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October 26, 2006

Blog 7 - Online Gambling, Where Now?

The information revolution of Internet and World Wide Web in the mid-1990's redesigned geographic markets for many industries. Retailers could sell to the entire world via internet instead of relying on physical locations. Furthermore, the internet introduced a new market for online services such as VOIP communication or information search.

The gambling industry has also been turned around through the introduction of the internet and its creative entrepreneurs. There are hundreds of online betting sites online allowing web surfers to bet on almost anything.

Although gambling is addictive and has negative social effects such as increasing crime, it is legal in many states. In these states, gambling is highly regulated by the government and most important of all, it is taxed heavily. Therefore, allowing the public via the government to take advantage of the larger profits casinos produce.

What makes online gambling so unique and disturbing, from the government's point of view, is the fact they cannot tax it. Most online gaming sites are located in tax shelters such as the Cayman Islands and they are not regulated. Furthermore, the internet allows users to gamble from anywhere at anytime due to its high accessibility. This gives politicians to have a unique political incentive to stand against the industry.

In 2005 two IPOs of huge gambling giants 888 and PartyGaming portrayed the peak this industry was at. However, the US government was not ready to give up revenues from gambling and allow the continuation of the cash flows out of the United States.

On Sep. 30 the US congress passed a bill ( click here ) that tries to eliminate online gambling of US citizens. The ban limits the transfer of money from US credit card companies to the operators of the websites. Analysts predict this act would effectively bar online-gambling companies from operating legally in the United States, changing their business models and perhaps forcing some companies out of business.

The recent act has caused gambling sites significant losses of revenues and large decreases in the prices of the stocks ( click here ). This stock crash caused industry leaders such as 888 (loss of 26%) and PartyGaming (loss of 58%) billions of dollars in market value. Both online giants stated they will suspend their US service if President Bush signs the new bill. However, they will be looking into changing their collection strategy. In an attempt to recover losses and reorganize their businesses for the battle against the US government, both gambling giants are considering a merger). This merger will allow both companies a better financial structure to combat US legislation and reenter the US market.

Online Casino
What is your stance on online gambling?

Recently the UK announced that it will host an international conference to discuss regulation for online gambling ( click here ). The British wish to seek regulated online gambling through international agreements. This will allow each country to collect the tax and prevent the destruction of the industry. The United States refused to attend this conference.

We believe that gambling should be limited and regulated in the United States and throughout the internet. The move by the US congress to ban online gambling by passing on the enforcement to the credit card companies is a right move. However, we think it is not a smart decision. Instead of finding a way to collect taxes, like the British, the US is declaring a war on online gambling. It is a matter of time until the operators of these websites figure out a new sophisticated way to collect payments.

For example, online gambling companies can simply relocate their main operations to a different country, where online gambling is allowed (i.e. off shoring). In fact, many of the top companies are already on the move of doing this. Empire Online, for example, have said that it had “terminated its US operations, and…planned to develop its non-US operations? (( click here to read the article). Because internet is not “located? in a physical area, it is simply too hard to regulate. This being said, politicians do not make their decisions based on economic analysis – political processes are determined by the amount of political capital that politicians can capture. Given that November elections are around the corner, it would have been detrimental for any politician to take a stance against banning online gambling.

Where do we stand on the issue? The demand for gambling is very inelastic, especially in a rich developed country, like the United States. Online gamblers are not going to quit gambling because U.S. companies move to a different website based on a different location. The government needs to recognize this need and instead of fighting it, they should accompany and limit it with economic methods such as a high tax. They must remember that trying to regulate online gambling simply encouraging offshore business, which only makes it even harder to hinder its operations. And perhaps they need more advisors who can advise them on internet technology.

Posted by orshotan at 12:34 PM | Comments (2)

October 23, 2006

Blog 6 - Fantasy Politics: Who's Your Pick?

Internet is frequently used as a way to recreate fantasy environments. It can give you a chance to do things you cannot do in real life. Such notion is demonstrated by EA’s success in launching “reality? games like Sims and Sims Online. Another example is fantasy sports, which allows users to draft and manage their own team of real life players in all major sports, and compete against others for prizes or pride. Now, this phenomenon is carrying over in to the world of politics.

Just as millions participate in fantasy sports every year, college students in California have created a “Fantasy Congress.? Drawing much of its influence from fantasy sports, participants draft a team of real politicians and actually compete against other teams.

Fantasy sports, especially fantasy football have grown to such a staggering number that the growth of fantasy congress may not be out of the question. “A recent study found that fantasy football costs employers as much as $1.1 billion a week in lost productivity during the National Football League regular season, when nearly 37 million people spent an average of 50 minutes per week at work managing their fantasy teams.

Fantasy Congress has grown to include 6,000 participants from many US States and overseas. The point is to help draw more attention to the political elections and to politics as a whole. This has a huge potential to satisfy the political needs of many. According to a recent poll by AP, “some 35 percent of Americans, or 43 percent of likely voters, go online for election information.? (click here to read the article). The game also sets up to help create more of an interest in politics and elections for all people, especially younger kids.

Fantasy Congress could have huge impact on the political landscape of this country by bringing more attention to politics and make people care more about issues and elections. Just as many people watch or care about a football game just because “this player? is on my fantasy team, now propositions and politicians will become more important to many people. This is extraordinary, when you factor in the fact that the game targets internet users, who tend to be young. This could play an integral role in solving a notorious epidemic called “Political Apathy.? This could drive the younger generation to the polls.

Such interests also creates political transparency. The expansion of this idea will help make more people aware of new issues and what politicians are currently involved in. The fact that it is competitive will make people care more about what is going on and follow political issues more closely. This could, partially, serve as a potent force that could counter the recent decline in government transparency established under the banner of “USA PATRIOT Act.?

However, the main issue is to make sure that the point of the game is not lost. It is to gain awareness and expand interest. If this idea were to grow it is important it does not reach the point where people vote on propositions or politicians based on their “team.? The idea is to make people aware by creating a fun and stimulating environment, and it seems as though this new idea can definitely accomplish what it sets out to do. It is also important that such game could bring dramatic power shift in the American government. Because most of the younger generation leans towards the liberal camp, systematically compelling them to vote, could potentially end the Republican dominance. The problem? While this “enhances? the functioning of a representative democracy, this also affects the welfare of many. Here’s a list: