Panel: Internet casinos seen as lucrative

Kevin Ferguson

Thursday, Aug. 2, 2001 | 10:53 a.m.

Las Vegas casino operators could be better off launching Internet casinos instead of expanding with real casinos into newer markets if Nevada gaming regulators permit online gambling, a panel of industry analysts said Wednesday.

"We've recently seen a decline in return on investment in Las Vegas casinos, culminated by the $1.2 billion Aladdin," said Sebastian Sinclair, an Internet gambling analyst for Christiansen Capital Advisors.

He said a dominant land-based Las Vegas casino operator could launch a site at a minimum cost of $20 million.

That expense would include hardware, software, initial marketing efforts and a staff of 20 to 30 computer technicians.

Sinclair estimates the Internet gambling industry will generate $10.7 billion in 2005.

"That's assuming some form of U.S. prohibition is passed, and Nevada is the only state that (is exempt)," Sinclair said.

Former U.S. Sen. Richard Bryan said there are four bills targeting Internet gambling being considered in Congress this session. He said, however, he doesn't expect any of them to pass or even get much debate because of a number of other bills have higher priority. Those include campaign finance reform and education reform.

"(U.S.) Sen. Harry Reid and (Sen.) Tom Daschle set the agenda and none of those (bills) are on the agenda. But that could change," Bryan said. Reid, the minority whip, is a Nevada Democrat. Daschle, a Democrat, is the Senate majority leader from South Dakota.

Sinclair's $10.7 billion estimate of the 2005 Internet gambling industry falls just short of last year's Nevada gaming industry revenues: $9.6 billion.

Marc Falcone, a gaming analyst for investment firm Bear Stearns, said if Las Vegas casino operators enter the Internet market by 2003, the state's gaming revenues should see a 3 percent to 5 percent boost by 2008.

If Las Vegas casinos launch web gambling sites by 2003, Sinclair estimates the Nevada e-gaming industry could garner 15 percent of the market, generating state tax revenue totaling $231 million between 2003 and 2005.

Falcone, Sinclair and Sue Schneider, chief executive of e-gaming research firm the River City Group, were speakers at a Wednesday Las Vegas seminar. They were invited by the Nevada gaming regulators to shed light on the growth of the industry.

Sinclair said Wednesday there are about 4.5 million people gambling on the Internet worldwide. He noted that half of them are gambling on web-based race and sports books, and the other half on cybercasinos and e-lotteries.

Sinclair said the industry could grow to a market of 60 million players, the number of people who play online video games now.

Schneider said that last year there were about 350 companies operating an estimated 1,400 gambling sites. Those numbers will shrink in the coming years due to industry consolidation, the panelists agreed.

Falcone said Internet casinos are a good way to expand casino brands internationally -- not just to gamblers, but also nongaming customers -- by incorporating other e-commerce elements and special vacation deals.

"These sites provide great cross-marketing opportunities," Falcone said. "We're seeing that in the play-for-fun (casino) sites where people can book hotel rooms and dinner reservations."

Falcone noted that the non-gambling Wagerworks.com, partially owned by MGM MIRAGE, has been gaining a lot of web traffic.

"Players play a long time to win prizes, which drives traffic to their properties," he said.

Falcone said the potential leaders in the Internet casino industry because of brand strength include MGM MIRAGE of Las Vegas, Caesars (owned by Park Place Entertainment Corp. of Las Vegas), Hilton Hotels Corp. and William Hill International, a dominant United Kingdom sports book operator.