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.