Multi-billion dollar business of gambling

A group of 10 lawyers and academics with experience in prior liability cases met in Indianapolis in mid-April to discuss whether a lawsuit claiming online gaming further promotes gambling addiction has a shot at winning.

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The legal strategy under consideration would be modelled on the class action lawsuits that forced cigarette companies to agree to pay $206 billion over 25 years to compensate for medical costs, caring for people with smoking-related illnesses, and to fund anti-smoking advocacy groups.

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Boston-based lawyer Scott Harshbarger said that more than 20 attorneys from high-profile law firms were among those invited to the meeting in Indianapolis and who have been communicating for the past few months.

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The meeting was billed as a "gambling litigation study group", according to emails reviewed by Reuters.

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Harshbarger, a former Massachusetts attorney general who led states' efforts against Big Tobacco, said he could not attend the Indianapolis meeting but is working with the group in studying the parallels with the gambling industry.

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Former Assistant US Attorney Michael Fagan, who prosecuted 30 cases against offshore sports betting operations from 1997 to 2008, helped put together the Indianapolis meeting, according to one email. He declined comment.

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The National Council on Problem Gambling estimates that gambling addictions account for $7 billion a year in added health care and criminal justice system costs.

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Gambling industry critics argue that casino companies use deceptive practices to lure consumers, depend on addiction for profits and should be held liable for the billions of dollars in costs to society.

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Gambling company representatives reject the charges, saying their industry has a history of acting responsibly and helps to identify customers who may need treatment.

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"It's a government-approved, regulated product," said David Stewart, a Washington-based lawyer with Ropes & Gray and general counsel to the American Gaming Association.

"Nobody's made Nordstrom reimburse somebody who is a shopaholic."

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Previous lawsuits targeting traditional gambling have been thrown out by the courts, Stewart said. "The legal arguments are flawed," he said. "It's gambling. And when you gamble, you lose."

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Nevada became the first state to go live with online poker this week as Ultimate Gaming, a subsidiary of Station Casinos, launched its Internet poker site Ultimate Poker in the state and began taking bets.

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Ultimate Gaming CEO Tobin Prior said his company offers safeguards against problem gambling. "We offer an extensive array of limits that players can place on themselves as well as the option to opt out of betting entirely," he said.

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But critics think betting and time limits should be mandated rather than options, and also have found fault with the enforcement of so-called "opt out" or self-exclusion programmes. New Jersey is expected to release regulations for online gaming in coming weeks.

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Massachusetts,California, Hawaii, Illinois and Mississippi are among states also considering online gambling. MGM Resorts, Caesars and Wynn Resorts have all applied for web operating licenses.

All three companies deferred their comments to the American Gaming Association.

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It was not clear how the Indianapolis group might deal with past precedents working against them, including a 2004 federal appellate ruling that millions of gamblers could not be declared a single class because each gambles for different reasons.

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That ruling derailed a decade-old legal effort to prove slot machines were inherently deceptive devices. The recent gathering, though, examined possible similarities between gambling addiction and addiction to cigarettes.

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"Big product liability litigators are comparing Big Tobacco cases in depth with gambling cases involving casinos and addiction," said University of Illinois professor and author John Kindt, who attended the meeting in Indianapolis.

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Critics claim that in addition to depending on addiction for profits, gaming companies pulled a page from Big Tobacco by running ads that glamorize their offerings and target youth.

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Attorney Lori Stoltz of Canadian law firm Adair Morse represents 10,000 problem gamblers in a suit against Ontario Lottery and Gaming Corp, who claim they were exploited and suffered losses because government-owned OLGC did not prevent them from gambling despite their signing self-exclusion forms.

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Stoltz was not at the meeting, but believes similar lawsuits are likely.

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"Self-exclusion and where there isn't appropriate follow through is one area that has come under challenge," Stoltz said.

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"There's bound to be more litigation in this area," said Stoltz.

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Gambling proponents say it is impossible to measure the social costs of gambling addiction.

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"We don't dispute but don't confirm the $7 billion (in estimated costs) because pathological gambling often occurs in individuals with other addiction issues and to specifically attribute the costs to one disorder is a leap," said American Gaming Association spokeswoman Holly Wetzel.

Meanwhile, Bwin.party has targeted cost savings of $90 million this year as it joins other online gambling companies pulling back from markets where regulations are not clear cut, reports Keith Weir in London.

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Bwin.party, which offers sports betting, casino games, poker and bingo to online customers, has opted to focus on a core of around 10 European markets, rather than chasing business in more than 30 countries.

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The strategy, set out in March, is similar to one being followed by betting exchange operator Betfair and sacrifices short-term revenues to try to produce a more stable business model.

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However, bwin.party shares fell more than 5 per cent in early trade in London on Tuesday, with some analysts concerned at the pace of decline in revenues which fell 17 per cent to 180.2 million euros ($232 million) in the three months ended March.

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Revenues were also hit by lower than expected activity in poker and casino games after moving users to a new platform at the end of last year.

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CEO Norbert Teufelberger said revenues were unlikely to start improving until the second half of the year, but was confident the group would hit targets outlined in March.

"We guided the market that we expected revenues will decline this year by up to 10 percent versus 2012," he said.