit, while South Africa is still considering the possibilities.

Prohibition Still Lurks in the States

There was very little wind in the sails of the prohibition movement at the close of 2000, and situation remained the same throughout most the year. The movement's primary proponent, Rep. Robert Goodlatte, R-Virg., himself conceded that the chances of passing a prohibition bill decrease with time. In 2001 bills by Goodlatte, Rep. James Leach, R-Iwoa, and Rep. John LaFalce, D-N.Y., were introduced again with less fanfare than they had in previous years and a series of hearings didn't yield much hope.

Things changed in September, however, at the onset of America's war on terrorism. Legislators aimed to cut off funding for terrorism by coming down hard on money laundering, and online gambling became a target. Congressmen and justice officials identified gambling services as a major avenue through which terrorists could launder money, and Leach's Internet Gambling Funding Prohibition Bill was introduced as an amendment to the House's the Financial Anti-Terrorism Act. The provision was dropped, mostly because of time constraints, meaning that prohibition was evaded again in 2001, but the movement found new life through the spirit of patriotism. Those who supported the Net betting provision have vowed to take the matter up again in 2002.

The Legalization Movement Arrives

While The United States federal government considered a ban on Internet gambling, a few states took major steps toward regulating it. Nevada, as it did 70 years ago, took center stage by passing a law making it legal for the state's casino-resort operators to offer their services online. But before that happens, the Gaming Commission will have to be satisfied that online gambling can be properly regulated and Nevada will have to determine that it's legal under federal law.

In January on the east coast, New Jersey Assemblyman Tony Impreveduto introduced a bill similar to the one passed in Nevada, but wasn't able to move it. A second regulatory measure was introduced in November, but was tabled immediately. Results could be different in 2002, when the balance of power in the Assembly shifts in favor of the Democrats, possibly clearing the path for the Impreveduto measure.

It was also a year of great progress on the horseracing front. Playboy Online launched its U.S.-based online race wagering services, while racetracks in Ohio and Louisiana went live with Internet betting services of their own. Arkansas, California and North Dakota, meanwhile, adopted laws legalizing account wagering via electronic communications networks.

Australia Takes a Step Back

Through the drafting of a regulatory model for Internet gambling in 1997, Australia established itself as the up-and-coming premier jurisdiction for online casinos. The model has been emulated by numerous worldwide jurisdictions trying to achieve such a status and was even cited in U.S. congressional hearings as a strong argument that regulating online gambling is a better approach than banning it.

Ironically, three years later Australian lawmakers pointed to the American/Jon Kyl approach while presenting their argument for prohibition--an argument that eventually prevailed. Through a movement strongly backed by Prime Minister John Howard and Communications Minister Richard Alston, the federal government made regulatory systems set up by several states and territories obsolete by passing a federal ban on Internet casino gambling.

The new law--established in June, shortly after the conclusion of a one-year moratorium on the expansion of Net betting--made it illegal for Australian operators to offer online casino gambling to anyone located in Australia or any other jurisdiction in which online gambling is prohibited. In a mere 18 months Australia went from being the world's best model for regulation to its best model for prohibition. Consequently an industry that was set to explode Down Under is now a blip on the country's radar screen.

The law was expected to pass, but the fact that protests died out quickly was quite surprising considering that states are losing tax money they counted on and that a handful of companies that invested tens of millions of dollars on business plans revolving around Internet gambling were left out in the cold.

Attack of the Killer Apps

Gambling via new media made a huge splash in 2001. Coming into the year, wireless betting was on the verge of something big; coming out, virtually every major interactive wagering service offers betting via wireless devices. A handful of operators are even taking the next step: wireless casinos.

However, the heftiest cash cow--at least in Europe--could end up being interactive television. Through interactive TV services, bettors can watch sporting events and wager on them simultaneously in real time using nothing but a remote control. Several bookmakers have interactive TV betting in the works, but the first blockbuster deal came in May when a partnership composed of Arena Leisure plc, British Sky Broadcasting and Channel 4 signed a 10-year interactive betting deal with 49 of Britain's 59 race courses. The consortium's wagering and information Web site, attheraces.com, went live in December. The interactive TV service is expected to go live this coming May.

An even more astounding empire was created in July when Ladbrokes and British Sky Broadcasting (BSkyB) announced a joint venture to develop and operate a fixed-odds and pools betting service linked to Sky channels on Sky Digital. Through the deal Ladbrokes gained exclusive rights to offer wagering to Sky Digital viewers, who would be able to watch and bet on sports simultaneously. The deal was nixed in October, however, after the U.K. Competition Commission announced it was investigating whether the partnership violates monopoly laws.

The Effects of September 11

The terrorist attacks in New York, Pennsylvania and Washington D.C. have taken their toll on businesses all over the globe. With additional major developments affecting the online gambling business, it's difficult to measure the tragedy's effects on the industry, but at a glance it seems to have responded well.

In the short-term the attacks hurt a lot of businesses. An informal, non-scientific poll conducted by IGN had business dropping off for 52 percent of I-gaming companies. Several companies suffered major setbacks in their fourth-quarter earnings, but a lot have already bounced back. Software suppliers CryptoLogic and Chartwell, for example, didn't take long to get back to the same revenues maintained before Sept. 11. World Gaming, on the other hand, has struggled since the attacks, which stole the momentum the company experienced after settling a few major lawsuits. The biggest hit came in the sports betting sector, which had to absorb the effects of major sporting events being cancelled for a week.

All about the Skills

The year's most intriguing new concept was skill-based games. The idea is that laying money on games of skill, such as chess or backgammon, is not illegal because the element of chance is not prevalent. The result is the arrival of several new services through which customers can pay to enter skill-game tournaments and win cash prizes. The concept hasn't quite taken off yet, but its status as a rare revenue-making Internet business model has attracted some pretty big players, including Walt Disney.