noblepoker.jpgOne small, barely noticeable but significant nonetheless victory for online poker players: according to Rep. Barney Frank’s office, today’s hearing by the House Financial Services Committee to “examine whether Internet gambling can be regulated to protect consumers and the payments system” (i.e., can we re-legalize online poker and gambling) “went well” and the Frank-master is “pleased.” Frank has set his sights set on overturning the measure in a port security bill by Sen. Bill Frist (the man who hates America) that banned all online gambling, poker included, last September. The Massachusetts congressman said that “the fundamental issue here is a matter of individual freedom.”
Obviously, the fight to sit in little more than one’s boxers while playing cards is far from over, but Rep. Bob Wexler has also shown his support, drafting legislation that would “single out games of skill lie poker rather than shove them into purgatory with all the other frowned-upon money-drainers like roulette.” isn’t sure a repeal can garner the support it needs, and there’s always the question of whether or not Bushie would veto anything passed. Now that he’s off the sauce, he’s no fun at all (though this picture shows promise).
Is Online Poker Dead…or Just Getting Started? []

streetsensewinsthederby.jpg[Although not strictly a financial event, the Kentucky Derby is a favorite among many hedge fund traders who are constantly on the look-out for for uncorrelated returns and exposure to hidden upsides. It’s actually a bit surprising that more of Greenwich’s royalty haven’t gone into the horse racing business yet. We asked John Carney to file this report on the Derby.]
I sat on the back porch of my parents’ Westchester home watching my forearms turn pink in the spring sun. It was the first Saturday in May and the house was full of guests for the annual Kentucky Derby party. Beside me, on a slight wicker chair my mother had purchased at an auction in the Catskills, sat Katherine, her restless legs stretching out from within her Tory Burch tennis whites, talking about how she financed the sixth-year of her undergraduate education. I closed my eyes and felt the heat of the sun against their lids, and smelled the bourbon and mint and burnt nicotine in the air.
“I raffled off a motorcycle. A 1946 Indian. A real classic. The tickets were beautiful. Works of art really. Each had a full color picture of the Indian, and the picture was taken in the badlands of South Dakota. There was not a man alive who wouldn’t see himself riding through that weird landscape past herds of semi-wild buffalo toward a rally in Stirges. We sold close to two thousand tickets, at five dollars a piece,” Katherine said.
“Fantastic. Where did you get the bike?” I asked.
“You have too little imagination, John. There was no bike. There never was a bike. Or, rather, the bike exists, the picture was real, but I never had such a beautiful thing to raffle off.”
“Weren’t you worried you would get caught?”
“I never worry about such things. Who could catch me? Only the winner. He was the only injured party, and the only person who needed to be told that he could not have the bike. I gave him his five dollars back, and thus made him whole. What else could he ask for? This drink is fantastic, by the way.”

Read more »

  • 10 Jan 2007 at 4:34 PM
  • Gambling

Jim Chanos: The Oracle of the End Of Online Gambling

chanos.jpgJim Chanos of New York’s Kynikos Associates was bearish on internet gambling sights long before Senate majority leader Bill Frist “ambushed” the industry with a bill making most internet gambling illegal. Contrary to claims detailed on a website yesterday, it didn’t take an elaborate scheme of inside information about the Senate’s legislative schedule to tip Chanos off on the dangers to internet gambling. For Chanos, the writing was on the wall, in the online gaming companies’ prospectuses and already built into various state laws.
“We were floored when the Senate bill came up and passed in the middle of the night,” Chanos told DealBreaker in an interview this morning.
On September 30, 2006, the US Senate passed the port security improvement act of 2006 by unanimous consent. The bill included an amendment preventing financial entities from processing credit cards, checks and similar transactions in connection with Internet gambling. Despite the fact that similar measures had passed in the House, many were caught off-guard by the inclusion of the anti-online gambling provisions in the Senate Bill. Indeed, some commentators had speculated that the Senate lacked time on the legislative schedule to pass the bill.
But not Chanos. According to the Financial Times:

“Kynikos Associates, had put a large slice of its $3bn in assets on a bold punt that shares in the internet gambling sector were about to go into free-fall.
And on October 2, shares in the companies did precisely that as about $5bn was wiped off their value in just a few hours of trading in response to a US Senate decision to introduce tough new laws cracking down on gambling on the web.”

Chanos had been bearish on the internet gambling stocks for several months.
In an interview today, Chanos described to DealBreaker three reasons, in addition to possible legal risks, that underlay his view of online gambling companies. “First off, we all believed that it was a cut-throat industry with no barriers to entry. Second, there was the faddish nature of poker. Television ratings were already down. Third, there was the silliness of the whole concept of Americans sending their money to off-shore companies with very little assurance about the way these operations were run,” Chanos said.
An internal Kynikos email dated September 9th, a colleague of Chanos describes the legal risks faced by the online gaming industry detailed in an article that appeared in the Guardian:

“The first paragraph is worth noting as it mentions that there are seven states that have internet gambling laws and that could be as a big a threat as the federal wire Act. The bottom part of the article is also worth noting because it shows this stuff is and should not be a surprise with respect to PRTY to anyone or at least as long as they read the prospectus and the section about violating state laws.”

Chanos is also quoted in the September 29th issue of Value Investor Insight newsletter from an interview he gave earlier.

