R.I.P. Online Gambling

Are investors in online gaming, one of the earliest and most consistently profitable enterprises on the Internet, cashing in their chips and calling it a night? On Friday US legislators put a nail into the coffin for gambling sites like PartyGaming, 888.com and Sportingbet, as the Senate and House of Representatives both passed a bill that would make it illegal for banks and credit card companies to make payments to online gambling companies. (The impetus for this presumably stems from the existing laws that prohibit gambling across state lines. Gambling in places like Las Vegas and Atlantic City is legal under state laws.) The bill still must be signed by President Bush in order to become a law; this is expected to happen in the next two weeks.

If passed, the law would effectively make it illegal for US residents to gamble online. And this in turn will hit the online gambling industry hard. According to this article in the FT, the bigger online gaming companies typically get between 50-77% of their revenues from US residents, and shares have already started to topple as a result of the news.

A statement from PartyPoker CEO Mitch Garber said that while its non-US revenue base generated $150 million in the first half of 2006, a 151% increase over the same period last year, the legislation is a "significant setback" for the company.

Now that all bets are off, I’ve got some questions: Will this give rise to some innovative new ways to pay for gambling activities? Will we see legislative action on other racy-yet-profitable activities on the net (eg adult sites)? Will online gambling go underground? Anyone know of any cyberspace speakeasies?