Philly.com Bets on Internet Gambling

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In the eternal tango between regulators and those who wish to avoid regulation, history has shown that rules are made to be broken, and most can be. On the Internet, where a lack of borders complicate any attempts at regulation, loopholes abound. Philly.com is ushering in online gambling through one of those loopholes, hoping to beef up its balance sheet in the process.

The site, which launched a fantasy sports gambling venture on April 7 in partnership with the British betting site FanDuel, is the first to experiment with a new take on fantasy betting. Instead of betting on aggregate results over a whole season, users are invited to place their bets on individual games, with payoffs dispensed as soon as the final whistle blows, buzzer sounds or player leaves the field, depending on the sport.

By including professional baseball, basketball, football and hockey, Philly.com gives players more than 5,000 regular-season opportunities to make money, with dozens of playoff and championship games thrown in to boot.

And there is money to be made. Estimates from the American Gaming Association put earnings going to offshore gambling sites from customers in the U.S. at $5.9 billion in 2008, a number expected to grow as fewer gamblers travel to spots like Las Vegas and Atlantic City to get their fix.

According to the press release, some top fantasy betters bring in $16,000 a month on the site, with winnings for individual games topping out at $90 (for a $50 buy-in). All of this spells survival for Philly.com, a site belonging to the city’s major newspaper, The Philadelphia Inquirer. With media companies across the country experiencing a rapid drop in advertising revenue, Philly.com may have found a viable revenue stream to keep the company alive.

So is it legal? It is, despite the government’s vague rulings on the subject. Internet gambling is illegal in the U.S., but individual states may choose how broadly they interpret that concept. Philly.com’s venture takes advantage of a provision in 2006 legislation that exempts fantasy sports leagues from the restrictions on betting with real money online.

The Unlawful Internet Gaming Enforcement Act came to be through an amendment to a bill about port safety. The bill intended to close down Internet gambling by making it illegal for banks and credit card companies to transfer funds to those sites. While exemptions were made for fantasy games, lotteries and horse racing bets, the legislation sent gambling Web site stocks tumbling on the London Stock Exchange.

So is it gambling? Well it is and it isn’t. With traditional fantasy leagues, participants pick a roster of players and accumulate points over the course of a season, with prizes awarded for the winner at the end of the season. What makes this different is the instant payoff: you pick one of two teams to win, and if the “fantasy” comes true you receive a cash prize proportional to one of three fixed buy-in amounts. Sounds an awful lot like gambling.

But in many ways it is not gambling. Entry fees and winnings are fixed, they are the same for every game, and they are not subject to speculation on odds. Losers are on the line only for their entry fees, which Philly.com and its partners dip into to collect their share.

Still, some states have chosen to outlaw such activities outright. Residents of Arizona, Iowa, Louisiana, Maryland, Montana and Vermont are required to play their fantasy games with fantasy money as well, but if Philly.com’s gamble pays off, sites in other states are sure to follow suit. By letting people put their money on black with a click of the mouse, new gambling ventures could help other newspaper Web sites stay out of the red.

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