Arrest of CEO Raises Stakes in On-Line Gambling War

Organizers cancelled this past weekend’s Marketing Conference, a major confab for the on-line gambling industry, after federal prosecutors arrested the CEO of while on an airport layover in Dallas. The arrest of David Carruthers on an indictment of racketeering and conspiracy sent a chill through other executives in international online gaming circles, who now believe they are in the crosshairs of U.S. prosecutors. Following the arrest, attendees from gaming sites, all based outside the U.S., began canceling travel plans. Future conferences are likely to be held outside the U.S. Online gambling is illegal in the U.S., although it is extremely difficult to enforce. Legislators have increasingly sought to control the expansion of online gaming among Americans, which now accounts for $4 billon a year, through bills that would choke off international money transfers to gaming sites. The House passed just such a bill 317-93 July 11, but similar legislation in the Senate is not likely to reach the floor. PC Magazine reported that Carruthers’ site, unlike most Internet gaming sites, deals in sports betting, which has been illegal to do over the phone lines long before the invention of the Internet. Carruthers indictment, brought by the U.S. Attorney for the Eastern District of Missouri, reportedly covers alleged gambling activities in the U.S. prior to his joining Nonetheless the arrest sent chills throughout the industry, which operates legally in most other countries, including the U.K. Many experts, however, think the increasing campaign against online wagering is counterproductive. The casino industry itself, once in favor of laws against Internet gambling, now questions them. Recently, the American Gaming Association called for a Congressional study on the benefits of regulating and taxing online casinos, although it is no secret that U.S. casino interests want a piece of the online action themselves.

“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 U.S. in briefcases.”