Gambling online is not always such a safe bet

INTERNET BETTING:The legal status of internet betting is a grey area, but that is not stopping bookmakers and even the National Lottery from moving online

PORNOGRAPHY IS often cited as the biggest industry on the internet, but gambling is not far behind. Remote gambling, which includes online gambling as well as phone betting, is a €30 billion-a-year industry, which is likely to expand even further as mobile internet comes on stream.

Yet online gambling is a two-edged sword for the traditional betting sector. On the one hand, it threatens to eat into the market shares enjoyed by bookies' shops and other long-established forms of gambling. On the other, it is likely to contribute to a massive increase in the types of gambling available and the amounts involved, as well as attracting more women. Ireland is also poised to build on its strengths as a gambling nation to attract major players and create new jobs here.

For regulators and those working with gambling addicts, the internet poses a new and serious headache. Many of the controls that apply to traditional gambling establishments are absent - regular opening and closing hours, a ban on alcohol, supervision, and checks against money laundering. Controls against gambling by under-18s and consumer protection laws are also hard to enforce.

Professional poker player Andrew Black believes online gamblers can get "very unobjective, very quick" because of the lack of human contact and other reference points. Players operate in isolation in a stigma-free environment, but when things go wrong, he says, "it's like space; no one can hear you scream". One study found that three out of four people who bet on the internet were either problem or pathological gamblers - compared with one in five gamblers who do not go online. A 2006 report for the British government also referred to a money laundering "arms race" in operation as a by-product of the growth of remote gambling, with criminals exploiting loopholes in the system and governments and operators working to plug these gaps.

Other gambling sectors are understandably wary about the rise of the internet. "In gambling terms, it is the most dangerous of them all," remarks David Hall, chairman of the Gaming and Leisure Association of Ireland (GLAI). "We have to embrace it because we cannot get away

from it."

Going online offers the gambler undisputed convenience and variety. It offers fixed-odds betting, as with a traditional bookmaker, but also betting exchanges where a person bets against odds offered by other gamblers, rather than the bookie. Thousands of sites offer casino games such as roulette, blackjack, card games and lotteries.

Spread betting, which involves gambling on the outcome of an event with winnings or losses increasing in accordance with the accuracy of the gamble, is also popular online.

Estimates on the size of the internet betting market are thrown about liberally, but hard figures are difficult to come by. In the UK, less than 10 per cent of the population has tried online gambling, so the figure here is probably even lower.

One industry survey claimed 30 per cent of Irish internet users had visited a gambling website, while another showed that internet users spent longer on such sites than any other - up to 59 minutes per visit in the case of paddypowerpoker.com. Paddy Power claimed over 150,000 active online customers in 2006.

Market analysts put the value of the Irish online market in that year at €86 million, in terms of gross win (ie, customer losses). This figure, an aggregate for online sports betting, casino and poker, compared to just under €14 million in 2002.

This appears to show the online industry is growing at annual rates of over 50 per cent, even before the long overdue rollout of broadband throughout the country is completed. Even when this process is completed, the online sector is expected to continue growing at a rate of almost 20 per cent a year.

The Irish Bookmakers' Association says its members' share of the betting market has fallen from 91 per cent in 1999 to 60 per cent in 2003, but the internet is only one of the many new forms of gambling responsible for this trend.

Even so, growth is lower than that recorded elsewhere in Europe, according to the online sector, and a number of ambitious new ventures have gone belly up. Some prominent bookies have withdrawn from the sector, while other operators have yet to dip a toe online.

The pace of change is set to increase within the year when the National Lottery ventures online. The lottery is Ireland's favourite punt, with one million players a week, so its expansion onto the internet will be watched closely.

It says that all its existing games will be available in an internet version and additional games that work well onscreen, such as the old "spot the ball" competition, will be introduced.

Chief executive Dermot Griffin promises "robust" controls will be put in place before the site opens for business. These are likely to include the pre-vetting of players to ensure they are aged 18 or over, the imposition of daily and weekly limits for players, cooling-off periods, and a self-exclusion facility. Prizewinners will still have to turn up at National Lottery headquarters to collect their booty.

Internationally, the buzz around online gambling has diminished somewhat since the ban imposed by the US in 2006. Major gambling operators chose to pull back their horns by blocking bets from US customers and thereby protect themselves against prosecution. Not everyone backed down, however, and a number of companies that are still taking online wagers from US punters have operations in Ireland.

Indeed, the cloud hanging over the US industry since carries a silver lining for Ireland, in the form of an influx of gaming companies. In 2006, for example, the California-based poker software company Tiltware relocated its corporate headquarters to south Dublin. Tiltware is the software company behind Full Tilt Poker, which continues to take bets from the US. Full Tilt Poker itself, however, is based on the Channel Island of Alderney. The legal status of online betting in Ireland is yet another grey area in gambling; the world of the internet was not even contemplated, let alone mentioned, when the legislation governing gambling was drawn up 50 years ago and more.

In deference to their uncertain legal status and more favourable tax set-ups elsewhere, many of the leading companies based here are incorporated overseas. Boylesports, for example, has its headquarters in Dundalk, but its phone and internet services are registered in the Isle of Man. Paddy Power also has operations on the Isle of Man.

Online operators benefiting from low overheads are quick to criticise the margins charged by traditional bookies. "The extent to which Irish punters are being ripped off when it comes to betting on horse-racing has been one of the great untold stories of recent times," says bettingmarket.com in its commentary on the market.

"At best, the Government's policy towards the gambling industry could be described as an incoherent shambles. A golden opportunity to put Ireland at the forefront of the global gambling industry has been negligently squandered." The problem for governments is that gambling today is highly mobile. Cut taxes and the business may move here, but with a reduced tax yield for the exchequer. Bump up taxes and the money moves elsewhere - and elsewhere probably means offshore.

The UK has recorded a five-fold growth in betting since taxes were removed in 2001, with the fastest growth in the internet sector. Half of these bets are placed by gamblers outside Britain.

Questions have also been raised about the trustworthiness of gaming websites. How can punters be sure the site they gamble on is not rigged? And how can they seek redress if a problem arises, when it is often far from clear who is operating a particular site and where it is based?

The design of online gambling sites effectively prevents gamblers from investigating whether games are operated fairly. In contrast, casinos are tightly regulated in most jurisdictions (except Ireland). Players are therefore at the mercy of site operators. In addition, they have little recourse if winnings are not properly credited.

Gambling sites are attractive to potential fraudsters because of the amount of money they handle, and their "peakiness", which stems from the popularity of betting on big sporting events.

Online gamblers face the same potential risks as anyone else who buys services on the internet, according to Damian Saunders of data protection experts Citrix. The betting sites themselves can also face "denial of service" attacks, in which criminals attempt to extort money by bombarding the sites with traffic and preventing them from operating normally.

Saunders says the biggest threat to punters stems from firewall breaches, resulting in a person's payment details being illegally accessed by criminals. This highlights the importance of using only those sites with good encryption technology.

There are an estimated 2,300 gambling websites in existence, most of them in offshore or distant locations. Antigua has the largest number of sites, 537, followed by Costa Rica, Kahnawake (a Canadian reservation) and the Netherlands Antilles.

"Any time you deal with computers, there is the possibility of unfairness," says Andrew Black, "whether it derives from a glitch in the PC, trojans or collusion between players, or players and operators." Black, who has a business association with Full Tilt Poker, says he does not believe there is a major problem with cheating in online poker. "My sense is that the companies are making so much money that it's not in their interest not to be fair."