More than $1.5 billion (U.S.) in market value evaporated from the global online gambling industry yesterday after U.S. authorities arrested Peter Dicks, the chairman of Britain's Sportingbet PLC.
Dicks, 64, was arrested in New York on a warrant issued in Louisiana for gambling by computer. His arrest comes less than two months after former BetOnSports PLC chief executive David Carruthers was arrested, charged with crimes including racketeering and fraud.
"Legal risk in the online gaming sector is currently at a peak given attempted prohibition efforts in the U.S. Senate," Blackmont Capital Inc. analyst Wojtek Nowak wrote in a note to clients yesterday, as shares of betting companies sank.
Shares reacted instantly across the $13 billion-a-year industry, with industry leader PartyGaming plunging as much as 19 per cent, 888 Holdings PLC down as much as 18 per cent and Playtech down as much as 17 per cent yesterday on the London Stock Exchange.
The U.S. crackdown on online gambling appears to be mainly aimed at sports betting so far.
The main Canadian players in online gambling are software makers and they concentrate on casino-style games, not sports betting, analysts said.
"Cryptologic and Chartwell (Technology Inc.) are the two main guys in Canada," Desjardins Securities analyst David Shore said.
"They don't operate any sites themselves and their customers that they license don't allow U.S. sports betting," he said. "So they should not be impacted by any sports betting crackdown.
"That being said, we don't know whether the (Department of Justice) is focused on just sports betting, or if they're going after everything in online gaming," he said.
Jake Kalpakian, chief executive officer of Vancouver-based Las Vegas From Home.com Entertainment Inc., said industry executives are still worried about travelling to the United States.
"I think everyone should worry, but if you're in the sports betting business you've got to be even more worried," he said. "We do not handle any type of sports betting."
Las Vegas From Home, a small player, is in the process of selling its North American business to focus on Asia, Kalpakian said. That decision was made because of heated competition and falling margins, but legal concerns were also a factor, he said.
"We've been in talks with several parties, there's a couple at the table right now," he said. "Everyone knows the legal issues and risks. It's factored in the price of it being sold, you're just getting a lower price, but that's just part of life.
"We've taken every precaution and step, and if someone said to me, Jake, this is the specific law that makes it illegal, I would stop this business in a minute. But there is no law that says that when it comes to poker, at least this is what our legal opinions are saying," he said.
Keith Furlong, deputy director of the Interactive Gaming Council, said U.S. courts have said casino-style games do not violate the 1961 Wire Act because it was written when the legislative intent could not have included casino-style online gambling. The act specifically mentions sporting bets.
As for companies that don't operate sites but are involved in the industry, Furlong said "in the past, the Department Of Justice has threatened marketing companies with aiding and abetting. And marketing companies, in a lot of cases, stopped advertising for online casinos. But, recently, they've started advertising again."
Kalpakian cited a drop in advertising as the biggest effect the crackdown has had on his business.
"Our licensees don't market as aggressively. They're more worried."
The Interactive Gaming Council favours regulating industry. U.S. officials say online betting sites may launder money and lack safeguards to screen out minors and gambling addicts.
"Ultimately, what (the crackdown is) going to do is just push the industry further underground," Furlong said.
Kalpakian agrees, saying the industry had been moving toward more public companies that disclose a lot of information.
"Now, it's the other way because it's forcing people to go underground," he said.
Shore said there are about "25 or 30 Canadian companies that are involved in this (industry), although many of them are private or not listed (on stock markets) in Canada."