Off Shore Gaming Association

It’s been known for some time that World Sports Exchange was having payment issues but they always seemed to find a way to get financing to keep the company in business. Since its inception, the website was always stock full of betting options, particular in game markets for major games and tournaments but lately that changed. Starting about 2010, long term markets were discontinued for many sports and in game markets were becoming less available. Still major events always had markets open. It thus seemed quite odd when there was no Masters market last week. Looking into it I also determined that there were other issues as well. The live support is no longer functional and upon calling the company on the 1-888 numbers I received a message “your call is now first in line and will be answered by the next available representative.” After 20 minutes it became quite clear that no one was going to pick up the phone. Emails also went unanswered. I spoke to numerous other WSEX customers who have had the same experience lately and by all accounts no payouts are being sent. As a result the only logical conclusion is that the company is probably in the process of closing shop.

WSEX began operation in 1997 when three members of the Pacific Stock Exchange joined forces and decided that a sports betting website could offer the same type of day trading and long term markets that a traditional stock market could. Setting up shop on the island of Antigua, World Sports Exchange became an immediate favorite for remote bettors who loved to bet on long term markets for events like the NFL and NCAA championship or live betting on events like football games and golf tournaments. Traditional betting options were also available with competitive lines. Moreover, the company offered betting on the next at bat for select baseball games. I recall one of the owners telling me that someone had bet $100 on Brett Boone to hit a triple at 100/1 odds for a Sunday night game and they probably soiled themselves when Boone hit the ball to the wall in his first at bat and despite considering going for 3rd decided to hold up at second base. WSEX advertised at all the big U.S. based posting forums and in newspapers and was a favorite of almost all bettors who had an account with them. Their customer service was among the best and payouts were immediate. The company made headlines in the late 1990s when the company’s CEO, Jay Cohen, returned to the U.S. to face charges that he was violating the Wire Act. Cohen hired the best attorneys and made the case that as a company licensed in Antigua, WSEX was not violating the law since bets were received and processed on the small island so the laws of Antigua should apply. By all accounts the jury was prepared to side with Cohen but instead found him guilty after the judge told the jury that the evidence he presented was without foundation. Cohen spent 3 years in prison and returned to Antigua after his release.

WSEX continued to operate successfully but was under the watchful eye of the DoJ as a result of Cohen’s decision to challenge them as well as the company’s involvement in the WTO case where Antigua took the USTR to the WTO courts and won. It was a major victory for the country but it also clearly upset the U.S. government who put the country’s banking system on its rogue list.

WSEX first found itself in financial trouble after the passing of the UIGEA. It’s not quite certain what precipitated the cash flow issues although there is no question that the shutting down of NETeller to American customers was a major reason. After NETeller cut off American and Canadians, customers found it difficult to get payments to the company and more importantly found it very difficult to get payments from the company. Almost all of WSEX’s clients were located in North America so NETeller was the preferred method for payments in and out. But after NETeller no longer became an option, U.S. customers were essentially left with checks as the only option for withdrawals. WSEX’s real financial woes started in 2009 when Antiguan banks were targeted by many U.S. institutions for various reasons (the Stanford Bank scandal and the UIGEA implementation being the main ones). So U.S. banks started to refuse checks and bank wires from Antiguan banks leaving WSEX to rely on 3rd party processors to process the payments. And many in the industry told me that some of those processors were less than reputable likely stealing money from the company before they disappeared. As well, WSEX’s ventures into a fantasy sports exchange, their no commission poker room, and their partnership in a P2P betting exchange all cost the company dearly. As a result the company ended up with cash flow issues and a backlog of payment requests since processors couldn’t keep up with the payment requests. WSEX was quickly downgraded by sports betting rating companies precipitating more clients to request payouts and the cycle continued. By many accounts WSEX still owes somewhere north of $250,000 to clients.

At some point WSEX was saved from bankruptcy by investors who changed the structure of the company somewhat but it never fully got WSEX out of debt. The company gave up its Antiguan betting license (likely due to the $100,000 annual licensing fee) and got a license in Cyprus instead although their physical location is still in Antigua. According to the website the company is incorporated in Nicosia, Cyprus and is owned and operated by Euro Sports Exchange Limited in London England.

OSGA continues to contact owners of WSEX and we hope that this once proud and reputable sportsbook can still provide proof that the company is a going concern. But for us to believe that we need some proof, like actually picking up the phone and offering markets on major events . . . and paying customers.

