Online Gambling's Payoff

Although online gambling is illegal in the United States, you'd never know it by looking at the numbers. Last year alone 7.8 million Americans logged on to Internet gambling sites.

And with the online gambling industry banking almost $12 billion in revenue in 2005, some U.S. casinos think the time has come to legalize Internet gambling and cash in ' a position that was considered all but unthinkable until recently.

“The question is, Do you play in the game or sit back and watch this thing become what ultimately will be a very, very large industry?” says Sebastian Sinclair of Christiansen Capital Advisors, a gambling-research organization.

This sea change has been a long time in coming. For years, the old guard Las Vegas establishment has tried its best to ignore online competition, focusing instead on maximizing its bricks-and-mortar business by pouring capital into improving resorts and boutiques to draw gamblers to the desert.

But with online gaming going mainstream, and operators such as PartyGaming mounting IPOs, casinos such as the MGM Mirage have changed their strategy and are now hoping to launch their own online sites.

“There has been a clear shift in attitude by the major publicly traded gaming companies,” says Michael Pollock, a casino industry analyst at the Spectrum Gaming Group and a former spokesman for the New Jersey Casino Control Commission. “If they could marry their brands to online gaming, it would explode.”

One big problem: Congress doesn't seem ready to take that deal. In fact, some lawmakers, alarmed by the growth of Internet gambling, are actually pushing for a tougher online gaming ban that would increase penalties and potentially force U.S. casinos to stay off-line permanently. To date, Las Vegas' voice in Washington, the American Gaming Association (AGA), hasn't endorsed the controversial measures, preferring to leave its options open. But it seems increasingly clear that American casinos would rather join the action online than try to shut it down.

Part of the challenge for casino operators is that, despite being in an almost $30 billion industry, they are still seen as a political liability in Congress and have no staunch allies on Capitol Hill. Tellingly, though, there are approximately 20 members of the Congressional Gaming Caucus; all besides the leadership prefer to remain anonymous.

Shuffle Up And Deal

The long-simmering debate over online gambling heated up in Congress last month, becoming linked, oddly, to the lobbying reform movement. Lawmakers opposed to online gaming are tying their initiative to disgraced lobbyist Jack Abramoff, using the scandal as a catalyst to help pass their legislation.

Rep. John Shadegg (R-AZ) is the most recent lawmaker to champion the prohibition. Shadegg, who last week lost his bid to be House majority leader, made passing anti-gambling legislation a linchpin of his campaign, citing reports that Abramoff, as a lobbyist for eLottery while at Preston Gates Ellis & Rouvelas Meeds, thwarted an attempt to pass an anti-online-gambling bill in 2000.

But industry lobbyists say that tying Abramoff to the bill's demise is a reach.

“To sit there and say, 'Jack Abramoff killed Internet gaming' is a convenient excuse for people who've been after this for 8 years,” says one gambling lobbyist, who requested anonymity.

Be that as it may, it hasn't stopped lawmakers who are pushing for an online gambling ban from using the current political environment to their advantage.

“We're in a state of flux,” says Greg Wierzynski, spokesman for Rep. Jim Leach (R-IA), who introduced an online gambling prohibition bill last year.

Leach's office has coordinated with Sen. Jon Kyl (R-AZ), another longtime opponent of online gambling, who is expected to introduce a similar bill in the Senate in the coming months.

Currently, it is illegal for online gambling companies to operate in the United States or for people in this country to place bets on the Internet, with the exception of parimutuel horse racing, which enjoys an exemption from the law.

That “equestrian exemption,” however, could be coming to an end. The World Trade Organization recently ruled that the United States could not outlaw offshore versions of online gambling that it allows in its own jurisdiction. The United States has until April 3 to comply with the WTO's ruling, which could open up online betting on horse racing to tracks in other countries.

Also, states such as Nevada and North Dakota have attempted to legalize online gaming for residents within state borders, but the Department of Justice came down hard on both states' laws, insisting that the states shut down such operations. But Nevada continues to test the limits for online gaming, most recently making it legal for gamblers to use mobile handheld devices to gamble online while in public spaces at casinos and resorts.”

The chances of the gaming industry pushing through favorable online gambling legislation in the near term are slim, especially if the powerful AGA fails to come out in support of such a measure.

“AGA's position has been consistent for the last 8 years,” says AGA President and CEO Frank Fahrenkopf Jr. “We are opposed to Internet gambling because we do not believe that the technology or software exists to properly regulate it with the appropriate law enforcement oversight.”

