In a highly publicized March 1998 “raid,” Mary Jo White, the U.S. Would-be wagerers open an account with a credit card, although some sites also accept cash and cashier’s checks.
One major barrier to profitability is the law. has had little cooperation from any other nation.
Does the seeming invincibility of online gambling make it an enticing business? Jason Ader of Bear Stearns, urges caution.
Today, Americans spend some $600 billion a year on legal gambling, making it by far the favored national pastime. The Wire Act obviously has no mention of wagering over the Internet. to gain access to offshore sites,” says Sebastian Sinclair of Christiansen/Cummings. Inland, for example, operates two Web sites in addition to the one bearing Kenny Rogers’ likeness: Casinoaustralia.com and Goodluckclub.com.
But a hard-core base will continue to turn to Internet betting for its clear advantages. Almost all online gambling sites work the same. According to an analysis by Sue Schieder of Rolling Good Times, the online gambling magazine, the new legislation would not punish the casual bettor. In 1998, the Senate passed, by a large margin, an amendment prohibiting Internet gambling, but that bill died before becoming law. Bets generally range from $1 to as much as $300.
Prosecutors focus on sports betting
Intriguingly, though, all the bets that make up the U.S. Even the firms that have enjoyed some stock-price popularity – such as Youbet.com – have shaky fundamentals. I’ve not had problems being paid.” . Their case is based on the 1961 Wire Act.
Running an online casino carries all the usual challenges of Internet businesses, from low click-through rates to servers that fail.
The prosecutors’ focus on sports bets appears to stem from legal precedent in the law they relied on. Together, these sites have about 4,300 registered customers in 96 countries around the world.
The office of U.S. In 1997, published reports put the total number of operating online casinos at 15. A Ninemsn spokesperson says that the site does not now offer online gambling and would not comment on future plans. The American Gaming Association, a trade group of gaming firms, maintains this view regarding online wagering: “The industry has been state-regulated and we think it should remain that way. But the travails associated with fending off lawsuits have essentially put the company out of business. Her higher-ups in the Justice Department appear to agree. (The company did not respond to repeated requests for an interview.)
Group calls for regulation of Net gambling
For years, another barrier to the growth of Internet gambling has been strong opposition from those most threatened by gambling sites: legal American casinos. Legislation tied to a particular technology may quickly become obsolete and require further amendment. In the ’70s, Atlantic City legalized casino gambling; in the ensuing decades, state lotteries, Indian casinos, gaming ships, offtrack betting parlors and card clubs have sprouted across the landscape. O’Brien observes in Bad Bet, his comprehensive account of America’s gambling industry, “Judging by dollars spent, gambling is now more popular in America than baseball, the movies and Disneyland combined.”
First, legislation should treat physical activity and cyberactivity in the same way. But following a 1997 indictment, the state of Missouri settled a suit against the company and its president, Michael Simone, for about $35,000.
All the sites indicted by the U.S. attorney’s office theoretically operate out of the Caribbean. But they say the more bettors, the better.
It’s not because they operate in any fundamentally different way. attorney for the Southern District of New York, indicted 14 managers of six Internet companies for offering gambling on their sites. Gambling is as at least as old as Christianity (that is, if Ben Hur can be trusted). The vast majority of customers will satisfy their demand for commercial gambling through less onerous and risky alternatives, such as lotteries, bingo, pari-mutuels and casinos.”
Internet Gambling Worldwide, Past and Future
But over the last several months, at least some traditional casinos have pursued the time-honored strategy of joining an Internet gambling trend that they can’t beat. One of Microsoft (MSFT)’s less-publicized adventures is Ninemsn, an Australia-based Internet service to which Bill Gates has pledged tens of millions of dollars. Tony Cabot, an attorney specializing in gaming issues, says flatly, “When you see Kerry Packer get together with Microsoft, you have to believe there is a future for this type of wagering.”
But the growing acceptance of online betting and the Internet’s inherent ability to shatter jurisdictions bring the inconsistencies of American gaming law to a boil. The minimum amount to begin an account varies. (However, an HBO sports program attempted to locate one of these ventures in Aruba, and ultimately found that the genuine server was in a residential neighborhood in Bethlehem, Pa.) And the Caribbean nations would like to keep their haven status. citizens, it will be increasingly tempting for them to turn to locations abroad. At one point, Interactive Gaming looked like it could be an industry leader. college and professional sports. Today, a roster on one “gambling portal” site lists well over 200. Says Sinclair of Christiansen/Cummings: “You are going to feel more comfortable wagering with a Hilton than you will with Joe’s Casino.”
Is Microsoft betting too?
The potential action is too compelling for even the largest tech tycoons to resist.