—- UPDATE —-

About four hours after this was posted, WSEX updated their website. It now has a statement where their home page had been for over 15 years.

Dear WSEX customer,
We have been forced to halt business activities at this time due to inadequate capitol resources.   The financial position of the company is currently under review and we will keep you informed as to the future plans for WSEX and the repayment or transfer of your balances.

We sincerly apologize for this unfortunate situation and will be doing everything we can to rectify it as soon as possible.

-WSEX Management
———————

Contact Hartley via email at Hartley[at]osga[dot]com.

Read insights from Hartley Henderson every week here at OSGA and check out more from Hartley’s RUMOR MILL!

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In January, Antigua announced that it was preparing to use the $21 million settlement the WTO gave it years ago and would apply it by suspending U.S. intellectual property rights (TRIPS).  Apparently the plan is to produce cheap versions of software, movies and music and sell it at a ridiculously low price with no reimbursement to U.S. companies who have trademarked and copyrighted those products. The hope is that doing so would cause such an outcry in the U.S. by companies like Sony and Microsoft to settle the dispute that the U.S. would either agree to allow Antiguan gambling companies access to the U.S. market or more likely that the U.S. would give Antigua a better deal in other areas of trade that would benefit their economy. The two sides apparently met in February and March to try and work out a settlement but neither side was close to what they believed was an equitable agreement. If Antigua does indeed proceed with the option it would likely be done through Slysoft, an Antiguan software company which would ensure it wouldn’t have to deal with countries that have tough anti-piracy laws.

I spoke to a former trade representative under the Bush administration who still has close ties to the current USTR and he informed me that if Antigua does indeed use TRIPS its method for retaliation that “Antigua would pay dearly.” Without going into great detail, the former representative said that the current government is prepared to go after the two industries that Antigua values most – high tech and tourism. Nkenge Harmon, a current U.S. Trade Representative has gone on record warning Antigua against using the TRIPS option.

“Government-authorized piracy would undermine chances for a settlement. It also would serve as a major impediment to foreign investment in the Antiguan economy, particularly in high-tech industries,” Harmon stated.

But the threat against tourism is new and if applied would have devastating consequences to the Antiguan economy. Tourism accounts for half ofAntigua’s GDP and a large number of those visits are by Americans. In fact Antigua has boosted its efforts to attract American tourists by increasing the number of ads and promotions to get U.S.citizens to fly to the tiny island. But if the U.S. does indeed take actions to prevent that (possibly by stopping advertising from Antigua or even issuing a travel advisory), the ramifications could possibly lead the country into bankruptcy. At the same time, the Antiguan government has indicated that the U.S. actions have practically ruined their economy anyways, since most online gambling operators have left and since they invested so much into setting up remote gambling that these actions may be a last resort anyways to help save Antigua’s economy from collapse.

Ironically the USTR won a case against China at the WTO around the same time that Antigua won their case against the U.S., where the WTO agreed that China wasn’t doing enough to protect intellectual property rights and ordered China to do more to protect the TRIPS agreement. China in turn has hinted at the Antigua case (namely the U.S.ignoring the ruling) as a reason not to comply. The fact that Antigua is prepared to use TRIPS as its retaliation measure just makes China’s argument more compelling.

Antigua has done everything in its power to get the U.S. to come to the table with a reasonable offer to settle the dispute but by all accounts the USTR refuses to cooperate fully because they believe the WTO ruling was wrong. So far there has been no harm nor foul on the USTR’s parts but if they actually use Antigua’s tourism industry to hit back at the Caribbean island, then all gloves are off and any sympathy or support internationally for the U.S. in this dispute will quickly disappear.

Contact Hartley via email at Hartley[at]osga[dot]com.

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When PokerStars made the deal with the U.S. government to buy Full Tilt, the company was given immunity for past “wrongs”. As part of the agreement PokerStars did not admit to wrongdoing and the DoJ agreed not to pursue the companies any further which allowed PokerStars to apply for U.S. licenses for both it and Full Tilt if and when online poker is legalized and regulated stateside. At the same time, ongoing civil prosecutions against owners and management of both Pokerstars and Full Tilt were not included in the settlement. That means that Isai Scheinberg, the founder of PokerStars, Paul Tate (Director of Payments for PokerStars), Nelson Burtwick (Director of payments for Full Tilt) and Ray Bitar (CEO of Full Tilt) still face criminal charges for their involvement in the companies when the sites were seized. Under the rules, those mentioned could face up to 5 years in prison for violating the UIGEA and up to 20 years in prison for money laundering. As well, they could face a large fine.