Despite such public statements, however, rumors persist that the AGA is strongly considering altering its position on online gaming so that its members could go after a piece of the action online. In conversations AGA lobbyists had with House Judiciary Committee staffers last year, they signaled that they would be in favor of the legalization of regulated online gambling.

To date, however, the casino industry hasn't spoken about online gaming with a unified voice.

Despite MGM Mirage's public support for changing the law, many of the largest casino companies are keeping quiet about the proposal. All of the major players, including Harrah's Entertainment Inc., Wynn Resorts, Station Casinos Inc., and Penn National Gaming Inc., declined to comment for this article.

So far, Terrence Lanni, head of the MGM Mirage, has been the only high-level industry executive to express vocal support for online gambling's legalization. The company even went so far as to test its own offshore gambling Web site in 2001. Based on the Isle of Man, it was meant to show regulators and lawmakers that the casino could successfully block access for underage gamblers and prevent gamblers from the United States and other countries where online gambling is illegal from logging onto the site. The test site shut down in 2003, but MGM Mirage says it could be up and running in a matter of months depending on what Congress decides to do.

But beyond that test run and publicly supporting legalization, MGM Mirage hasn't really been pounding on any doors in Washington.

“We have not gone about the effort of pushing for legislation,” says Alan Feldman, MGM Mirage's senior vice president of public affairs. “We did work strenuously against the effort to make [online gambling] illegal because we felt that it was just simply an absolutely foolish move that would forever put us at a business disadvantage.”

Studying The Cards

An obvious key for the AGA to get online gaming legislation passed will be building a coalition with other gambling lobbies.

The most likely to pair interests: offshore gaming companies that are already spending time on Capitol Hill trying to lay the groundwork for legalization.

“We want to operate in a regulated environment,” says Ronald Platt, head of government relations at Buchanan Ingersoll and a lobbyist for Sporting-bet, a British online gaming company. Nigel Payne, the company's CEO, has been to the Hill six times in the past year, most recently in January.

“Customers have voted with their feet and bet with trusted, regulated operators and not unregulated others,” says Payne. “Citizens of every country in the developed world gamble. This is a reality, a reality that is here to stay. The right thing for the government to do ' the socially responsible thing to do ' is to properly regulate this industry.”

Other traditional gambling lobbies, in particular the National Indian Gaming Association (NIGA), could take a bit more finessing before they agree to come to the table. Indian gaming has been a hot topic recently, and the NIGA has been busy fending off attacks by lawmakers such as Sen. John McCain (R-AZ), who are attempting to limit tribes' ability to start casinos on off-reservation sites.

The NIGA says that it isn't pushing for online legalization now, but that if it does go forward, the association's members want “equal footing” so that the legislation will not benefit certain industries over others.

The industry also faces powerful constituencies that are working against online gambling based on moral or religious grounds. Focus on the Family, for example, has mobilized its members against online gambling and hopes to push Leach's bill outlawing it through Congress this year.

“If we allow Internet gambling to be legalized, we're basically giving our approval for a casino to enter every living room in the U.S. that has a computer,” says Chad Hills, a gambling analyst at Focus on the Family. “My issue is, if we can't stop it right now, how are we going to even regulate it?”

So far the industry hasn't found an advocate on Capitol Hill willing to take up legislation on behalf of legalization. Its closest ally has been Rep. John Conyers Jr. (D-MI), who in the last Congress introduced a bill to create a commission to study the regulation of online gambling.

Conyers' office says he is planning on introducing a similar bill in this month, focusing primarily on the available technology to regulate online gambling.

This isn't the first time Congress has put together a commission, though. In 1999, it appointed a National Gambling Impact Study Commission, which argued for prohibiting online gaming.

Timothy Kelly, a professor at Fuller Theology Seminary and a former executive director of the commission, says commission members focused primarily on the potential negative impact of online gambling on children.

Seven years later, it seems clear that whatever lawmakers or industry advocates think of online gaming, it is a part of the wired world and will remain so. As with other vices supercharged by the Internet, the question is not so much whether it is feasible to ban online gambling as whether it is wrong to profit from it. The past decade has seen many forms of legalized gambling spread across the country. Increasingly, many in Las Vegas and elsewhere are betting that the personal computer is their next great profit center. And they won't need Wayne Newton to get you there.

