Analyst: Window closing for LV firms in e-gaming

Kevin Ferguson

Friday, Sept. 28, 2001 | 10:08 a.m.

The window of opportunity for Las Vegas casino operators to enter and dominate the Internet gambling industry will be closed within 12 months, predicts one analyst.

But Nevada gaming regulators, empowered to legalize and regulate the industry, say they may not be ready to adopt e-gaming regulations by then.

And at least one gaming official said he was confident that the state's reputation as the top regulated jurisdiction will benefit Nevada against any delays in entering the cyber-gaming industry.

"There is a reason why (Nevada's) gaming industry has grown to the size that it is, and that's because of the public confidence and trust that it holds," Nevada regulator Scott Scherer said.

He said he wasn't willing to rush the process because it may compromise Nevada's world-renowned reputation.

Scherer spoke on a panel Thursday at the inaugural Interactive Gaming Expo & Conference in Las Vegas.

Sebastian Sinclair, an Internet gambling analyst for Christiansen Capital Advisors, predicts the worldwide e-gaming industry will grow from $2.2 billion in revenues in 2000 to $10.5 billion by 2005.

In comparison, Nevada's gaming industry generated $9.6 billion in 2000.

Many brand name casino operators and entertainment firms are not waiting for Nevada to adopt regulations, Sinclair said.

And that's why he sees the window of e-gaming opportunity closing quickly on most Las Vegas casino operators.

He cited MGM MIRAGE's decision to set up a cyber-gambling operation on the Isle of Man, an island off the coast of Great Britain.

"If Nevada doesn't take advantage of this industry... (MGM MIRAGE chairman) Terry Lanni is going to eat everybody's lunch," Sinclair said.

He said media giants News Corp. and Viacom/CBS and software giant Microsoft Corp. are exploring how to enter the e-gaming industry. Playboy has already launched a cyber-casino and sports book, which operate in the British colony of Gibraltar.

Marc Falcone, a gaming analyst for New York investment firm Bear Stearns, said Las Vegas casino operators could generate stronger profits by launching Internet casinos compared to expanding land-based operations into foreign markets.

He said the $800 million Paris-Las Vegas on the Strip generated the highest return on investment, which was 14 percent.

"Internet gaming provides opportunities with much larger returns on investment," Falcone said.

Sinclair said a dominant Las Vegas casino operator could launch a site at a minimum of $20 million.

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

Assemblywoman Merle Berman,R-Las Vegas, who co-authored the Nevada bill that empowers the state's regulators to adopt e-gaming regulations, expressed disappointment that MGM MIRAGE had to go offshore to build its Internet gambling operation.

"I was happy that the bill passed, but I am sad that the implementation has taken so long," she said.

Scherer said the first step is for Nevada gaming regulators to meet with the U.S. Justice Department and make sure that regulations they adopt do not clash with the 1961 Federal Wire Act.

Some say the Wire Act already outlaws Internet gambling by forbidding the practice of placing bets over phone wires. But others suggest the 40-year-old law has loopholes.

Tony Cabot, a lawyer for the Las Vegas firm Lionel Sawyer & Collins, said the Wire Act specifically outlaws sports betting, but doesn't address Internet casinos, which are web sites that offer games like virtual blackjack, poker and slots.

Scherer said regulators also need assurances that technology can be used to block under age gamblers, compulsive gamblers and people who live in jurisdictions where cyber-gambling is outlawed.