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Raking in Billions

U.S. residents have been placing bets over the Internet since 1995, and from the outset some members of Congress have been trying to ban the activity. Their past efforts failed due to opposition from dog tracks, state lotteries, and other interests worried that such a prohibition would hamper their operations.

Internet gambling is booming. By last summer, U.S. gamblers accounted for half of the industry's $12 billion in revenue, and online-gambling stocks such as that of PartyGaming were flying high on the London Stock Exchange.

In July, Republicans in the House of Representatives passed an Internet gambling ban, but it encountered opposition in the Senate and appeared to be headed for yet another defeat until Senate Majority Leader Bill Frist (R-Tennessee) attached it to an unrelated port-security bill--a move that guaranteed passage. When the bill passed in September, Frist denounced gambling as an addiction that "frays the fabric of society."

In the wake of the law's passage, investors in London sold off PartyGaming and other Internet gambling stocks, erasing $7 billion from the stock exchange in a matter of days. Many of those British companies said they would no longer accept wagers from their most lucrative market across the Atlantic.

But other gambling sites, such as the privately owned Bodog and PokerStars, say they will continue to serve American customers. Their Caribbean locales put them beyond the reach of U.S. law enforcement--unlike gambling executives in Britain, who face extradition to this country under a 2004 treaty originally intended for extraditing terror suspects.

Industry pundits don't expect the ban to end online gambling. "I have no doubt the private operators will pick up the slack," says Tejinder Randhawa, an analyst for Evolution Securities in London.