Although online gambling is illegal in the United States, you'd never know it by looking at the numbers. Last year alone 7.8 million Americans logged on to Internet gambling sites.

And with the online gambling industry banking almost $12 billion in revenue in 2005, some U.S. casinos think the time has come to legalize Internet gambling and cash in ' a position that was considered all but unthinkable until recently.

“The question is, Do you play in the game or sit back and watch this thing become what ultimately will be a very, very large industry?” says Sebastian Sinclair of Christiansen Capital Advisors, a gambling-research organization.

This sea change has been a long time in coming. For years, the old guard Las Vegas establishment has tried its best to ignore online competition, focusing instead on maximizing its bricks-and-mortar business by pouring capital into improving resorts and boutiques to draw gamblers to the desert.

But with online gaming going mainstream, and operators such as PartyGaming mounting IPOs, casinos such as the MGM Mirage have changed their strategy and are now hoping to launch their own online sites.

“There has been a clear shift in attitude by the major publicly traded gaming companies,” says Michael Pollock, a casino industry analyst at the Spectrum Gaming Group and a former spokesman for the New Jersey Casino Control Commission. “If they could marry their brands to online gaming, it would explode.”

One big problem: Congress doesn't seem ready to take that deal. In fact, some lawmakers, alarmed by the growth of Internet gambling, are actually pushing for a tougher online gaming ban that would increase penalties and potentially force U.S. casinos to stay off-line permanently. To date, Las Vegas' voice in Washington, the American Gaming Association (AGA), hasn't endorsed the controversial measures, preferring to leave its options open. But it seems increasingly clear that American casinos would rather join the action online than try to shut it down.

Part of the challenge for casino operators is that, despite being in an almost $30 billion industry, they are still seen as a political liability in Congress and have no staunch allies on Capitol Hill. Tellingly, though, there are approximately 20 members of the Congressional Gaming Caucus; all besides the leadership prefer to remain anonymous.

Shuffle Up And Deal

The long-simmering debate over online gambling heated up in Congress last month, becoming linked, oddly, to the lobbying reform movement. Lawmakers opposed to online gaming are tying their initiative to disgraced lobbyist Jack Abramoff, using the scandal as a catalyst to help pass their legislation.

Rep. John Shadegg (R-AZ) is the most recent lawmaker to champion the prohibition. Shadegg, who last week lost his bid to be House majority leader, made passing anti-gambling legislation a linchpin of his campaign, citing reports that Abramoff, as a lobbyist for eLottery while at Preston Gates Ellis & Rouvelas Meeds, thwarted an attempt to pass an anti-online-gambling bill in 2000.

But industry lobbyists say that tying Abramoff to the bill's demise is a reach.

“To sit there and say, 'Jack Abramoff killed Internet gaming' is a convenient excuse for people who've been after this for 8 years,” says one gambling lobbyist, who requested anonymity.

Be that as it may, it hasn't stopped lawmakers who are pushing for an online gambling ban from using the current political environment to their advantage.

“We're in a state of flux,” says Greg Wierzynski, spokesman for Rep. Jim Leach (R-IA), who introduced an online gambling prohibition bill last year.

Leach's office has coordinated with Sen. Jon Kyl (R-AZ), another longtime opponent of online gambling, who is expected to introduce a similar bill in the Senate in the coming months.

Currently, it is illegal for online gambling companies to operate in the United States or for people in this country to place bets on the Internet, with the exception of parimutuel horse racing, which enjoys an exemption from the law.

That “equestrian exemption,” however, could be coming to an end. The World Trade Organization recently ruled that the United States could not outlaw offshore versions of online gambling that it allows in its own jurisdiction. The United States has until April 3 to comply with the WTO's ruling, which could open up online betting on horse racing to tracks in other countries.

Also, states such as Nevada and North Dakota have attempted to legalize online gaming for residents within state borders, but the Department of Justice came down hard on both states' laws, insisting that the states shut down such operations. But Nevada continues to test the limits for online gaming, most recently making it legal for gamblers to use mobile handheld devices to gamble online while in public spaces at casinos and resorts.”

The chances of the gaming industry pushing through favorable online gambling legislation in the near term are slim, especially if the powerful AGA fails to come out in support of such a measure.

“AGA's position has been consistent for the last 8 years,” says AGA President and CEO Frank Fahrenkopf Jr. “We are opposed to Internet gambling because we do not believe that the technology or software exists to properly regulate it with the appropriate law enforcement oversight.”

