Top Stories of 2002

1. The payment processing crisis is a bigger burden than ever.
2. P2P is the real deal.
3. More jurisdictions adopt prohibition.
4. Regulators and policymakers grapple with border control.
5. "Tier 2" jurisdictions have their day.
6. California embraces interactive race wagering.
7. New York's attorney general is on a mission.
8. The DCMS all but seals the deal for I-gaming in the United Kingdom.
9. World Cup betting invigorates a slumping industry.
10. The Pick 6 scandal rocks the betting world.

Still No End in Site

We had hoped 2002 would be the year that someone broke through with a solution to the payment processing crisis, but the situation remains the same: Virtually all of the major U.S.-based credit card issuers are refusing any transaction related to Internet gambling. MasterCard and Visa have stepped up their efforts to enforce the mandatory coding of all I-gaming transactions, and the few issuing and merchant banks that were processing for I-gaming have closed the doors. Third-party processors are feeling the heat as well. NETeller must now use the dreadful "7995" code; a decline in I-gaming business forced SureFire to lay off 120 employees; and PayPal, which had become the industry's most popular third-party payment option has stopped facilitating I-gaming transactions.

I-Gaming's Fastest Growing Sector

Heading into 2002, most traditional bookmakers were laughing off person-to-person betting (a model enabling bettors to wager head-to-head instead of against the book) as a gimmick that would never attract serious bettors. By the end of summer, P2P was doing so well that traditional bookmakers found themselves scampering somewhat frantically to level the playing field. The "serious bettors" figured out they could get much better odds in the market setting, and even professional bookmakers began using P2P services to balance their books. Betfair.com has separated itself from the rest of the pack by capturing 90 percent of the market and is now licensing its P2P technology to traditional bookmakers. In August William Hill of England filed a legal challenge with the U.K. government suggesting that the casual bettor must acquire a bookmaker's permit to offer bets to other gamblers via P2P exchanges. The U.K. Levy Board responded in October by implementing a taxation policy for P2P betting services. It's probably safe to say that P2P is now a factor.

Prohibition Goes Global

The United States could be losing its status as the world's I-gaming prohibition headquarters. While a restrictive act passed last year in Australia could arguably be considered a ban, laws passed this year in Greece and Hong Kong leave no doubt. In June, Hong Kong's Legislative Council passed a law banning all offshore bookmakers from offering their services to Hong Kong residents. Greece then followed up with a law banning Internet cafes from offering any type of electronic game. Meanwhile, the prohibition movement in the States enters the new year with more momentum than ever before. Time ran out in 2002 on a bill that would make it illegal to facilitate I-gaming-relate financial transactions, but its author, Rep. James Leach, has garnered what some consider enough support to get the bill pushed through both chambers in 2003. Even the White House has gotten behind Leach.

A Borderless Medium or Not?

Can Internet gambling be contained within state or national borders? Should it be? Regulators and policymakers worldwide struggled to answer these questions in 2002. England's global approach toward interactive gambling has spurred dissention among Europe's gaming community, with Denmark falling at the opposite end of the spectrum. GREF's position--that Europe's member states should retain full autonomy to legislate gambling policy on the national level--has been challenged by the global nature of the Internet, and the need for at least a minimal level of pan-European policy is apparent. It's not even worth arguing, however, unless border control is technologically possible. A handful of companies with geo-location products have refined their wares to a point at which some say effectively blocking play from certain jurisdictions is possible, but others argue this will never be possible. In Australia, the debate revolves around revenue flow. Gaming ministers in the country's larger states are sick over the prospect of their citizens' money going to out-of-state operators. The threat is so serious that various racing groups--rarely able to come to terms on anything--have banded together to address the issue. Finally, the progression of intrastate interactive betting in Nevada could eventually come down to the effectiveness of geo-location technology.

