House OKs Bill to Ban Internet Gambling

Congress voted 317-93 yesterday in favor of legislation that attempts to kill Internet gambling by cutting off the flow of money. The bill would prohibit banks and credit card companies from funneling money from American gamblers to Internet gambling sites. It also would allow law enforcement officials to work with Internet providers to block access to gambling Web sites.

Supporters of a ban say the Internet's widespread availability makes it too easy to gamble, creating betting addictions and financial problems. Critics of the ban believe that it would be wiser to regulate online gambling and collect taxes on the $12 billion industry.

Predictably, online gambling stocks didn't take the news well. Shares of PartyGaming (LSE:PRTY), which owns Party Poker, plummeted 24% on the London Stock Exchange.

Short-Sighted & Hypocritical

The bill would exempt state-run lotteries and horse racing. In other words, Congress believes there is "good gambling" vs "bad gambling". Lottery good, poker bad.

In reality, state-run lotteries have the lowest payout of any possible gambling propositions. Most only pay around 55 cents on the dollar. By comparison, online poker sites and casinos payout roughly 95 on the dollar! And they want to exempt the lottery?

Despite these terrible payouts, lotteries are by far the most popular form of gambling. Over 50 percent of adult Americans play legal lotteries in lottery states. Two-thirds of these play regularly, which means that about one-third of the adults are regular players. The poor, minority, undereducated, and middle-aged are all more likely to play.

And are current online gamblers going to stop cold turkey? Of course not. Their money will instead be shifted to brick & mortar casinos, horse tracks, lotteries and old-fashioned bookies. The gambling will continue, just not online. Maybe that's what Congress wants?

Clearly it is unfair to allow online lotteries and internet betting on horse racing to flourish while cracking down on other kinds of sports betting, casino games and card games.

Is It Time to Pick a New Hobby?

Not yet. The bill will likely never pass through the Senate. Not only is the Bill a low priority going into an election year, it's filled with smoke and mirrors. With most online gambling sites being offshore, legislation is nearly impossible. In addition, it will be nearly impossible for credit card companies to know whether or not a company is an online gambling site. Gambling web sites usually use other names to avoid detection during money transfers.

With the bill unlikely to continue its momentum, it may be a good time to pickup the online gambling stocks that saw their shares tumble yesterday for the short term (unless you’re an American citizen. We cannot own these shares since gambling is “illegal”).