Big casino operators urged to get into Internet gaming

John Wilen

Monday, Sept. 28, 1998 | 11:08 a.m.

Legislation banning Internet gambling is likely dead for this year, but will almost certainly be reintroduced and passed next year, a panel of experts predicted at the World Gaming Congress & Expo.

"There is widespread support for this bill in Congress," said Sebastian Sinclair, an analyst with Christiansen-Cummings Associates in New York.

But industry observers are split on whether any bill banning gambling over the global Internet can be enforced. And many argue that competitive pressures will eventually force all big casino companies to offer Internet gambling.

"I believe all the good operators will get in the business in the long run," said Roxy Roxborough, president of Las Vegas Sports consultants.

At least one Nevada company is actively planning to offer Internet gambling. American Wagering Inc. of Las Vegas, which operates race and sports books in casinos throughout Nevada, is planning to apply for an Internet gambling license in Australia.

Internet gambling is already legal in the Australian state of Queensland, and legislation is pending to legalize it in other Australian states.

"We think it's a chance to merge a retail business and an Internet business," said Roxborough, who is working as a consultant for American Wagering in its Australian venture.

Steve DuCharme, new chairman of the state Gaming Control Board, left the door open to Nevada companies who want to venture into foreign markets where Internet gambling is legal.

"Basically, if it's legal and controllable in the jurisdictions where it's licensed, ... that wouldn't seem to be a regulatory concern of ours," said DuCharme.

The board has historically taken a hard line on the issue of Internet gambling, considering it illegal in Nevada.

American Wagering's Australian Internet venture would not accept bets from the United States or other countries where the practice is prohibited, said Roxborough.

"They're free to pursue these areas," said DuCharme.

However, the board will closely watch any Nevada gaming licensee's Internet venture, and would hold that company's foreign operations to Nevada standards, he said.

"We hold them to the standards that they're not to violate the laws of any jurisdiction or state," said DuCharme.

American Wagering may be the first of many big gaming companies to develop Internet gambling operations, panelists said. Though there are currently more than 200 Internet sites offering gambling, concerns about fairness and fraud have so far limited the market from a 1998 potential of $2.2 billion to actual gambling expenditures of $651 million, said Sinclair.

Assuming Australia does widely legalize Internet gambling, legitimizing the industry in the eyes of many gamblers risking their money online, total Internet gambling expenditures will increase to $4.2 billion by 2001, said Sinclair. And that may simply be too big of a pie for established gaming companies like Mirage Resorts, Harrah's or Circus Circus to ignore.

Sue Schneider, managing editor of the online Internet gambling magazine Rolling Good Times Online, said it's "inevitable" that the big gaming companies will go online.

Gaming company shareholders should "demand" that their companies get into the Internet gaming market, said Roxborough.

"They're missing an opportunity," Roxborough said.

Panelists agreed that the involvement of big casino operators in Internet gambling would not only give them a slice of the growing Internet gambling expenditure pie -- it would also make that pie grow faster.

By Sinclair's estimates, an Internet gambling market in which U.S. casino operators run sites and Americans legally gamble would generate gambling expenditures of $7.1 billion by 2001. If Internet gambling prohibition bills proposed by Sen. Jon Kyl (R-Ariz.) and Bill McCollum (R-Fla.) pass next year as expected, the market will generate only $4.2 billion in gambling expenditures in 2001.

"If you had Harrah's online, you wouldn't have this discrepancy between actual and potential numbers," said Sinclair.

Other than American Wagering's Australian venture, panelists offered no examples of large gaming companies starting Internet gaming sites. Nor did they suggest how these companies would eventually end up offering Internet gambling. But they did talk about the biggest problems facing the current Internet gambling industry, which is largely based in the Caribbean and Latin America.

Fears that games are not fair and that sites may be scams that don't pay winners combine with fears of prosecution at home to scare many potential bettors away from Internet gambling sites.

"These elements all conspire ... to greatly diminish the size of this market," said Sinclair.

"Issues of integrity of operators should be foremost in any gamblers mind," said Tony Cabot, an expert on Internet gambling law at Lionel Sawyer and Collins. "Besides being cheated, you can be simply defrauded."

Though agreeing that some form of the Kyl-McCollum bills will likely pass next year, panelists were divided on whether such a law could be enforced.

"I personally believe the Kyl bill is going to be quite enforceable," said Sinclair.

Cabot agreed, but conceded enforcement would be, at best, difficult.

The other panelists strongly disagreed.

"The Internet can't be regulated," said Schneider.

"This is ... not going to stop people from betting on sports," said Roxborough.

Several audience members agreed, noting that if a law is passed requiring domestic Internet service providers to block access to Internet gambling sites, determined gamblers will come up with ways to circumvent the controls.

"Anyone who thinks about it for 30 seconds," said one audience member, can figure out a way to trick a site by making it look like they are logging onto it from overseas, or can simply use a foreign Internet service provider that has no obligation to abide by U.S. laws.

Mark Dohlen, chief executive of Starnet Communications International Inc., an American company that runs Internet gaming sites from web servers in Antigua, agreed.

"I don't think the enforceability of this, for a sophisticated user ... is going to be as easy as some may think," Dohlen said.