Here’s a bet to consider: Can online gambling overcome legal, technological and social challenges to become a mainstream multibillion-dollar business?
The odds are improving in the wake of a new Nevada law designed to pave the way for the first legal casino-style Internet gambling in the United States. Even though federal authorities say existing law bans Web casinos, the prohibition is rarely enforced.
Now, in an about-face, operators of Nevada’s casinos, which once sought to throttle competition by strengthening the ban, are now racing to join an estimated 1,000 Web sites that cater to several million virtual gamblers and rack up at least $1.5 billion a year in revenues. It is unclear whether Nevada casinos will be forced to challenge federal law to move ahead.
Regardless, most observers agree that Nevada’s new law marks a significant step. After years of discussion, “it may actually come to be,” said I. Nelson Rose, a Southern California law professor who advises public officials and the gaming industry.
Just as it has for music downloading, the global Internet has taken gambling to new heights while setting off intense legal and moral debates. While it has opened borderless vistas for millions seeking online entertainment and presented huge new business opportunities, it challenges American laws written before the cyber age and ignites moral discussions about what’s appropriate on the Internet.
If Harrah’s and MGM Mirage, for example, have their way, gamblers from around the world will crowd around their Web sites like they do a hot table Saturday night on the Strip.
The early Nevada introductions, expected within a year or two, likely will only allow casino guests to electronically gamble from their rooms or with a handheld device from the pool.
“The gaming industry is moving closer to the entertainment industry. And at some point we’re going to meet,” said Anthony Cabot, a Las Vegas attorney who represents casino interests. “That point is the Internet.”
Virtual gambling chips
Even some gambling critics agree the virtual chips are out of the bag. Analysts estimate Americans already account for more than half of an estimated 7 million Internet gamblers worldwide.
Online gambling sites have doubled in the past year, and revenues could easily hit $5 billion in two years, according to a recent report by Bear Stearns. That’s about half of the revenues Nevada casinos reported to regulators in 2000.
An analysis by Nielsen/NetRatings for the San Jose Mercury News found gambling sites that involve betting money and their legal cousins, play-for-free lottery and sweepstakes sites, rank second only to television-related sites as the Internet’s most popular destinations.
What’s more, online gambling has seemed to escape the bursting of the Internet bubble. Well-known global entities–including the venerable London retailer Harrod’s–are setting up Internet gambling sites.
And the popularity of online gambling could grow, should brand-name U.S. casinos get in the action. Among other reasons, they would lend legitimacy to a little-regulated activity.
“The times are changing,” Bear Sterns said. “The days when a few college buddies with a laptop and $150,000 could just move down to the Caribbean and set up shop have ended.”
A virtual tour of existing online gaming sites illuminates the possibilities. Many use “Vegas” in their URLs. Dozens of portal-like sites have popped up, purporting to steer gamblers to reputable operators.
The change of heart by some leaders of the U.S. gambling industry, which led to the Nevada legislation, is a testament to how quickly the Internet can change the economic playing field.
“We need to move as fast as we can or we are going to lose opportunities to other places in the world,” said Cabot.
Technology will be online gambling’s key driver, many say. A British-based site already allows a form of peer-to-peer betting, matching gamblers who want to place bets against each other on an event or game. The Nevada law expressly prohibits online sports betting, except over a private network.
In the past year, several of the nation’s largest casino operators have signed on with gaming technology companies to develop sophisticated sites to first build customer loyalty by offering play-for-free games. Now they are in a race to meet the “fool-proof” standards the Nevada Gaming Control Board says it will demand.
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For that reason, closed-network gambling is likely to develop first in Nevada, where casinos can guarantee who is playing and at what location.
Technology already in place
“The technology is already there. It’s a question of cost and implementation,” Cabot said. Even so, other hurdles persist.
While at least one Louisiana federal judge has cast doubt on the validity of the 1961 Wire Act to ban Internet wagering, lawmakers are moving quickly to attack online wagering by banning credit card companies and other payment systems from transmitting money to the online gaming operators. Such a law is being considered by the California state legislature, which also seeks to set a $25 fine for online gamblers in the state.
Already, several credit card companies have changed their practices as online wagering has mushroomed–and after finding it difficult to collect charged gambling debts. Most no longer “credit” players’ winnings back to their credit cards, so players now must wait for the gambling site to send a check.
Fred Marino, a 47-year-old Silicon Valley businessman who ran up more than $50,000 in online gambling debts on several credit cards, got hooked after finding links to online casinos in Internet pop-up ads.
His losses “just snowballed,” he said. “It’s too easy.”
“People get overwhelmed by technology,” said gambling expert Rose. “In fact, the law can handle it. There are ways to regulate it.”