Internet gambling operators cite ease of entry into the industry

David Strow

Thursday, May 11, 2000 | 11:19 a.m.

MONTREAL -- While Las Vegas may still be the gambling capital of the universe, the newest portion of the industry isn't welcome in the city.

That's the business of Internet gaming, subject of the Global Interactive Gaming Summit & Expo in Montreal. More than 500 participants gathered from 32 nations Wednesday to discuss the state of the industry -- and to discuss the possibilities if Nevada joined in a business now dominated by offshore, privately held companies.

"Who in the world would want to wager with some unknown offshore casino in Antigua when they could wager (online) at Caesars Palace?" said Gary Collins, chairman of Antigua's Betting and Gaming Committee, the regulatory body overseeing online gaming licensees in that Caribbean island nation.

Though their brand names might be gold, Nevada gaming operators are specifically banned from operating any kind of Internet gaming activity. That's left the door open for small companies from a variety of nations to take hold of this emerging industry -- an industry where start-up costs are almost ludicrously low compared to the cost of opening a new casino.

Bryan Abboud, managing director of Interactive Gaming & Wagering, an Internet casino hosting company in the Caribbean island of Curacao, said an online casino could be launched in that country for about $900,000 -- funds spent primarily on Internet advertising, marketing and software licenses, rather than elaborate casino embellishments.

While Nevada licensees pay 6.25 percent of their gross revenues in state gaming taxes, Curacao charges 3 percent, plus a $75,000 annual license fee.

Using a typical business model, an online casino could start turning a profit by its second year, Abboud said -- provided it invests heavily in marketing itself to the Internet community. A majority of gaming revenues for a Caribbean casino will typically come from the United States and Canada, he said.

"There's nothing like going up to a blackjack table with a fine cigar," Abboud said. "None of our software can substitute for that. But this is an extremely lucrative alternative. You don't have to spend $700 million to establish yourself on the Internet."

But the operators that do build the billion-dollar casinos could bring a level of consumer acceptance unheard of in the Internet gaming scene today, he said.

"They're aware of the size of this market," Abboud said. "If Nevada or any other state is willing to embrace this ... it would really take Internet gaming to the next level."

One of Interactive Gaming & Wagering's resident casinos, VIP Sports, has been in business since 1996. While General Manager Alistair Assheton wouldn't reveal his company's revenues, he said revenues at his company's three Internet gaming sites rose 350 percent in 1999.

While calling the world of the Internet the "Wild Wild West," Assheton denies the suggestion that Internet casino operators aren't properly regulated. In fact, he said, the majority of his customers come to his site through referrals from other customers, rather than advertisements. Curacao license holders must go through background checks, and are required to keep funds on deposit to pay winners, much as Nevada casinos are, he said.

"This is not a bunch of gangsters in downtown Chicago trying to figure out ways to screw the consumers," Assheton said.

Still, operators can launch an online gaming operation in some countries with virtually no gaming regulatory infrastructure. In Costa Rica, for example, all that's required to operate an online casino is a business license -- not a gaming license.

Some of the world's centers of online gaming activity are working to change that. In Antigua, for example, lawmakers are considering changes to that nation's regulations that will place online casinos under the same regulatory umbrella as land-based casinos, as well as tighten the regulatory oversight of such operators, Collins said. Currently, online casinos operate under the same framework of regulations that oversee such offshore operations as banks and insurance companies.

Under this new process, online operators would be required to present financials to the government of Antigua for audits -- a measure that would help combat money laundering, as well as collect taxes. Anyone with a 5 percent or more ownership interest would be required to undergo a background check before being issued a gaming license.

Operators would also be required to pay a 2 percent revenue tax to the government; currently, an Antigua operator pays a flat fee of $75,000 per year for an online sportsbook and $100,000 per year for an online casino.

"We need to find out what size of an (online gaming) industry we have," Collins said. "We need to find the amount of money that flows through the industry."

By Nevada standards, these new standards seem quite tame. But in Antigua, the measure is meeting with ferocious resistance, and some operators are threatening to pull out of the country, Collins said.

"They don't want us looking at their books," Collins said.

But Collins is convinced Antigua can't take the same approach to the business as many U.S. lawmakers suggest -- an outright ban on Web casinos.

"You can't stop it," Collins said. "You have to regulate it, and that's what I'm trying to do."

But many U.S. lawmakers are continuing to push for an outright ban on Internet wagering. The lead bill in this effort is the "Kyl bill," sponsored by Sen. Jon Kyl, R-Ariz.

This would create a difficult situation for many online casinos. For many operators, particularly those in the Caribbean, Americans constitute a majority of their business.

But if the Kyl bill passes, would they stop taking American bets? It's a question Assheton says he's not prepared to definitively answer.

"But I would say I would be very loathe to restrict the rights of (customers) from any one nation to wager on my site, given that I have a license from a legal gaming jurisdiction," Assheton said.

David Strow is a business and gaming writer for the Sun. He can be reached at (702) 259-4069 or by e-mail at strow@lasvegassun.com.