Interview with Costigan

http://www.redherring.com/Article.aspx?a=22115&hed=The+Return+of+Online+Gambling%3F+&sector=Industries&subsector=InternetAndServices

Congressman Rolls the Dice

If passed, a new bill will effectively repeal anti-gambling law.
April 26, 2007

By Cassimir Medford

Americans place your bets, online.

Rep. Barney Frank (D-Massachusetts) on Thursday introduced legislation that, if passed, will return legal online gambling to the United States. But some of the bill’s stringent requirements will hurt startups if the bill sails through Congress unchanged.

“This was not quite what the industry was expecting,” said Christopher Costigan, president of Gambling911, a gambling research site. “It wasn’t expecting the licensing, taxation, and the background checks. Overall the standards are pretty stringent.”

The bill, the Internet Gambling Regulation and Enforcement Act of 2007 (IGREA), will create an exemption in a controversial law that was passed last year making online gambling effectively illegal. And it looks like it has a good shot of being passed, though perhaps in a watered-down version.

The IGREA exemption allows licensed online gambling operators to ply their trade and Americans to bet legally.

But there are a number of stipulations that Mr. Costigan said will favor public online gambling firms and stop small startups dead in their tracks.

For instance the new law requires that applicants pass some fairly stringent background checks.

“Many of these guys will not get past the first step in the background checks because many of them have convictions and outstanding warrants in the U.S.,” Mr. Costigan said, referring to the shadowy world inhabited by online gambling denizens. “This stipulation will favor public companies that have already gone through those kinds of checks.”

Strangulation by Stipulation

As the bill now stands, operators must also set up safeguards to ensure that individuals placing bets are 18 years of age or older. And they must set up systems to combat fraud, money laundering, and compulsive gambling. And they must also demonstrate that all appropriate taxes and fees are collected from individuals and the licensees. All of this takes expensive software that hikes up startup costs.

To top off the list, operators must also ensure that they’re located in a U.S. jurisdiction that permits that form of Internet gambling.

Many in the industry were hoping for a simple repeal of the existing law. Instead they may get pretty high hurdles to scale if they are to get back into the U.S. market.

“But the law is far better than what they have now,” Mr. Costigan said.