Regulation needed for Internet gambling to succeed

Lisa Snedeker

Saturday, Jan. 13, 2001 | 10:19 a.m.

Despite initial opposition, major U.S. gaming companies are considering establishing online casinos. But without changes in the law and effective regulations, gambling on the Internet won't be a hand played by traditional casino operators, industry executives say.

Consistent regulatory standards, licensing and taxes are needed to make Internet gambling legitimate, industry analyst Marc Falcone, vice president of Bear Stearns, told those attending the two-day American Gaming Summit on Friday.

There are numerous unresolved issues including minors, security and credit, said Brian Sandoval, Nevada Gaming Commission chairman.

"We don't know," he said. "But I think the time has come for Nevada to begin an earnest study of Internet gaming. We need to be able to make an informed decision."

Internet gambling is illegal in Nevada, in line with the U.S. Justice Department, which says the 1961 Wire Act prohibits it.

But Assemblywoman Merle Berman, R-Las Vegas, is drafting a bill to legalize and regulate the operation of gambling Web sites based in Nevada. She said Nevada needs to beat the New Jersey Legislature to be the first state to legalize and regulate Internet gambling.

Tony Cabot, a top Nevada gambling industry attorney and author of the "Internet Gambling Report," said there is only a one- to two-year window for the first state to begin issuing Internet gambling licenses, adding it will be difficult to play catch-up.

Comparing it to alcohol, prohibition of Internet gambling, or "e-gambling" won't work, said Frank Catania, a consultant and former New Jersey gaming regulator.

"Congress' attempt to prohibit Internet gaming failed," he said referring to lawmakers' failure to enact a law proposed last year by Rep. Bob Goodlatte, R-Va., which would have banned Internet wagering from U.S.-based computers.

Catania believes the regulation should remain a state issue because "New Jersey and Nevada can better regulate New Jersey and Nevada casinos than the federal government."

Internet gambling regulations must be based on the same rules established for "brick-and-mortar" casinos, Catania said. For example, a person can't receive a traditional casino license without a background check.

"Consumers should be assured that Internet gambling is fair, honest and they will get paid," he said.

Falcone said until online gambling is regulated, he is cutting in half his earlier predictions that the industry could exceed $6 billion a year by 2003.

"It appears there will be a regulated industry and an unregulated industry," he said. "Investors are going to pay a premium for regulated (online gambling) brand names that will mean high traffic."

Internet gaming will supplement, rather than take away from, traditional casinos, Falcone said.

The Nevada Resort Association, which represents the many of the state's casinos, has opposed efforts to legalize online gaming, fearing it would drain dollars away.

But officials for gaming giants such as MGM Mirage and Park Place Entertainment now say they are interested in exploring opportunities offered by Internet gambling and are testing the waters with promotional online sites.

That has regulators nervous. Nevada attorney general's office issued an opinion this month saying Nevada casinos can't offer free gambling over the Internet if players get prizes based on a game's outcome - even if no money is bet.

The opinion defines what casinos can do in offering promotional, "for-fun" gambling on Web sites - and state Gaming Control Board member Dennis Neilander said the opinion could affect some existing sites.

The opinion came after an announcement by MGM Mirage and WagerWorks Inc. to develop a Web site offering "for-fun" gambling. MGM Mirage is expected to launch its promotional site next week, said Alan Feldman, company spokesman.

A casino's Internet site can offer "play credits" to a customer to wager in a free casino game or awards such as free rooms, entertainment, food, airline miles and cash prizes for visiting the website as well as for time spent playing a game, according to the opinion.

But clubs can't offer prizes or awards based on the outcome of a game such as blackjack, roulette, slot machines or craps.