David Carruthers became the latest poster boy — or scapegoat, depending on one's perspective — when he was arrested in Dallas on charges of racketeering, conspiracy and an illegal online gambling enterprise. While on a layover to Costa Rica, where his company is based, Carruthers, chief executive officer for BetOnSports was arrested and detained on Sunday, forcing the online gambling community to take note.
Carruthers' arrest seems to have spooked online gaming executives. A major gaming conference, scheduled for next week in Las Vegas, has been cancelled. The Bodog.com Marketing Conference typically attracts gaming professionals from all over the world but as soon as word of Carruthers arrest spread, attendees began canceling.
"No senior executive from a gaming company was going to come after [the arrest] happened," said Calvin Ayre, founder and chief executive officer for Bodog.com.
"Nobody in the industry right now wants to come into the United States," Ayre said. "We're talking business people here. The people who run the online gaming industry are business people. They're not criminals. Nobody wants to be the test case for a prosecutor trying to make a name for themselves."
The conference will likely be held in the UK, Canada, the Bahamas, or Costa Rica in the next few months. Ayre said that this was likely the last year that it would have been held in the U.S. anyway because America is so unfriendly to the gaming industry.
But BetOnSports is not a typical online gaming company. They deal in sports betting, which is clearly outlawed by the Federal Wire Act of 1961, and they once operated in the United States. Most Bodog attendees are in the card gaming business and operate overseas, which makes them a bit more untouchable by the U.S. government. But they're not willing to gamble with the prospect of prosecution.
"From my read of the indictment, it sounds like this is an isolated situation," said Bruce Sabot, director of sales for Casino City, an online gambling information Web site, of the arrest. "It deals specifically with past history of the founders. The indictment talks about past practices that date back to 1992 of their illegal gambling activities that started in New York, moved to Florida and then offshore."
Several others involved with BetOnSports are also being prosecuted, including family members of Gary Kaplan, the company's founder. Representatives from the company could not be reached for comment and the Web site has since been shut down, with a notice explaining the situation.
"In light of court papers filed in the United States, the company has temporarily suspended this facility pending its ability to assess its full position," the notice reads. "During this period no financial or wagering transactions can be executed. Further information will be posted once the company is in a position to do so."
The indictment was made by Catherine L. Hanaway, the U.S. attorney for the Eastern District of Missouri.
"I think it's a strong message from the prosecutors that they're not going to sit on the sidelines and watch the online gaming industry continue to ignore the illegality of online gaming in the U.S.," said Paul Slocomb West, an attorney specializing in online gaming with McGlinchey Stafford, PLLC. "In my opinion, it will send a chilling message to not just the sites but people who process the payments as well."
The payment process came under attack last week with the bill passed by the House of Representatives, 317-93, which blocks the use of credit cards and bank accounts for online wagering. While this would make online gaming inconvenient, it is not likely to stop it. Like any illicit activity, where there is a will, there is a way.
"If the goal is to make it impossible for people to gamble, it's not very effective because there will undoubtedly be existing ways [to gamble],"said David C. Croson, an associate professor of strategy and entrepreneurship for the Edwin L. Cox School of Business, Southern Methodist University. "Some clever entrepreneurs will think of new ways, and they're probably working on it right now."
Croson is of the opinion that the U.S. is missing the boat by trying to prohibit online gambling altogether. Right or wrong, online gambling as it stands now does the U.S. economy no favors.
"It seems that U.S. betters as a whole lose about $4 billion each year just due to online sports betting," Croson said. "I noticed that the per capita gross domestic product of the U.S. is in the neighborhood of $40,000 per person, so that says that the economic impact of losing $4 billion is the equivalent of losing 100,000 jobs. This is kind of like taking 100,000 jobs and shipping them out of the US in briefcases."
But wouldn't that $4 billion be lost either way on some other vice? Croson admits that it might. He's not worried about how the money is spent, but where it was spent, he said.
"It may very well have been spent on other vices but it was spent on vices in the U.S." Croson said. "It was spent on U.S. vices like alcohol and cigarettes. I'm just thinking about it at the country level."
Croson estimates that those that are actually making money online will be hurt by the 317-93 bill but he points out that most online gamblers are not making money. Those that are winning seem adept at beating the system and those that are losing are, for lack of a better term, losers.
"In the professional gambling circuits, people who win have to be highly intelligent and capable and they have to be sophisticated in probability and finance and could probably make a good living on Wall Street," Croson said. "The people who are losing are not the sharpest tools in the shed."
Croson believes that the U.S. should stop trying to beat 'em and just join 'em. If the U.S. regulated online gaming, the economy could benefit from the taxation of the pastime, as well as regulate the fraud that may contribute to the lost $4 million.
"If I win, how do I know I'm going to get paid?" said Greg Giordano, a partner with Snell and Wilmer in Las Vegas. "How do I know it is fair? How do I know what the payback percentage is? How do I know the program isn't written so that it is not possible to get dealt a full house? How do I know these things unless it's regulated by somebody who has looked at the software?"
Giordano doesn't think that the 317-93 bill will pass in time to put a dent in the online gambling economy. Meanwhile, the U.S. can kiss more money goodbye from conference dollars that will not be spent by the online gaming community.
"We're going to move [the Bodog.com Conference] to an overseas city that is more hospitable," Ayre said.