According to a reliable source, the DoJ doesn’t see much benefit in jailing all the listed individuals and wants to cut deals with as many as possible. In 2006 the DoJ agreed to a settlement with Anurag Dikshit, a founder of Party Poker, which provides a precedent. The source said that the DoJ will not cut a deal with Bitar since they see him as an unsympathetic individual in light of the findings that he was running a ponzi scheme but Scheinberg and Tate are different. The source said that Scheinberg has been talking with the DoJ ever since the PokerStars deal was reached and is willing to do what it takes to avoid prison. While no amount has been agreed to the source is confident that the amount will be in the $300 million dollar range – similar to what Dikshit paid. Apparently the government was bandying a billion dollars as a figure they wanted from PokerStars for exoneration so that fine plus any Tate pays if he gets a deal will bring the total well over a billion dollars when combined with the $731 total PokerStars paid for Full Tilt. While it’s true the U.S. government’s share was only about $400 million from the Full Tilt deal it’s also true that the DoJ wanted American customers and players from around the world paid back and it wasn’t going to come from the former Full Tilt since the company was insolvent.

The source said that the talks between Scheinberg and the government were kept hush-hush and obviously could only be pursued if Obama won re-election. But now that the election is over and there has been no change in the government, the Democratic controlled DoJ can cut the deal once Congress resumes. It’s notable that Howard Lederer and Rafe Furst, both shareholders of Full Tilt who were not named in the criminal case, cut a deal with the U.S. Attorney’s Office in the Southern District of New York which saw them forfeiting millions in personal accounts as well as valuable assets to settle a civil suit against them for their involvement in Full Tilt’s ponzi scheme. Chris Ferguson is also working on a deal as is Ray Bitar although Bitar as mentioned still faces criminal charges which the government is apparently not anxious to drop.

Contact Hartley via email at Hartley[at]osga[dot]com.

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In the 12 years I’ve written about the gambling industry, I made many contacts at various levels of government including a former DoJ agent from the Clinton administration. The agent has been quite vocal about the methods of the DoJ and knew long before the UIGEA was passed that the legislation was imminent.

“On the list of issues that are important to the Department of Justice, gambling is way down the list,” the DoJ agent told me.

The agent informed me that terrorism, drug trafficking and money laundering are the prime issues of concern for the DoJ and while gambling could be a part of money laundering if it involves organized crime, generally speaking that’s not the case. So when the DoJ arrested David Carruthers, then Peter Dicks and issued the warrants against Gary Kaplan and others in 2006 the former DoJ agent actually wrote to me months before and said “expect some major legislation to come down regarding online gambling in the near future.” Sure enough not long after those arrests the failed vote to stop online gambling and the inevitable passing of the same law by attaching it to the Safe Port Act occurred. The Agent was clear that when sweeps are made by the DoJ it’s almost always at the beckoning of the government and in preparation for a major vote on legislation.

Arrest warrants died down considerably after the passing of the UIGEA but on Black Friday the DoJ were in full force again and shut down the sites of the three main U.S. facing poker sites. As soon as that happened the DoJ agent called me and said that some big legislation was coming our way. “These arrests against Stars and Tilt are obviously directed by government to clean the street before they legalize poker stateside,” the DoJ agent said. And sure enough not long after bills to introduce legalized online poker came forth – both federally and at the state level and shockingly even John Kyl was on board! In the end the legislation never passed but the message had been sent. The DoJ agent also believed it was a message by Eric Holder to the state of Nevada that they’d better not step on Big Brother’s heels (as many will recall numerous land based casinos set up partnerships with online poker companies), but the main motivation behind the actions was to clear the way of hurdles for legislation to be enacted by not having to deal with the online poker sites in competition. In other words, the government wanted all the money made to be kept in the U.S. if the poker legislation passed.

Since then little had happened in the way of arrests, warrants etc. until recently. As many will recall the government made a major sweep in Nevada that eventually saw Cantor Gaming boss Mike Colbert arrested and the eventual ties to Pinnacle Sports and most recently a major sweep has been made to shut down Internet sweepstake cafes across the U.S. For those unfamiliar with the cafes, the owners issue cards which are used to purchase time on the café’s computers. There people play gambling games (apparently for fun) although cash prizes are awarded to individuals who win the most money. It’s clearly a way to skirt the gambling laws although café owners equate it to McDonald’s Monopoly game or similar fast food games where people are given a chance to win major prizes in exchange for buying food items.

