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The Green Sheet Online Edition

November 26, 2007 • Issue 07:11:02

Optimal socked by Internet gambling regs

In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA). Recently, the proposed Internet Gambling Regulation and Tax Enforcement Act of 2007 set forth rules for the UIGEA's implementation. The UIGEA, which prohibits U.S. banks and payment processors from accepting or transferring payments in connection with online gambling, has already affected the industry.

Canada's Optimal Group Inc. has been extremely dependent on U.S. customers, and its income took a dive due to the UIGEA. The company reported that its revenues for the third quarter 2007 were $27.6 million, compared to last year's $53.3 million. Adjusted earnings for the third quarter were $3.2 million or $0.13 per share, compared to $14.2 million or $0.56 per share for the comparable period in 2006.

The UIGEA seeks to cut off the flow of revenue to unlawful Internet gambling businesses. It bans the receipt of gambling-related checks, credit cards and electronic funds transfers by businesses.

The proposed implementation addresses the possibility of identifying and prohibiting the flow of illegal Internet gambling proceeds in five payment systems: cards, money transmission, wire transfer, check collection and the automated clearing house systems.

Enforcement of the legislation is anticipated to produce between $9 billion and $25 billion for the U.S. Department of Treasury in the first five years of enactment. Money generated will help to fund government programs to prevent underage gambling, compulsive gambling, money laundering, identity theft and fraud.

Reinvent to revive

In response to the UIGEA's stifling of business, Optimal restructured its operations. The company used to own approximately 76% of FireOne Group plc, which ceased processing transactions originating from U.S. consumers after passage of the UIGEA.

This was damaging to Optimal, but not all was lost. Optimal recently acquired all assets of WowWee Ltd., WowWee Marketing and WowWee Group. WowWee is a leading creator of high-tech consumer robotic and entertainment products.

Its newest product, the FlyTech Dragonfly, was named one of Time magazine's "Best Inventions of the Year." end of article

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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