Is Sportsbook Closure a Bad Omen for Industry?
What are the odds that a gaming industry giant could be brought to its knees by a court ruling made thousands of miles away in another country?
Apparently pretty good. One of Costa Rica’s largest sports gambling call centers, BetonSports, closed its doors late last week citing an order from a U.S. district court in Missouri to stop accepting bets from U.S. gamblers.
The closure has shaken the gaming industry here and left approximately 1,200 people without a job.
BetonSports is an arm of a multibilliondollar operation referred to in a U.S. indictment of its founder, Gary Kaplan, and 10 others as the “Kaplan Gambling Enterprise” – an empire of dozens of companies that ran a massive, allegedly fraudulent advertising campaign in the United States and other countries.
The call center here, located in the Mall San Pedro in east San José, worked mostly with U.S. customers, processing phone calls and e-mails from that country, and the court order made it unprofitable to keep it open, explained Francisco Conejo, an attorney for BoS Costa Rica, the local branch of the London-based BetonSports PLC.
The U.S. government may have won the battle, but it’s anybody’s guess whether it will win the war on online gambling by playing the industry’s game: maneuvering through jurisdictional gray areas and loopholes created by the Internet and a globalized world.
For Costa Rica – a country dubbed by U.S. media as the “Las Vegas of the Internet” and home to some 200 online gaming call centers employing an estimated 10,000 workers – the outcome of the BetonSports case carries high stakes.
Is the BetonSports closure an isolated incident or could it be the beginning of the end for the online gaming industry here?
Arresting a Company?
After a month of limbo for employees of the BetonSports call center in San José, all bets are off for the company’s Costa Rican enterprise and its 1,200 employees are out of work, Conejo said.
Additionally, the company laid off approximately 2,000 employees from its operation in Antigua, though BetonSports offices in Mexico, Guatemala, Peru, Ecuador and Malaysia remain open, he told The Tico Times.
“This is the saddest day in the company’s history,” Conejo said Aug. 11. “Our directors are very sad to be forced to make this decision.”
The news of BetonSports shutting down in Costa Rica followed the high-profile arrest July 16 of the company’s Chief Executive Officer (CEO) David Carruthers in the Dallas, Texas airport, where he had stopped on a layover flight to Costa Rica (TT, July 21).
Carruthers – who told The Tico Times in 2002 he favored industry regulation and lamented the unjustified bad rap given to sportsbooks (TT, Dec. 20, 2002) – along with Kaplan and nine other people, have been indicted by a federal court in the Eastern District of Missouri on 22 counts of raqueteering, tax evasion and fraud. The charges are outlined in a 26-page document posted on the U.S. Department of Justice Web site.
The indictment ordered the forfeiture of $4.5 billion in assets as well as nearly a dozen vehicles and computer equipment.
Carruthers, who was released on bond Wednesday with restrictions, and all other defendants but one have pleaded not guilty.
As party of the case, on July 17 the court issued an order requiring BetonSports to cease doing business with all U.S. customers.
The company immediately shut down its Web site, BetonSports.com.
Following news of the closure last week, about 30 employees remained working this week to close up shop. They will keep working for 60-90 days as payments due to employees under Costa Rican law are processed and pending wagers to gamblers are paid out, Conejo explained.
Meanwhile, their coworkers poured out of the mall Thursday, Friday and the beginning of this week with cardboard boxes of their belongings in their hands as they left the office for the last time (see separate story).
The company is negotiating with the SanPedroMall to get out of its lease and plans to move out within 90 days, Conejo said.
Though rumors circulated industryrelated Web sites saying BetonSports was forced to close because it lacked enough assets to pay pending wagers, Conejo called these speculations “nonsense.”
“We have enough assets to pay all of our debts, starting with liquidations to employees and then to customers.We have all kind of assets,” Conejo said, though he couldn’t give a timeframe as to when these debts would be paid.
Online Gaming Jackpot
A reliable telecommunications system and an ample supply of bilingual workers has made Costa Rica a Mecca for the online gaming industry in the past decade.