“These cafes are small potatoes,” the former DoJ agent recently informed me “so to go after them, Congress must have some major legislation coming forward when they return in 2013.” The fact that the arrests related to casino games (at the cafes) and sports betting seems to indicate that the pending legislation may involve all forms of gambling and not just poker. So Congress may be preparing to address the issues of New Jersey’s challenge of PASPA, and the Native Americans concerns over online casinos along with just poker with a major piece of legislation that will encompass all areas of online gambling and sports betting.

“These arrests don’t just happen for no reason,” the former DoJ agent stated “so something big is about to happen, I’m guessing in February or March.”

And given this agent’s past record I wouldn’t bet against it.

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Rumors about the sale of the Ongame poker network have been in the news for some time now. Bwin merged with Party Gaming last year and the new company wanted to move all the Bwin sportsbook customers to the more popular Party Poker network. Party Poker has been rated as one of the best in Europe for some time now and has scored the highest rating by reviewers on Pokerscout.com. As a result Bwin was looking to sell Ongame as surplus. Early in the year it appeared that Shuffle Master, the Nevada based developer of automatic card shufflers and gaming tables would be purchasing the company, but the deal fell through after Nevada failed to pass online poker legislation. Sources informed me that Shuffle Master was convinced that Nevada would be passing legislation by the summer and the company hoped to lure some of the Nevada casinos to the network by providing a ready to launch poker product. After it was clear that Nevada wouldn’t be legalizing poker any time soon, however, Shuffle Master backed out of the deal.

When Shuffle Master decided it was no longer interested, there were rumors that Zynga Poker, the Facebook social media poker site, would be purchasing the company. On the surface the purchase seemed to make little sense but as I wrote on OSGA.com at the time of the rumors surfacing, Zynga officials believed that having all licenses and paperwork in place, a base to launch from and some goodwill with the Ongame name would help make real money Zynga poker a success from the get go. It appears however, that Zynga has soured on the idea, possibly due to some negative pressure from Facebook and if they do indeed launch a real money site in the upcoming year they will do all the legwork from scratch. In all fairness, Zynga Poker has over 115,000 daily players on Facebook (albeit free social poker), while Ongame has fewer than 10,000 players. Zynga still says it is interested as apparently are Playtech and Gtech but the latter two probably are only interested in Ongame to eliminate potential competition to their already existing poker networks.

The new name to come forward as a possible purchaser of Ongame is Amaya Gaming, a Montreal based entertainment solutions provider. Amaya bought Cryptologic a couple of months ago but Cryptologic only produces casino and arcade games. Amaya is looking for a turn key poker product to complement that purchase. Amaya said it is interested in providing the products to customers in Europe and Asia but no doubt it has its eyes on Canadian provinces as well (and particularly Ontario) since many provinces are planning on introducing online casinos and poker. B.C. has hired Paddy Power to run their games and Quebec has its own provider but the other provinces will all be going online soon and Amaya would love to provide the provinces with a Canadian owned alternative.

To add some fodder to speculation that Ongame’s sale is imminent, this week Betfair announced that it will be launching online poker in Italy and Spain using the iPoker network, owned and operated by Playtech. The company insisted that the move will not apply to their other markets which still use the Ongame network but sources have told me that it’s just a matter of time that Betfair moves all its customers to iPoker. Several affiliates that were on the Ongame network moved to either the iPoker or Microgaming network apparently with mixed feelings from their customers. Some common complaints of both iPoker and Microgaming are that there are far too many disruptions, that the support leaves a lot to be desired and that the tournaments seem to be filled with bots. Of course those complaints are common with many sites. iPoker has been rated 1.5 out of 10 by reviewers on Pokerscout.com and Microgaming has been rated 2.3 out of 10. Ongame was slightly better with 2.8 out of 10. Party Poker has the highest rating with 4.8 out of 10.

Ironically, Amaya Gaming provides Betfair with the software for their arcade.

Contact Hartley via email at Hartley[at]osga[dot]com.

