Internet Gambling Crisis – AGAIN

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Business Week (mirror at Forbes):

FBI Assistant Director Mark J. Mershon said the multibillion-dollar online gambling industry was &#8220-a colossal criminal enterprise masquerading as legitimate business.&#8221-

Does the U.S. government put real-money prediction exchanges (e.g., TradeSports-InTrade) in the perimeter of the &#8220-gambling industry&#8221-? If yes, then TradeSports-InTrade is dead on arrival (D.O.A.). If not, as stated by TEN CEO John Delaney (who believes that they are after bookmakers and sportsbooks, only), then what we need is a statement from the U.S. government that it won&#8217-t touch the offshore, real-money prediction exchanges.

In the absence of such an exoneration, is it rational to predict the death of TradeSports-InTrade? If the U.S. government goes after TEN&#8217-s American shareholders (venture capitalists and angel investors), they will fly away like frightened pigeons &#8212-if that&#8217-s not done already (think &#8220-re-organization&#8221-). I may be wrong but I believe that TEN is not yet profitable &#8212-especially after the killing of their financial prediction markets, following the CFTC fine.

All this is very sad for us who believe in real-money prediction markets.

The arrest of TEN CEO John Delaney on U.S. soil (in a phone-booth conference room, for instance) could be interesting in that it would generate a wave of supportive statements from a bunch of American economists &#8212-including some of the IEM gang members (e.g., Ms. Berg). We could have a repetition of the DARPA&#8217-s FutureMAP PAM effect &#8212-a controversy on real-money prediction markets hitting the print Press, which, short-term, we would lose, but which, long term, would be beneficial to the whole industry. The economists yelling &#8220-fire&#8221- would attract the attention of the private decision makers reading the New York Times and Wall Street Journal, and the next step would be to turn these prospects into clients of prediction market software vendors.

9 thoughts on “Internet Gambling Crisis – AGAIN

  1. Alex Forshaw said:

    I find it pretty hard to believe that the US government axing a linchpin of the prediction market business would be remotely beneficial to the industry. It certainly would not be right.

    NETeller has been a huge broker of all kinds of online transactions, mostly for online gaming sites. It does help with Tradesports, but Tradesports is not, presumably, a significant chunk of NETeller’s transactions in and of itself.

    Just goes to show how stupid the government is. They need to be leashed before they start destroying livelihoods (not to mention alpha) *beyond* the online gambling industry.


  2. Alex Forshaw said:

    Academics and similarly accredited people (like faculty types here> Wolfers? Zitzewitz? Hello?) need to speak up about this, lean on influential Democrats that they know. The US government has been treating these businessmen like complete trash, and it is obviously and unambiguously damaging their lives and American credibility.

  3. Eric Zitzewitz said:

    Justin and I did think about writing an op-ed on the subject back in the Fall, but dropped the idea after Bob Hahn and Paul Tetlock’s excellent piece in the NYT.

    I’d be happy to sign on to and help out with any effort people wanted to start, but I’m a little pessimistic about its prospects.

    And I think that the administration is actually the place to start. First of all, prediction markets is a more naturally Republican idea — it involves relying on markets after all. Second, the administration has the discretion to tweak the enforcement of the “Safe Ports” law. In contrast, the Democrats in Congress would have to pass a law overturning the existing law, and even if Justin and I or whoever are successful in persuading them, I can’t imagine this is going to be on their “top 100 things the Republicans did that we need to fix” list. For the next 2 years, they are going to be very strategic about which fights they pick.

  4. Alex Forshaw said:

    I do not think that Bush ever controlled the government outside of the national security establishment. Regardless of your personal opinions about the EPA/Kyoto-constituency, the antitrust division of the Justice Dept., the IRS, the SEC or any other regulatory arms of the government, they have been rabidly attacking anything and everything within their reach for most of the past six years. If anything, they have gotten worse under Bush, not better.

    It is a matter of educating them about the damage they are doing. I think pretty much anybody with any clue about the prediction markets field can agree on that one.

    And a NYT op-ed would be significant. Regulators build careers off of favorable press from climbing on the carcasses of businessmen (of varying degrees of shadiness). Attacking that behavior in an op-ed would be scary–they might not go back on their previous actions, but it would be a signal to stop this kind of behavior in the future.

    Furthermore, it has obviously become a much bigger problem now. Even though it was absurdly heavy-handed, the arrest of the online gambling execs a few months (?) ago was totally within US law. This takes it another step and says that anybody with any connection is in the crosshairs of the US government. It is out of bounds, dangerous, and wrong.

    It’s just a matter of making them pay for that behavior. And one of the best ways of making them pay for that behavior is by spotlighting *the individuals at the heart of this behavior* in a major publication and tearing them apart. It’s what they deserve, and it’s the best way to stop them. It would also make me happy that their reputations might suffer commensurately with the damage they have caused others’ lives.

  5. Jason Ruspini said:

    There’s also the state-level approach that Tom W. Bell and I mentioned (here, then here).

    From my post:

    “Efforts that would be ineffectively small at the federal level could be marshaled and directed at the most favorable states. The markets would only be legally open to those states’ residents, and the operators of the markets should make the good-faith practice of blocking clients from states were gambling is clearly illegal. But there is reason to suspect that if such a law is passed in one state, others will follow, in part from precedent, in part as a tax-dollar rush.”

    I then tried to identify those “most favorable” states by a few criteria.

  6. Chris Masse said:

    “I then tried to identify those “most favorable” states by a few criteria.”


    state prohibitions (from the Press):

    Louisiana, Washington, Nevada, Illinois, Indiana, South Dakota, Michigan and Oregon already have state prohibitions against online betting.

  7. Chris Masse said:

    Eric Zitzewitz: “Second, the administration has the discretion to tweak the enforcement of the “Safe Ports” law.”

    That was my hope, that the US DOJ and the US Treasury does not enforce the anti-Internet Gambling law against TradeSports-InTrade. But, as I wrote, to be sure, we need to have a positive statement from the US Administration. Otherwise, we are just dreaming.

  8. Alex Forshaw said:

    Well, without reputable, respected people shining a painfully bright spotlight on the NETeller incident, as well as the Carruthers et al. arrests, these regulators will continue to besmirch America’s business reputation. And it sure as hell doesn’t need any more of that.

  9. Chris Masse said:

    OK. Thanks for your comment, Alex F.

    Best wishes for your studies and the rest.

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