New Offshore Leaders Fulfill Expectations

The Isle of Man's passing of online casino regulations in 2001 was a sign of things to come. Most larger operators have avoided Caribbean and Central American jurisdictions like the plague, but appear to be quite comfortable with a handful of stringent new offshore regimes. By September, MGM Mirage, Rank and Kerzner International were all operating licensed online casinos out of the Isle of Man with more launches to come from the Isle of Man as well as Alderney. Heading into 2003, the U.S. Virgin Islands has an online gambling regime in place and Malta is inches away from following. As long as there's an absence of opportunity in the United States, England and Australia, these "Tier 2" jurisdictions will continue to thrive.

Legalized I-Gaming in the USA

Could interactive betting spawn the rebirth of race betting in the United States? A case study of sorts in California seems to indicate just that. In late 2001 the state enacted a law authorizing several forms of account wagering, including Internet gambling. Three licensees--Magna, TVG and Youbet--launched I-gaming services under the state's Advance Deposit Wagering (ADW) system in the first quarter of 2002 and California bettors have taken to it well. Handle for the ADW system, which facilitates telephone and Internet wagering, totaled $121.4 million from Jan. 25 through Sept. 29. The figure represents 6.8 percent of the $1.78 billion combined California on-track, off-track and ADW handle during that period. Racing's interactive future in California--along with that of Oregon, Pennsylvania and Louisiana--could be in the hands of federal legislators, who have considered various versions of prohibition bills, some of which did not include exemptions for race betting.

A Man on a Mission

New York Attorney General Eliot Spitzer holds the distinction of being I-gaming's foe du jour. Amid a barrage of actions taken by Spitzer to clean up corporate America, the attorney general has dropped the hammer on financial institutions for processing payments for offshore Internet gambling sites providing services to customers in New York. In June he popped Citibank for $400,000 and a promise that it would decline authorization to Americans who try to use its credit cards for online gambling. In August he got the same promise from PayPal, as well as a $200,000 payment.

Progress in the UK

Albeit not with the great speed, England continued in the direction of becoming the world's hub for interactive gambling. In March the Department for Culture Media and Sports released its proposals for reforming the country's gaming industry, and virtually all of its recommendations were in line with those made in the Budd Report of 2001. While policymakers are expected to focus first on liberalizing the land-based casino business, the framework for regulating Internet casinos has been laid. U.K.-based virtual casinos are likely to become a reality by 2004. In the sports and racing betting circles, the Levy Board has implemented a taxation scheme for P2P betting, and the attheraces race betting consortium has taken the interactive television market by storm.

World Cup Mania

The 2002 World Cup football tournament provided a shot in the arm for the sluggish online gambling industry over the summer. A number of online sports books set handle records during the games. Across the board, publicly traded sports betting companies reported significant boosts in profits for the period in which the games were played. The tournament also played a huge part in the massive growth of the P2P sector in 2002.

Racing's Ominous Disaster

This year's Breeders Cup concluded with one of the biggest betting scandals in history. In November, an employee of Autotote, a supplier and facilitator of OTB betting technology, was accused of breaking into the company's computer system and altering a Pick 6 bet that ultimately landed his friend $3.1 million in prize money. Companies that supply and use remote race wagering technology consequently spent the final months of 2002 scrambling to prevent a repeat of the fiasco as well as instill confidence in off-site bettors. The incident will surely change the way remote gaming services operate--starting with heightened controls to avoid internal attacks and ending with more extensive background checks on employees.

Additional Top Stories:

• For many I-gaming operators, affiliate marketing transitioned from an attractive option with a sizeable upside to an essential practice necessary for survival.
• A difficult year for the industry, as one might have expected, resulted in quite a few executives losing their jobs. The revolving doors saw a lot of action this year, with firings in the news, at times, on a daily basis.
• Interactive gambling continued its impressive growth in the interactive television and mobile communications spaces.
• Legislators in the U.S. state of New Jersey resumed efforts to move a bill seeking to regulate Internet casino gambling.

Stories that Weren't

• South Africa proceeds as planned with a regulatory regime for online gambling.
• Kerry Packer's Crown Casino becomes online gambling's biggest brand.
• The industry finds a suitable replacement for credit cards.
• World Sports Exchange's Jay Cohen has his case heard before the U.S. Supreme Court.