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Up until June it appeared that exchange wagering on horse racing in California was a sure thing. Two years ago The California Horse Racing Board gave its okay for TVG (owned by Betfair) to offer the product and the only hurdle that TVG had to pass was the approval by other horsemen and a reasonable figure for commission.

As the name suggests, a horse racing exchange operates like the stock exchange whereby one bettor offers a price on a stock (in this case a horse) and another bettor takes that price. The price they agree on is final and if the market changes subsequently it has no effect on the odds that are already agreed to. In North America currently the only option for horse betting is pari-mutuel where the odds on the tote board at the time of the bet are irrelevant and the odds the bettor receives are only known when all the pools, both at the track and those simulcast from other racetracks, are amalgamated and the track takes out its percentage (ranging from 17% to 30% depending on the type of wager). Many younger bettors have said that the fact they don’t know what odds they will be getting is one of the biggest turnoffs to them in betting on horse racing. The other major turnoff is the high takeout. Exchange wagering also offers two other advantages, the ability to bet while the race is being run and the ability to lay a horse (i.e. bet against it). Effectively laying a horse is similar to selling short a stock and is one of the biggest concerns that horsemen have indicated. They believe that the ability to wager against a horse will cause problems with integrity and may convince some jockeys (and possibly trainers or owners on advice to the jockey) to purposely lose on a horse in order to get a big payday on the exchange. After all, if a horse is 1/5 favorite they can probably get 3/1 betting against it and there are certainly subtle ways that jockeys can throw races if they want to. What these horsemen fail to realize is that every wager is logged and TVG would know exactly who placed a wager and for how much so they can actually indicate to the California Horse Racing Board that someone who wasn’t eligible to wager has placed a bet against a horse plus they can highlight suspicious betting patterns which can’t be done currently with pari-mutuel wagering.

I spoke to someone in California who is close to the situation and they were confident that exchange wagering will never get the go ahead as long as Frank Stronach has a say. While TVG and many other more visionary types see the exchange as a savior to the industry, my source says that Stronach is still old school and wants nothing to do with it. He hates the fact that all wagering on the exchange will be done only by computers and he particularly hates the idea of being able to wager against horses. And because Stronach is the head of the Los Angeles Turf Club and Pacific Racing Association, which owns Santa Anita and Golden Gate fields, his approval is necessary for the exchange to ever get the go ahead. That’s why my source is confident that the exchange is effectively dead as Stronach will never give his approval. Moreover, the source said that horsemen at all tracks also want a bigger commission than TVG proposed. The Betfair owned company proposed a 10% commission on all winning wagers to be split between the track, the horsemen and TVG. But the horsemen want it to be closer to the 20% that is taken out from pari-mutuel wagering now and they want the bulk to go to horsemen. The problem with that, as TVG pointed out, is that at a 20% commission there will be no incentive for younger bettors to wager on the exchange since the current exorbitant takeout is a reason they stopped betting on horse racing in North America as it is. Right now Betfair charges UK customers 3% – 5% commission based on their level of play, so the 10% commission is already higher than they would like, but the company realizes that the higher commission is necessary to get the horsemen to at least consider the idea.

Not surprisingly TVG is angry at the California Horse Racing Board’s decision and feel betrayed since they were effectively given the go ahead by the state amid much hoopla just over a year ago to offer the product and then had the rug pulled out from under them without a real discussion with the company. And no doubt TVG sees the writing on the wall that this delay could become indefinite. TVG’s options now are to go to another jurisdiction to offer the product, most likely New Jersey which has indicated interest; they can try and rally the troops to convince Stronach to change his mind; or they can just give up. The latter, however, is not likely. One of the main reasons Betfair bought TVG in the first place was the realization that they had a product that could revolutionize horse racing in North America and bring back younger bettors to the sport. What they didn’t realize is that they possibly had to wait for the old guard to die before they would get the go ahead. And at this rate, the industry will probably die before the likes of Stronach.

Exchange wagering is an exciting product and is a proven winner in Europe and Australia. It offers a way of betting horses that will bring younger bettors back to the sport but it seems that many horsemen still long for the days when horse racing was the only gambling game in town and the elite went to the track dressed in suits and dresses and paid a premium to sit in the clubhouse. At some point these horsemen will realize that those days are long over. Hopefully, it won’t be too late for the sport.

Contact Hartley via email at Hartley[at]osga[dot]com.

Read insights from Hartley Henderson every week here at OSGA and check out more from Hartley’s RUMOR MILL!

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