You could see how ol’ Senator Frist could have gotten them confused. I mean they are so close. Hippocrate. Hypocrite.
“Hmmm… Do no harm. Hide behind false pretences. Now which one was it? …”
Anyhow it does not seem that Dr. Frist is a Park Paradigm reader…or if he is, the legalize, regulate and tax message failed miserably to resonate with him. The Economist does a great job articulating this position in a leader this week (although with the parochial “our-way-or-the-highway” mindset seemingly so prevalent on the Hill these days, a remonstration from such a foreign, high-faluting journal such as The Economist will probably been worn as a badge of honour by the Deliverance gang in Congress…):
Internet gambling is good for consumers. Too bad America wants to ban it
THE spread of the internet has made the online gambler king. The emergence of large online gambling companies has slashed gaming operators’ margins and driven up payout ratios for gamblers. And the punters have embraced it in their millions, especially in America, where illegal gambling has long flourished. Last year 12m Americans placed about $6 billion in online bets, half the world’s total.
You might have hoped politicians would greet such a demonstration of popularity with moderation—welcoming online gambling’s benefits and curbing its inevitable excesses. Instead they have put all their chips on red. Last weekend Congress passed a bill that will stop banks making payments to online gambling sites, adding to an already formidable legislative arsenal that outlaws most online gaming.
Given America’s tolerance of many other forms of gambling including horse racing and casinos, that looks like hypocrisy. Worse still, the new bill is self-defeating. It will leave the people determined to bet—the very group most vulnerable to gambling’s excesses—more open to predation from the unscrupulous online gambling joints that lawmakers most fear.
In an accompanying article the Economist also points out that there is now a real possibility that the oligopoly US gaming providers will now be able to buy up the (largely UK and European) leading internet firms at substantially lower valuations and then lobby for a legitimization of their activities:
Even America’s casinos, which long campaigned for the prohibition of online gambling for fear it would cannibalise their business, have begun to lean towards legalisation because they see attempts at prohibition as futile. Many now think that online offerings may help them attract customers. That realisation seems to be reflected in the valuations of American casinos: a group of private equity investors is offering just over $15 billion to buy Harrah’s, the world’s largest casino operator.
One of the more ironic consequences of the new law is that it may have made British-based online gambling companies vulnerable to takeover by America’s casino groups. Not only have the firms’ share prices fallen heavily, but their withdrawal from the United States has legitimised them as prey to American operators seeking to quickly obtain online expertise and knowledge of overseas markets.
If such acquisitions come to pass, it seems more than likely that American online gambling firms would begin to lobby American politicians to legalise online gambling. Thus, America’s prohibition may ultimately have the unexpected consequence of moving the country one step closer to legalising online gambling.
Far fetched? I doubt you’d find many layers on odds longer than 2 to 1…
Grant Clelland, Deputy Editor of the Financial News also chimes in with an eloquent articulation of the great American double-standard:
When a continental European country takes action to protect its industry from external competition, it is called economic nationalism. When the US does the same, we are meant to believe it is about preserving the fabric of society.
…Politically inspired legislation is hardly confined to the US, but the double standards on display are rivalled only by the French government. The law’s backers may rail about the pernicious effects of online gambling, but they seem happy with gambling itself. Groups such as Las Vegas Sands, Harrah’s and MGM Mirage are world leaders. Yet there has been no bill proposed to congress calling for the demolition of Atlantic City or Las Vegas.
But the bigger issue has nothing to do with online gaming, however much you may dislike the business and disagree with the almost obscene sums made by some of its executives at the expense of deluded punters. It is the latest example of US economic nationalism and, most damaging of all, the creep of extra-territorial legislation. This scores easy points at home without any perceptible short-term economic impact on US companies or their employees. Think back to the shameful row over the US congress blocking the acquisition of some of its ports by a company that had the misfortune to be based in Dubai (an ally of the US). Or to the tentacles of the Sarbanes-Oxley Act stretching around the world.
If it were a German firm blocking a US biotech company from selling genetically modified seeds in Europe, Washington would shout “protectionism”. Indeed, last week, it did: the US urged the European Union to speed up its process for approving new GM products, blaming “unjustified and politically motivated delays”.
The apparent urge of the US administration to apply double standards and make the country as unfriendly a place as possible for international businesses is proving increasingly embarrassing to its companies and investment banks. Economic nationalism and extra-territorial regulation – in Europe or the US – should be resisted. It may win elections, but in the long run it undermines economic growth. In the case of gambling, it is likely to have as little permanent impact as prohibition, which in the US lasted just 13 years.
Yet another example of regulatory capture and oligopolistic behavior in the ostensible land of free markets. But just as London is slowly but surely positioning itself as the premier world centre for international finance - and this despite not having the massive advantage conferred upon New York and Chicago by having the world’s largest economy as a home market, the UK government has clearly sensed an opportunity to position itself as the “world leader” in Internet gambling - and indeed as witnessed by the fantastic growth of firms such as IG Index and CMC Markets, it will almost certainly lead innovation in the broader transformation and democratisation of markets in risk management and transference in the coming decades. As reader Ralph points out in his comment here, this spirit of innovation and risk taking (management) has prevailed in the UK for centuries and was at the heart of the founding of the Lloyd’s insurance market in the 17th century.
That same spirit is evident in the rise and rise of the world’s fastest growing exchange - an exchange that does not allow any custom from the US - and is based in the UK. The LSE? Aim? No…Betfair. Having just released their annual results for the year ended April 2006 (ie before the World Cup in June which alone generated 11 million trades), the private company continues to grow, with revenues up 36% and pre-tax profits up 65%. With a reported 160,000 active monthly users and approaching 1 million total registered customers, the exchange executed 1.3 billion trades during the year. That is on average 3.5 million trades per day (365 days per year) or almost 2500 trades per minute 24 hours a day. Without a single trade coming from the largest economy in the world… Not bad. Especially when you consider that - unlike their more traditional ‘financial’ exchange brethren - they operate 24/7 and indeed weekends are their busiest times. Ask any CTO of a financial exchange or investment bank if they would fancy not having 52 weekends a year of downtime to maintain the infrastructure.
I can already hear the cries from Wall Street rushing to the defense of the history and stature of its markets. Markets that transformed the world economy and proudly flew the capitalist standard, helping to create the engines of growth that have given us previously unknown wealth and prosperity. Well sure. But I wonder if Senator Frist had been around at the time, if he wouldn’t have chopped down that Buttonwood Tree and put an end to the scruffy and speculative scrum that became the NYSE before it “dashed dreams and frayed the fabric of society.”
Hippocratic Bill…
…h i p p o-cratic.
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