The industry has long benefited from the jurisdictional labyrinth that Internet gambling has created: a largely U.S. customer base sending money offshore to make bets.
Some in the online gaming industry are saying the BetonSports case is its own monster, an isolated incident that will not affect the rest of the industry in Costa Rica. Others worry the political climate in the United States – where online gambling is illegal – might be shifting, and this could mean big changes for Internet gambling companies in Costa Rica.
Eduardo Agami, president of the Costa Rican Call Centers and Electronic Data Association, told The Tico Times the BetonSports closure is an “isolated case” that “shouldn’t be interpreted as picture of things to come.”
“The fact of the matter is that (online sports betting) is regulated and legal in other parts of the world,”Agami said.However, the industry should keep abreast of developments, he added.
BetonSports had launched a heavy, allegedly fraudulent, advertising campaign in the United States targeting potential gamblers via mail, e-mail and phone. Ads claimed the company was “legal and licensed,” according to the indictment.
Some of the charges stem from such ads. The indictment lists at least six cases of the “Kaplan Gaming Enterprise” soliciting bettors in the United States and instructing them to send money to people such as “Rod Jones” in Ecuador and “David Allen” in Belize to start up gambling accounts.
The sheer size of the multibillion-dollar company – which went public in 2003 – and the magnitude of its ad campaign may have been what prompted the indictment, said Nelson Rose, a law professor at Whittier College in California who specializes in online gambling law.
Also, gaming mogul Kaplan had a prior record. He had been arrested on New York state gambling charges in 1993, after which he relocated his gambling business to Florida, then moved to Aruba, then Antigua and finally Costa Rica, according to the indictment. His whereabouts are now unknown, though La Nación reported he took a recent flight from Costa Rica, where he has legal residency, to Spain.
Rose said the big mistake was when Carruthers took a flight from Europe to Costa Rica that had a layover in the United States. Carruthers’ arrest in the United States gave the U.S. Department of Justice leverage to order BetonSports to close its doors, Rose told The Tico Times.
“The major problem for the federal government here is that it doesn’t have a lot of good legal weapons to go after online gambling,” he said. Carruthers’ arrest was a new weapon, he added.
The U.S. Department of Justice has said it will continue to go after illegal online gambling businesses and that it plans to continue prosecuting the BetonSports case even though it has closed shop.
“Illegal commercial gambling across state and international borders is a crime,” U.S. Attorney for the Eastern District of Missouri Catherine Hanaway said in a statement.
“This indictment is but one step in a series of actions designed to punish and seize the profits of individuals who disregard federal and state laws.”
Whether or not the U.S. government can completely do away online gambling, the case is likely to affect the industry’s largely U.S. customer base.
Off Shore Gaming Association (OSGA) president Jim Quinn said the BetonSports closure is a “huge dent in the industry in Costa Rica and the way that U.S. players perceive playing in Costa Rica.”
He said the Costa Rican Internet gaming industry “should be concerned that their market share and business could be affected by the climate here in the U.S.,” which has made “a lot of people hesitant about sending money offshore.”
OSGA was implicated in the indictment as an agency that was advertised as an independent watchdog group to bettors but was actually “controlled” by the Kaplan Gaming Enterprise. Quinn denied the allegations.
Also, pending legislation in the United States and Costa Rica could mean more regulation for the online gaming industry here.
The U.S. Senate will soon discuss a bill that would clarify the 1961 Wire Act to make it illegal for credit card companies to collect money on a debt from a gambling Web site (TT, July 21).
Agami said there is “cause for concern” as long as initiatives are being taken against sportsbooks, making it especially important for online gambling companies to “stay abreast of the law in the jurisdictions where we reside.”
In Costa Rica, a bill in the Legislative Assembly would better regulate online gaming operations here, requiring companies to report all financial transactions.
Vice-President Laura Chinchilla said BetonSports closing will give steam to regulation legislation in Costa Rica.
“I believe we can convince them that regulation is good,” she said, adding that peoples he has talked to within the industry invite regulation for the sake of stability.