Online Casinos Moving to Caribbean After U.S. Ban
By Pete Harrison

LONDON (Reuters) - A looming U.S. ban on Internet gambling is already scaring off London-listed operators, but the industry will continue to thrive in the hands of private operators in locations like Costa Rica, Antigua and Curacao.

The fear of extradition to the United States has forced UK executives to turn away from their most lucrative market, some selling their U.S. operations to counterparts in and around the Caribbean which have less amenable extradition treaties with the United States.

Sportingbet's Chief Executive Nigel Payne this week reassured Antiguans the company would not downsize its operations there and is in talks to sell its U.S.-focused business to a private firm.

Leisure & Gaming's (L&G) U.S.-facing operations VIP and Nine.com are also likely to end up in private hands, with sale talks underway.

Analyst Tejinder Randhawa at Evolution Securities said the industry was splitting into two camps: the European-listed companies and those elsewhere looking to exploit the U.S. ban.

"The market will not go cold-dead overnight," he said. "There are huge opportunities, and all the private offshore operators are licking their lips."

U.S. Congress passed a bill to outlaw online gambling this month, with President George W. Bush expected to sign it into law on Friday. Many UK companies immediately announced plans to pull out, wiping $7 billion off their shares.

"U.S. gambling is untenable for London-listed companies, but these U.S. operations are all viable and profitable businesses that have a future," said a source close to L&G.

The U.S. ban will also make it illegal for banks and credit card companies to process payments to online gaming companies. "But no doubt there will be operators that spring up to handle the payments," said Randhawa.

About 170 Web sites have declared their intention to stop accepting U.S. players, the vast majority since Congress passed the act, according to gaming Web site Casino City, which expects 10 to 15 percent of the world's 2,700 or so gaming websites to eventually block U.S. customers.

By contrast, privately-owned operators in and around the Caribbean, which moved there years ago to avoid prosecution in the United States, are unfazed by the laws.

Calvin Ayre, the billionaire founder of Costa Rica-based Bodog.com, told Reuters: "We're confident that we've structured our business in such a way that we'll have no problems adapting .. If anything, the pending legislation has validated our broad-based digital entertainment model and our decision to stay private."

Executives from both BETonSPORTS and Sportingbet have been arrested this year on illegal gambling charges filed by individual U.S. states while traveling through the country.

Most UK gambling executives now avoid going there, but they also fear extradition to the United States if they break U.S. federal law after the ban.

The vulnerability of British executives was illustrated by the recent extradition of the "Natwest Three" bankers involved in the Enron case.

The three were extradited without British government intervention under a 2004 treaty originally designed to speed up extradition of terror suspects.

"All the UK government has done is open its doors and say to the Americans: come and get anybody you like," BETonSPORTS non-executive director Robin Glentoran was recently quoted saying in a newspaper interview.

But while Sportingbet, Leisure & Gaming and several others look set to offload their U.S. operations into private hands, some will retain them even if those operations are suspended.

Unlike most, 888 Plc owns its gambling software and might have trouble splitting away the U.S. players together with the hundreds of support staff needed to service them, gambling sources said. 888 declined to comment.

Sector leader PartyGaming is still keeping its cards close to its chest, but spokesman John Shepherd said the ban risks forcing the Internet gambling industry underground.

"The protection afforded to millions of Americans by responsible companies is just about to be stripped away," he told the GamCare conference this week.