Original URL: http://www.theregister.co.uk/2007/03/12/china_gambling_virtual_money/

Chinese pursue virtual sanity in online gambling

Funny money no longer such a joke

By Burke Hansen

Posted in Law, 12th March 2007 10:31 GMT

House of Cards Although the Chinese government recently announced a purifying moratorium on internet cafes – the same week the Communist Youth League penned a contract with leading gaming developer Playtech to provide software for large scale internet-based gambling tournaments – the cadres in Beijing know that internet cafes are only an embodiment of something much larger and more threatening, according to the Financial Times.

The government took its assault on the internet gaming world a step further this week with an announcement that it perceives the explosion in virtual currencies used in a variety of online gaming forums – everything from Second Life to World of Warfare to virtual poker rooms – as a serious threat to its national security.

"The People's Bank of China will strengthen management of the virtual currencies used in online games and will stay on the lookout for any assault by such virtual currencies on the real economic and financial order," the government statement read.

Such currencies have been used in the United States to circumvent the tentacles of the Unlawful Internet Gambling Enforcement Act (UIGEA), which prohibit American financial institutions from processing transactions for internet gambling companies. The Chinese are particularly concerned with the wildly popular "QQ Coins", issued by Hong Kong messaging and game provider Tencent, which are used by two thirds of Chinese internet users and which can now be traded or accepted as currency by third party companies.

Beijing clearly understands that any kind of financial instrument outside of its direct control can impact the wider economy, and that just because something is virtual doesn't mean it can't have economic value to real people. The Chinese invented paper money, and paper money itself is a kind of virtual currency, symbolic of the economic clout of its issuer.

Aside from the fact that it isn't immediately clear what differentiates, say, Linden Dollars from easily convertible airline miles, and why one should be prohibited and not the other, the practical issues of prohibition could well be more trouble than they are worth. Unfortunately for the Chinese (and the Treasury Department), human beings are capable of investing anything with value, be it shells, polished stones, internet bandwidth, or paper.

Previous crackdowns in 2002 and 2004 haven't seemed to do much. As their slippery fingered brethren at the American Department of Justice could tell them, it's a lot easier to say you're going to slay the internet dragon than to do so.

Fantasy baseball preps for six month group fingerbang of the UIGEA

One of less discussed carve-outs of last summer's Unlawful Internet Gambling Enforcement Act (UIGEA) was an exemption for America's wildly popular fantasy sports leagues. In fact, this correspondent has two fantasy baseball drafts to prepare for in the next two weeks. Las Vegas may never get a professional sports franchise, but the professional leagues are taking fantasy games all the way to the bank.

The internet provides an ideal forum for fantasy sports leagues of all types, in which players draft a team and then garner points based on how their pros stats pan out. Formerly compiled by hand by an overworked commissioner, the internet has automated the grunt work, and directly contributed to the popularity explosion of fantasy sports overall.

The fantasy sports carve-out encapsulates nicely the hypocrisy and confusion surrounding American online gambling.

Around 20 million Americans will participate in some kind of fantasy sports league in 2007, and the majority of those leagues will play for money. The DOJ and other prohibitionists pound the drum of protecting America's youth from the nightmare of online gambling addiction, although fantasy sports leagues have no age limits. There is nothing in the UIGEA that requires such limits.

This carve-out also highlights the long slow dance between American sports and the sportsbooks that cover them - a closeted and awkward set of relationships between the sports leagues and the gambling industry that dovetails neatly in the fantasy sports business.

Professional American leagues make most of their money from broadcasting contracts, and every pre-game show offers odds on winners and losers, point spreads, or whatnot, although the leagues themselves claim to be horrified by what gambling does to the sport and society at large, particularly the children. The popularity of sports in the United States is, if anything, driven by the enthusiasm of young American men for sports gambling. Every NFL broadcast is littered with fantasy sports updates.

In fact, the American professional sports industry has done everything it can to monopolize the profits derived from the fantasy sports craze. Major League Baseball last year lost a lawsuit to force all fantasy leagues to pay it royalties for the use of its statistics – which would have put every provider other than MLB.com itself at a competitive disadvantage, and left the MLB's pork pie fingers in every fantasy pot around.

American sports leagues also were major contributors to the politicians behind the UIGEA, according to a report by the New York Sun. Although efforts by the American horseracing industry to protect itself through the UIGEA are well documented, efforts by the NFL and the MLB have largely remained in the dark.

Native tribe embraces ancient online wagering tradition

Although the Citadel and Firepay ewallet systems recently dumped Canadians from their approved list of online gambling clients, the Canadian native tribes continue to push for a bigger slice of that tasty online gambling pie.

According to Gambling911.com, the Alexander Nation First Tribe, located near Edmonton in Alberta, Canada, has been consulting with the Mohawks of Kahnawake, Quebec, who already operate a wildly successful online gaming jurisdiction and hosting service.

The controversy has been brewing for a couple of months now, and recent statements by Alberta's solicitor general have hardened attitudes on both sides. The tribe's position has been summed up nicely by an attorney familiar with the case.

"Just as other aboriginal groups have established constitutional self-governing rights to logging, fishing and hunting, the Alexander band could get a legal imprimatur to host offshore internet gambling firms...if it can prove that wagering was a major part of the band's ancestral heritage, gaming-industry lawyer Michael Lipton said last month to Online-casinos.com.

"If the facts exist to demonstrate that a rudimentary - very rudimentary - form of gambling exists, be it in the form of stones and sticks or beads or whatever the case may be, the law says that if they've got the facts, this is the law, they have to follow it," said Lipton.

Macau rejects purity, spreads its love online

The China Economic Review has reported that Macau will introduce legislation to regulate online and remote gaming within the next two years.

Both telephone and online gambling will be legalized, giving it a leg up on Las Vegas, where internet or mobile gaming is legal only within the casinos themselves.

All the better to help those internet gaming companies tap that Asian market.

Playtech deepens Chinese penetration

Fresh on the heels of wrapping up a deal with the Communist Youth League, Playtech has also bagged the Chinese Mah Jong Association (CMA), according to a press release.

Tom Hall, president of Playtech's Asia Pacific Operations, commented: "The CMA is an accredited Government body and we are delighted to be supporting the Association to promote the world wide growth of Mahjong games. This sponsorship agreement clearly illustrates Playtech's full commitment to developing the considerable growth potential of Asian gaming market."

Not to be outdone, CMA chairman Mr Sheng Qi, added: "We are very happy to have Playtech sponsor the CMA's activities. Their considerable financial support will allow us to better manage our numerous tournaments and educate people about the great game of Mahjong, which has long been part of Chinese gaming culture. In addition, they will also be supportive in technology matters, which are extremely useful given our drive to take full advantage of the internet and new educational and promotional tools."

No word on what virtual winnings are in store, or where they may be redeemed. ®

Burke Hansen, attorney at large, heads a San Francisco law office