Pros, cons of Internet gambling outlined for regulators

David Strow

Friday, April 14, 2000 | 11:24 a.m.

Nevada gaming regulators took their first hard look at the world of Internet gaming at a workshop Thursday -- but it was clear Nevada is still far away from taking any steps to legalize online wagering.

"Today this is a classroom, not a hearing room," said Brian Sandoval, chairman of the Nevada Gaming Commission. "We do not have the jurisdiction to change the prohibition on Internet gaming (in Nevada).

"This commission needs to be educated. We should be in a position to answer questions that come from the true policy makers."

But that didn't stop Internet gaming backers from trying to sway state regulators to support their burgeoning business. Their message was clear -- if Nevada doesn't legalize the business, the state's casinos will be quickly left behind.

"Prohibition of this industry will not inhibit growth opportunities in Internet gambling ... but it does inhibit opportunities for Nevada licensees," said Eugene Christiansen, chief executive of Christiansen Capital Advisors, a New York investment and consulting firm that has conducted business with Internet gaming companies.

"The Internet is creating sizable new gambling companies," Christiansen said. "At some point, these companies will eat Nevada's lunch."

Christiansen challenged the "perception that Internet gamblers are pirates in banana republics," saying that industrialized nations such as Australia now permit the practice. He pointed out that MGM Grand Inc. Chairman J. Terrence Lanni is a member of the board of Los Angeles-based Youbet.com Inc., a company that transmits horse wagering data through an online system.

"He's an upstanding member of your community," Christiansen said.

Sue Schneider, chair of the Interactive Gaming Council, told commissioners they were forgetting the struggles Nevada faced over past decades as it tried to regulate gaming under harsh federal scrutiny and the involvement of organized crime figures, such as Benjamin Siegel.

"We ask that when you look at the regulatory system you have, that you remember from whence you came," Schneider said. "From a player's standpoint, if they have an option of playing in a highly regulated jurisdiction ... people will go where they feel the most comfortable."

One of those jurisdictions is the United Kingdom. In that country, bookmaking companies are currently acquiring online casinos in an effort to protect their business, Schneider said.

"The land-based gaming companies ... are being relegated to the (British) sidelines," she said. "Those folks are all jumping in, taking game play away from Nevada. They see it as an export business."

But the commission heard from opponents as well, who were adamant in their desire to see Internet gaming remain off-limits.

"Internet gambling is of grave concern to the (National Football League) and other sports leagues because it holds the threat of spreading sports gambling at the same speed of light that data flashes over the Internet's fiber-optic cables," said Gerard Waldron, a Washington attorney and lobbyist whose clients include the NFL. "The Internet can transform every personal computer into a sports book, and give every kid sitting in a dorm room ... the ease of placing a sports bet that one can only get now by flying to Las Vegas."

Gaming industry proponents estimate online casinos took in $1.17 billion in revenues in 1999, or about $154.85 per online gambler. In 2002, those revenues are projected to increase to $3.07 billion. By comparison, Nevada's casinos took in nearly $9 billion in wagering revenues in 1999.

Currently, more than 50 nations, including such industrialized nations as England and Australia, permit Internet gambling in some form.

But Nevada law specifically prohibits interstate wagering on the Internet. Moreover, Congress is considering legislation co-sponsored by Nevada Sen. Richard Bryan that would bar all online wagering within the United States.

Waldron explained that this legislation, named the "Kyl Bill" after sponsoring Sen. Jon Kyl, R-Ariz., wouldn't be enforced by jailing Americans who used Internet casinos. Rather, law enforcement officials would identify offshore casinos that accepted bets from Americans, then order Internet service providers to block access to these sites by its subscribers.

But instead of promoting such legislation, Christiansen argued Nevada casinos could use their powerful brand names to draw in Internet gamblers -- and give the industry a sense of legitimacy far higher than it has today. He likened the brand names of the Strip to such well-known web names as amazon.com and eBay.

"There are no e-gambling brands of that rank today, but Nevada casinos could change that in a hurry," Christiansen argued. "They answer that question of reliability and security (with Internet casinos). They could expand their existing market to global proportions."

Moreover, branching into the Internet could give Nevada casino companies stocks with "dot com" valuations, Christiansen said.

"Internet gambling is a fact of life," Christiansen said. "Prohibition does not stop consumption. The policy question is, who will be permitted to supply this demand ... and who will be permitted to tax the suppliers."

Alan Kesner, assistant attorney general with the state of Wisconsin and chair of the Internet Gambling Working Group with the National Association of Attorneys General, acknowledged that Nevada casinos "could make a much bigger splash" in the Internet gaming world.

"But believe me, they don't want to be out there right now," Kesner said. "They don't want to be associated with something that can't be effectively regulated.

"We have a choice between imperfect prohibition or imperfect regulation."

Internet gambling opponents also pointed out the difficulty of controlling underage gambling and compulsive gambling on the Internet.

"You can't keep (a compulsive gambler) out of their living room, off their computer," Kesner said.

By legalizing Internet gambling, Kesner said, Nevada would also be exporting gambling outside of its borders, something the state has tried to avoid.

"Each state has to be able to develop its own policy (toward gambling)," Kesner said.

Both opponents and proponents of online gaming agreed that Internet gambling will only continue to grow, regardless of Nevada's ultimate decision. But even the industry's most strident supporters acknowledged there was no way Internet gambling would ever wipe out the Strip.

"Resorts like the Bellagio, Harrah's, Mandalay Bay ... these things satisfy a broad spectrum of consumer demand," Christiansen said. "Internet gambling is a solitary experience, not a social one. Las Vegas is a social experience."