The Barney Frank Plan: Who Wins, Who Loses

Clearly, with Congressman Barney Frank outlining his plan to repeal the Unlawful Internet Gambling Enforcement Act, there are going to be winners and losers - assuming the bill actually gets voted into law (and that is a mighty big assumption at this juncture in time).  Overall, Barney Frank's plan is a win for the online gambling industry as a whole.

Let's take a look at who will benefit the most and who might not be able to overcome Frank's requirements.

Clearly the publicly traded online gambling firms out of Europe would benefit the most as nearly all have undergone the due diligence necessary to acquire a license in the States.

Not an American owned company?  Not a problem.  As long as these firms are willing to pay taxes (and they will be if it means grabbing a huge chunk of the US market), watch for the likes of Virgin, William Hill and Ladbrokes to be among the first to enter the US market place.  Newer - but solid companies, such as PartyGaming, Sportingbet and 888.com would likely re-enter the market as well.  It should be pointed out that Sportingbet has been one of the leading proponents of taxation and regulation in the States.

Other beneficiaries would most certainly be the Las Vegas casino companies.  But the common misconception among current offshore operators is that the success large Vegas casinos have enjoyed up until this point will translate over the Internet.  Don't bet on it.

MGM surely is known worldwide as a brand that can be trusted but they engaged in an ill-fated attempt to conquer the European online gambling market a few years back. 

The Virgin Group is a highly successful enterprise.  Virgin Gaming is a proud sponsor of the Gambling911.com website.  But we would be kidding ourselves to suggest they pose any serious threat at this time to a William Hill or Ladbrokes in the world of gaming.  That's not to say it won't happen at some point, but Virgin's entry into the market would be anticipated in the same way as an MGM or Harrah's. 

I laugh every time I hear an current online gambling operator suggest his or her company would never be able to compete with big name established Vegas casino brands.  Translation: "We have zero innovation".  Look at most industries and you see how new brands establish niches and easily compete even though it obviously takes the right components: Hard work, vision, creativity, etc. 

Red Bull and Snapple entered a soft drink market dominated by Pepsi and Coca Cola.  The two succeeded by offering something unique that consumers demanded.  Pepsi and Coca Cola are good at one thing: Making cola.  The same way, Vegas casinos are good at one thing: Providing a glitzy gaming environment, one that won't necessarily translate well online.

Much success boils down to marketing.  If an offshore casino, poker site or sports betting site can market more effectively than a big name Vegas brand, the offshore gaming business with have a decisive edge regardless of how long MGM or Harrah's have been in business.  People want value.

Offshore gaming companies would need to embrace the concept of branding first and this is something most of these establishments have a tough time understanding. 

Bodog.com for example doesn't necessarily advertise in order to maximize signups from a single ad venue.  Instead, they are more interested in market saturation and getting their name out there.  Bodog realizes it may take hearing the Bodog.com name several dozen times before an individual finally decides to dive into the world of online gambling. 

Geico is a perfect example of a company that incorporates heavy market saturation.  Few people these days would believe that Geico is still a relatively small player in the insurance industry when compared to a State Farm.  But Geico's aggressive market penetration, which appeals to all facets of society, has helped the company to compete with the more established insurance firms. 

Ultimately, those most adversely affected by any new legislation would be businesses that are unable to market.  This applies to a rather sizeable chunk of the current online gambling establishment we must say.

Also, the new legislation would require background checks whereby individuals who have been convicted of gambling-related offenses in the past cannot obtain a license.  This too applies to a great number of current offshore operators.

But in the end, savvy businesses can team up with more savvy business people.  If Wall Street execs can dive into the online gambling sector, we may witness even more interesting bed fellows in the future.  Keep in mind that some large investment firms were already studying the Internet gambling industry prior to the UIGEA passing.  Gambling911.com had met with one such firm on numerous occasions.

The bill proposed by Mr. Frank will also enforce stringent regulations to prevent underage and compulsive gambling.  To be fair, most of the established online gambling companies have been very forward thinking in this regard.  A credit card and/or proper identification is required when joining an offshore gambling website.  Many of these companies employ big name security firms to prevent identity theft - and by default, underage gambling. 

Preventing compulsive gambling is a staple of the online gaming community since most of the business models are founded on a post up concept.  One can only gamble up to the amount they have on deposit.  This is not true of all offshore betting shops unfortunately and I would be remiss in suggesting this is not a problem. 

So who really gets hurt by Barney's bill?

Aside from Senator Jon Kyl (R) of Arizona who authored the Unlawful Internet Gambling Enforcement Act, offshore gambling jurisdictions like Costa Rica and even Antigua, which won a landmark Internet gambling case against the US, could stand to lose a whole lot of business.  What's the point of operating in Antigua when you can operate legally in the States?

Then again, you'll probably have a number of online gambling companies still running out of the Caribbean and Costa Rica since so many operators won't be able to meet Barney's requirement (a la the "no conviction" rule). 

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Christopher Costigan, Gambling911.com

Originally published April 26, 2007 11:04 pm ET