Despite such public statements, however, rumors persist that the AGA is strongly considering altering its position on online gaming so that its members could go after a piece of the action online. In conversations AGA lobbyists had with House Judiciary Committee staffers last year, they signaled that they would be in favor of the legalization of regulated online gambling.

To date, however, the casino industry hasn't spoken about online gaming with a unified voice.

Despite MGM Mirage's public support for changing the law, many of the largest casino companies are keeping quiet about the proposal. All of the major players, including Harrah's Entertainment Inc., Wynn Resorts, Station Casinos Inc., and Penn National Gaming Inc., declined to comment for this article.

So far, Terrence Lanni, head of the MGM Mirage, has been the only high-level industry executive to express vocal support for online gambling's legalization. The company even went so far as to test its own offshore gambling Web site in 2001. Based on the Isle of Man, it was meant to show regulators and lawmakers that the casino could successfully block access for underage gamblers and prevent gamblers from the United States and other countries where online gambling is illegal from logging onto the site. The test site shut down in 2003, but MGM Mirage says it could be up and running in a matter of months depending on what Congress decides to do.

But beyond that test run and publicly supporting legalization, MGM Mirage hasn't really been pounding on any doors in Washington.

“We have not gone about the effort of pushing for legislation,” says Alan Feldman, MGM Mirage's senior vice president of public affairs. “We did work strenuously against the effort to make [online gambling] illegal because we felt that it was just simply an absolutely foolish move that would forever put us at a business disadvantage.”

Studying The Cards

An obvious key for the AGA to get online gaming legislation passed will be building a coalition with other gambling lobbies.

The most likely to pair interests: offshore gaming companies that are already spending time on Capitol Hill trying to lay the groundwork for legalization.

“We want to operate in a regulated environment,” says Ronald Platt, head of government relations at Buchanan Ingersoll and a lobbyist for Sporting-bet, a British online gaming company. Nigel Payne, the company's CEO, has been to the Hill six times in the past year, most recently in January.

“Customers have voted with their feet and bet with trusted, regulated operators and not unregulated others,” says Payne. “Citizens of every country in the developed world gamble. This is a reality, a reality that is here to stay. The right thing for the government to do ' the socially responsible thing to do ' is to properly regulate this industry.”

Other traditional gambling lobbies, in particular the National Indian Gaming Association (NIGA), could take a bit more finessing before they agree to come to the table. Indian gaming has been a hot topic recently, and the NIGA has been busy fending off attacks by lawmakers such as Sen. John McCain (R-AZ), who are attempting to limit tribes' ability to start casinos on off-reservation sites.

The NIGA says that it isn't pushing for online legalization now, but that if it does go forward, the association's members want “equal footing” so that the legislation will not benefit certain industries over others.

The industry also faces powerful constituencies that are working against online gambling based on moral or religious grounds. Focus on the Family, for example, has mobilized its members against online gambling and hopes to push Leach's bill outlawing it through Congress this year.

“If we allow Internet gambling to be legalized, we're basically giving our approval for a casino to enter every living room in the U.S. that has a computer,” says Chad Hills, a gambling analyst at Focus on the Family. “My issue is, if we can't stop it right now, how are we going to even regulate it?”

So far the industry hasn't found an advocate on Capitol Hill willing to take up legislation on behalf of legalization. Its closest ally has been Rep. John Conyers Jr. (D-MI), who in the last Congress introduced a bill to create a commission to study the regulation of online gambling.

Conyers' office says he is planning on introducing a similar bill in this month, focusing primarily on the available technology to regulate online gambling.

This isn't the first time Congress has put together a commission, though. In 1999, it appointed a National Gambling Impact Study Commission, which argued for prohibiting online gaming.

Timothy Kelly, a professor at Fuller Theology Seminary and a former executive director of the commission, says commission members focused primarily on the potential negative impact of online gambling on children.

Seven years later, it seems clear that whatever lawmakers or industry advocates think of online gaming, it is a part of the wired world and will remain so. As with other vices supercharged by the Internet, the question is not so much whether it is feasible to ban online gambling as whether it is wrong to profit from it. The past decade has seen many forms of legalized gambling spread across the country. Increasingly, many in Las Vegas and elsewhere are betting that the personal computer is their next great profit center. And they won't need Wayne Newton to get you there.