Chanos also expects the plaintiff’s bar, representing gambling addicted clients, to be a threat. “When you run an illegal enterprise out in the open,” he says, “you’re exposed to all sorts of problems.”
The risks don’t appear to have been lost on PartyGaming top management.
The company has gone through two CEOs since going public in June of last year and three other top executives have left over the same period. “The early guys cashing in tells me they think the best is past,” Chanos says.

Indeed, Chanos was warning about online gambling as early as February 2006, when he addressed Kynikos Associates “Bears In Hibernation” conference on the subject. Later that year, in May of 2006, he addressed a conference at Goldman Sachs and reiterated his warnings about the risks faced by the industry. In June Chanos was interviewed on Bloomberg television, where he told Bloomberg’s Deirdre Bolton that “a shakeout is actually eminent” in online gambling.
(The story on the website also made a big deal out of Chanos’ connection to former Nevada Attorney General George Chanos, Jim’s cousin. “I have never discussed internet stocks with my cousin,” George Chanos told DealBreaker. “And I never discussed the legislation with Senator Ensign.”)
This seems more than decisive to us. Chanos didn’t need a conspiracy to tell him that online gambling was in trouble. He just needed to keep his eyes and ears open. So there you have the answer we asked in yesterday’s headline, “James Chanos: Genius Shortseller or Politically Well-Connected?”

chanos.jpgUpdate: Before reading further, check out our updated story!
We’re generally allergic to the whole notion of short-selling conspiracies. Which is kind of odd now that we think about it, since we really, really like almost every other category of conspiracy theory.
But we’re not to proud to put aside our allergies (hmm, should have anticipated this whole “allergy” metaphor wouldn’t work out), and bring you this rebuttal to the Financial Times story on James Chanos, the manager of hedge fund Kynikos Associates and the guy often credited with initially calling bullshit on Enron, which “put a large slice of its $3bn in assets on a bold punt that shares in the internet gambling sector were about to go into free-fall” and won big.
Stephen Roman at suspects that there may have been something more at play here than good luck or good research—namely, James Chanos’ political connection. Some of the biggest supporters of anti-online gambling legislation have been the big casino operators, and, of course, the Senator from Vegas—err, Nevada—John Ensign. Now according to Roman, Ensign likely knew that the online gambling legislation was likely to be passed through his connections to Senate leader Bill Frist. What’s more, Roman thinks its very possible that Ensign could have passed this information on to Nevada Attorney General George Chanos, who just happens to be the cousin of Kynikos’ James Chanos.
Roman concludes:

We are not believers in information socialism or “illegal insider trading” but of Occam’s Razor. This wasn’t a bold trade based on a research edge – it was a simple information advantage.
FT called the trade a “million-to-one-chance,” it would be – if your cousin wasn’t close with the Senator.

Is any of this true? We have no idea. It wouldn’t be the first time that this sort of “honest graft” has helped make someone rich or richer. And the question of the legality of trading on inside information about upcoming legislation has long been debated. Frankly, the whole chain of information Roman proposes seems unnecessary. Even if it didn’t happen exactly like that—Frist to Ensign to Chanos to Chanos—it wouldn’t be surprising if James Chanos connections to Nevada’s gambling community helped him anticipate the legislation.
Kynikos Associates could not be immediately reached for comment on the story [MidasOracle]
‘Million-to-one’ gamble pays off [Financial Times]

  • 08 Sep 2006 at 10:15 AM
  • Gambling

Gambling On A Trip Into US: Not So Much

So it looks like another top executive of an internet gambling company was arrested on Wednesday.

… Peter Dicks, 64, chairman of London-based Sportingbet PLC, was taken into custody by airport police after he arrived on an overseas flight at New York’s John F. Kennedy International Airport. He was held on a criminal warrant issued by the state of Louisiana. After the arrest, Sportingbet asked the London Stock Exchange, where its stock is listed, to halt trading in its shares.

Uhm. This is the second such arrest is this summer. Everyone take a memo: if you run an internet gambling site, now might not be the best time to fly in to the US.

Latest Arrest Chips Away at Online Betting
[LA Times]

  • 07 Aug 2006 at 11:35 AM
  • Gambling

Gaming the System

celinedion1.jpgOne of the biggest enemies of internet gambling is the brick-and-mortar gambling industry. Imagine Barnes & Noble pressuring lawmakers to ban Amazon and you have a fair picture of the relationship between internet gambling and, say, Las Vegas. Fortunately, Amazon wasn’t able to get the feds to lock up Jeff Bezos. With internet gambling, the bricks-and-mortars have had more success with regulating and criminalizing away their competition.
Over on the Becker-Posner blog, Judge Richard Posner today examines whether one of the claims of the casinos is true. Do they really offer better controls over possibly addictive and self-destructive gambling than online gambling sites? Surprisingly, Posner says they do. The reason is even more surprising. Real world casinos have higher overheads and must charge higher premiums—worse odds—to stay in business than the online gambling sites, Posner says.

So the legal casinos are correct that they offer a measure of control over gambling: by offering only bad odds, they reduce the demand for their product.

What’s interesting about this is that one possible casino response actually makes the case for online gambling stronger. Casino operators no doubt would like to deny that their odds are worse than online gambling—and that they make up their higher overhead by providing other services like splashy shows, restaurants, spas and luxury shops. But since spending money on these things isn’t any more “productive” or responsible than gambling, this actually makes online betting more responsible. At least the gamblers aren’t wasting their money watching Celine Dion!
Internet Gambling–Posner [The Becker-Posner Blog]