How important will the Unlawful Internet Gambling Enforcement Act be? Markets think pretty important.

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With news that the Unlawful Internet Gambling Enforcement Act has passed the House, all eyes seem glued on Washington to see just how regulation of online gaming is going to change the industry.

Looking at stockmarket reactions, it seems pretty serious.

From today&#8217-s Guardian:

The online gaming industry&#8217-s bet that American legislators would never get around to outlawing internet games such as poker went spectacularly wrong yesterday. An estimated ?4bn was wiped off the sector&#8217-s value as share prices crashed after a weekend ambush by Washington.

Full story: http://www.guardian.co.uk/frontpage/story/0,,1886369,00.html.

I have already heard of at least one major bookmaker – Australian-based Centrebet (www.centrebet.com.au) – already closing the accounts of US-based clients.

While these early stock-market reactions look pretty serious, my guess is that these sorts of laws tilt the competitive landscape away from the larger more legitimate operations (like those public companies based in London), and toward the smaller (and more legally &#8220-agile&#8221-) firms operating in a less transparent manner. So perhaps this stockmarket reaction somewhat overstates the impact.

Stay tuned for more&#8230- (Hat tip: Paul Tetlock and Sam Savage.)

3 thoughts on “How important will the Unlawful Internet Gambling Enforcement Act be? Markets think pretty important.

  1. Crosbie Fitch said:

    Sorry if this is obvious, or obviously ‘yet to be determined’, but could you express your opinion (if you have one) on how this affects prediction markets that accept credit card payments?

    When does an investment turn into a gamble?

    When does a prediction of whether it snows at Christmas turn into a wintersports operator’s snow-sure insurance premium? Is the only difference the aspect of frivolity?

  2. Chris Masse said:

    Hi Crosbie Fitch,

    TradeSports / InTrade are (alas) considered as “gambling”. It’s a pity, since Professor Wolfers and others have shown that their markets display predictive power.

    HedgeStreet, regulated by the US CFTC, is considered as an exchange designed for hedging capacity, and which also allows speculation of course.

    BetFair, in the U.K., is the world’s biggest prediction exchange, and is regulated by the British Gambling Commission. The don’t export their top-notch service to U.S. residents, as long it’s illegal in America.

  3. Crosbie Fitch said:

    As a thought experiment…

    Let’s say a web site enabled users to build up a prediction accuracy record/reputation and thus could offer their services as commissioned brokers for small stakes by non-US speculators. This commission would consequently give them sufficient funds to use as a stake in their own speculations.

    Presumably because no credit card is involved this could then legitimise participation by US citizens?

    Is there a law against US citizens RECEIVING funds from speculation?

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