PayPal halts Togel Hongkong payment service, Yahoo drops ads
Nov. 26 — The Internet gambling business is looking less like a sure bet. The offshore industry, which thrives on Americans making online bets that are illegal but usually unprosecuted, is one of the Web’s biggest financial successes. But the Internet Togel Hongkong casinos are now losing a number of allies that had supported and promoted their growth.
PAYPAL, THE eBay Inc. unit that has been one of the most popular ways for gamblers to bet online, halted its gambling payment service Sunday. That move followed prosecutors’ attacks, often successful, on banks that allowed gambling by credit cards.
Last month, Yahoo Inc., one of the most-used Web sites, stopped carrying ads for Internet casinos. In another sign of the times, Akamai Technologies Inc. says it won’t carry ads from gambling clients anymore on its “content servers,” whose technology for providing high-quality video and graphics is among the Web’s best.
Michael Tew, an analyst at Bear, Stearns & Co., says the increasing regulatory and financial pressure is likely to reduce industry growth to 20% next year — strong, but well below his previous forecast of 43%. Bear Stearns now expects revenue of $4.2 billion for Web gambling purveyors next year, up from $3.5 billion this year.
“Regulators have been at least somewhat successful in curbing the growth of the industry,” Mr. Tew says. “You’re going to see, in the near future, increased attrition in the market.”
Bear Stearns estimates that there are some 1,800 Internet casinos, mostly based in the Caribbean. About 60% of their revenue comes from the U.S. market, even though all states ban gambling unless a type — say off-track betting — is specifically approved and regulated; no state approves Internet gambling , except for horse racing.
CryptoLogic Inc., a Toronto company that supplies software to online casinos, reported this month that net income for the third quarter had fallen 70% from the year-earlier period to $1.3 million on a 25% revenue drop. “The whole industry is facing a number of challenges,” says Nancy Chan-Palmateer, director of communications.
The federal law restricting transmission of sports-gambling information by wire is often interpreted to cover only sports wagering, although there is dispute on that. Various bills that would explicitly declare Internet gambling to be a federal offense have been stymied in Congress. But state attorneys general have had success going after the industry’s service suppliers, managing to bluster or sue their way to settlements that make it harder for consumers to place bets and more difficult for the Web casinos to find gamblers.
In the past year, the New York attorney general’s office persuaded No. 1 credit-card issuer Citigroup Inc. to prevent cardholders from using their cards on gambling sites. Then, during the summer, PayPal reached a settlement with the same prosecutor’s office that stopped New York residents from using that service for gambling .
Gambling accounted for more than 10% of Pay-Pal’s business when eBay acquired it this year for $1.5 billion. EBay decided to stop all gambling payments nationally because of “the uncertainty out there in terms of government activity,” says a spokesman.
New Jersey’s attorney general has also been active in the gambling arena. As a result of civil suits, CryptoLogic agreed to advise its licensees that operate sports-betting operations to exclude New Jersey residents from playing casino games. New Jersey also contacted several billboard advertising firms and 800-number operators and told them to stop advertising Internet casinos to its residents. “You can’t advertise an illegal product,” says a spokeswoman for the attorney general. “Our constitution spells out what’s legal gambling in the state,” and the Internet isn’t included, she adds.
Akamai Technologies, whose content-delivery services ensure that graphics get to users’ screens more quickly, recently told an inquiring reporter it had three clients who pay it to pass on ads for Internet gambling sites. But several days after the reporter asked about the service, Akamai said it had “taken steps to terminate the relationships.”
Akamai said that it hadn’t received any pressure from regulators and that the action reflected a strategic decision to focus on large customers and “streamline our sales efforts.” A spokesman declined to comment further.
The business decisions and legal actions add up to harm for the Internet casinos, says Keith Furlong, deputy director of the Internet Gaming Council, a trade group that is lobbying for legalization with strict regulation. The council argues that some gamblers will inevitably figure out ways to use the Internet, and it says it would be better for the U.S. government to regulate the activity so it could trace bets and payoffs, prevent money laundering and collect taxes.
But the drumbeat of disapproval continues to push gambling out of the Internet mainstream. In September, Yahoo banned gambling ads from its U.S. portals. A spokeswoman said Yahoo, which banned pornography ads a year and a half ago, made the decision as “part of our overall business review.” AOL Time Warner Inc. has long banned ads for online gambling on America Online as inconsistent with the service provider’s standards, although America Online’s Netscape subsidiary will run them.
Nobody expects the piecemeal regulatory efforts to shut down Internet gambling . Cryptologic says it has developed electronic-wallet systems that could replace PayPal. There are numerous Internet sites eager to carry banner ads.
Nevertheless, regulators feel they are making significant inroads. Assistant Deputy Attorney General Daniel Feldman of New York says that by keeping people from gambling on credit on the Internet, regulators are preventing the “potential harm of people bankrupting their families in an hour and a half.”