Daniel Negreanu under stands the odds. As one of the most successful poker tournament players in the world, "Kid Poker" became the youngest player to win the World Series of Poker in 1998, and he continues to dominate high-stakes games.

In December 2005, wary of increasing government hostility toward Internet gambling, he knew it was time to fold. "Clearly, it wasn't going to be possible to live in the U.S. and run an online poker operation," he says. So he sold his successful online poker site, Full Contact Poker, to Big Stack Enterprises, in Curacao.

Negreanu, as usual, was ahead of the game. Ten months later, on Sept. 30, 2006, Congress passed the Unlawful Internet Gambling Enforcement Act as part of the Safe Ports Bill. Within two weeks, President Bush signed the bill into law, and the global online gaming industry--which derived as much as 60% of its revenue from the U.S. market--took a devastating hit.

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A PKR.com avatar contemplates his move. view the image gallery

The timing couldn't have been worse for Jez San, former director of 3-D game developer Argonaut Software and founder of PKR.com, a United Kingdom-based online poker site that was still in beta test. Congress passed the legislation just 24 hours after San had finalized his first round of financing--and he had sunk $1 million of his own money into the venture. "We had to make a decision, and we made it immediately not to launch into the U.S. market," San says. "I like America. I want to be able to keep visiting without getting arrested. It was very important to me that we were legitimate."

Passage of the bill caused a host of companies that had been operating in the United States to withdraw, including large and successful online gambling sites such as PartyPoker.com and 888 Casino-on-Net.

Others kept their casinos open. Although now operating illegally according to U.S. Justice Department rules, they report that business is pretty much as usual. While there are fewer dollars overall, there are fewer gambling houses vying for those dollars. The ones who agreed to talk concur that after a dip in the second half of 2006, revenue is on its way up.

"We were growing 300% last year, and although we lost some ground last summer, things have since rebounded. We expect to be back up to our summer 2006 levels within the next month or so," says a senior executive at one of the top online gambling sites that still accepts U.S. customers, who declined to be identified for fear of prosecution. "U.S. citizens still want to gamble, and we intend to keep allowing them to," says another executive, who also requested anonymity.

Indeed, a host of new online gambling establishments are expected to fill the void left by the ones that bowed out. "Some sites have no downward loss of patrons at all. Even those that have lost customers are still making money--more than last year," says I. Nelson Rose, professor of law at Whittier Law School in Costa Mesa, Calif., and an expert on online gaming laws.

Joseph Kelly, a professor of business law at State University of New York College at Buffalo and co-editor of the Gaming Law Review, believes online gambling eventually will be legal in the United States. "The panic created by the DOJ's actions will eventually subside, new legislation will be passed, and we'll see a regulated industry emerge," Kelly predicts.

PKR, which provides a 3-D gaming experience, is growing at 50% per month and will be profitable this year despite barring U.S. players. Says San, "Nothing's going to be able to stop this industry."

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	Pokerstars.com shows players a classic online "bird's eye" view of the table. view the image gallery

FLUID MARKET
Getting accurate figures on the market, always difficult, is now almost impossible. "Because the public companies left, and the ones stayed are the less transparent private ones, it's much harder to get those numbers," says Sue Scheider, publisher of the Interactive Gaming News.

Before the U.S. crackdown, online gambling revenues were approximately $12 billion globally, according to Global Betting and Gaming Consultants. Although still just a fraction of the overall $258 billion gambling market--including casinos, card rooms, and government-sponsored lotteries--Internet revenue was growing at high double-digit rates.

Some analysts believe the volume of the U.S. market was so large as to be irreplaceable in the short term. Although there are growth areas, especially in Asia, where many U.K. companies are setting up shop, "the rate of growth there is not even approaching the volumes we saw in the U.S. market," says Ed Barton, an analyst with Screen Digest, a market research firm that tracks the online gambling industry.

Still, Scheider believes that companies hoping to stay in the U.S. market can prosper, albeit under a "Prohibition mentality." She doesn't think the long-term effects will be all that significant.

Many of the companies that chose to withdraw from the United States simply changed their focus to other countries. Other than in a few isolated countries--notably, France and Israel, which are making noises about enforcing their own anti-gambling initiatives--most governments have rolled out the welcome mat. One of the world's largest gambling sites, 888 Holdings, a U.K. company, announced in February that its net revenue last year rose 7% even after leaving the United States.

DOUBLE TROUBLE
The United States has taken other steps to deter online gambling.The arrest of David Carruthers, CEO of BetonSports, at a Dallas airport in July--before the Unlawful Internet Gambling Enforcement Act was passed--put a chill on the industry. Carruthers was indicted, along with 10 other people, under federal racketeering laws and the Wire Act of 1961, which forbids using a "wire communication facility" for transmitting information about "bets or wagers."