Similarly, the Las Vegas-based public company American Wagering, owner of Leroy’s Horse and Sports Place in Nevada, also operates a sports gambling site located in Canberra called MegaSports (www.megasports.com.au). Even the precise number of online casinos is hard to calculate. Packer is a man with a voracious gambling appetite. If, on the other hand, an activity is in the physical world – betting on horses, or casino betting with Indian tribes – it becomes subject to federal criminal sanction when it occurs in cyberspace. “Think about what would happen to Wal-Mart (WMT), General Motors or Microsoft if these companies had to continue to dodge federal roadblocks to access their customers,” says Sebastian Sinclair, senior associate at Christiansen/Cummings Associates, a management consulting firm. “Since there are no controls at present regarding Internet wagering, I would urge investors to shun these firms at present,” he says. “I use the service because it’s convenient and I have access to it when I want,” says one online gambler. The defendants, many of whom live abroad, were threatened with up to five years in prison and $250,000 fines. In January, MegaSports began taking Internet bets from Australians; it expects soon to allow global gambling on sporting events. Kyl introduced a revised version earlier this year, removing some of the more onerous and hard-to-enforce provisions. “We get daily reports, and you’ll see these people who spend a couple of hours gambling, and the total amount they bet is like $1.81,” says Thomas Holmes, Inland’s head of technology. Legislators have considered enlisting Internet service providers to patrol for undesirable sites, although Internet gambling insiders consider that proposal dead on arrival. The Standard obtained a Department of Justice analysis of the bill S. attorney’s case involved the casinos’ sportsbooks. His equal partner is Australian tycoon Kerry Packer of the Crown Casino in Victoria.
More than a year later, however, no cases have come to trial, and nine defendants have accepted plea bargains for state misdemeanor charges with no jail time. 474, introduced into the Senate by Arizona’s John Kyl in 1997 as the Internet Gambling Prohibition Act. But as more and more traditional firms become involved, the consumer will look for the brand name. One Australian state, Queensland, is already awarding licenses for online gambling, and others may follow soon. In November 1998, for example, a division of Hilton Hotels acquired the company that runs Centrebet, a Web and telephone sports-wagering system based in Australia (www.centrebet.com.au). They almost always include slots, blackjack and video poker, but many sites carry more exotic games, from baccarat to pai gow.
Take Interactive Gaming and Communications, another publicly traded company, located in Blue Bell, Pa. Attorney White has proceeded slowly and quietly. “Federal legislation will make it difficult but not impossible for Internet gamblers in the U.S.
That partnership leads many observers to believe that an online casino – using Microsoft platforms, of course – is in the works. “Ultimately, Internet gambling operators are selling a product. Like the Communications Act passed in the 1930s, technology has now leapfrogged the law.
So how is it that these companies appear to operate legally, but a dozen Caribbean cowboys found themselves under felony indictment?
Finally, the DoJ believes that any federal law must recognize that the Internet is different from other communications media: It’s a multifaceted communications medium that allows for both point-to-point transmission between two parties (like the telephone), as well as the widespread dissemination of information to a vast audience (like a newspaper). Justice believes that any legislation addressing criminal misuse of computers or computer systems (including the Internet) should have three vital characteristics. For decades, Vegas was about the only legal option for gamblers. White’s hesitancy suggests that the law may not be as solid as she thought when she indicted.
Although it uses a CryptoLogic template similar to several other online casinos, Kennyrogerscasino.com may be unique in letting bettors wager as little as a penny at a time. “And it is possible that records could be subpoenaed of various banks where these companies maintain accounts.”
If such gamblers are not satisfied by options available to U.S. But according to Inland CEO Don Speer, elusive profits need not be one of them. “I wager on football games and usually bet in the neighborhood of $1,000 every weekend.
Second, legislation should be technology-neutral.
Nonetheless, some experts think the case could be made to stick. If an activity is prohibited in the physical world but not on the Internet, the Internet becomes a safe haven for that criminal activity. Anyone over the age of 18 can set up an account with Centrebet and place money on a variety of worldwide sporting events, including U.S. Nor would it prohibit online fantasy sports leagues, online lotteries in states where they are legal, or online betting on any live horse race where it would otherwise be lawful to wager. Passed during the term of crime-fighter Attorney General Robert Kennedy, the law was intended to outlaw betting over telephone lines. Aruba, for one, is refusing to extradite any indicted individuals to the U.S., and thus far the U.S. For one thing, gambling from one’s home allows for a variety of techniques that would get one tossed out of a regular casino. Why should it be legal to bet online on a horse race in another state, but not legal to bet on a basketball game in one’s own state? If Native American tribes can establish new, legal, physical places where adults can gamble, why shouldn’t someone be able to do the same in cyberspace?
The amount spent on Internet gambling is harder to calculate. (The company’s Indian casino and Web-development divisions make more.) “This is the really exciting point, because I know where it goes from here,” Speer said in an interview. FBI agents placed bets on games – uniformly National Football League matches, although many other options are available – and followed up, whether they won or lost. Blackjack players can very easily count cards, or even consult odds charts; the Kennyrogerscasino.com site actually has a printable chart showing the best strategy for every possible hand of blackjack. Casino games are available on a site or via downloadable software. That figure exaggerates the size of the Internet gambling sector, since some companies operate more than one online betting parlor. … As Timothy L. “The telephone is being used to facilitate these wagers and I believe the government has a solid case,” explains Tony Cabot, a Las Vegas-based gaming lawyer and author of a book on Internet gaming. The Internet is presently unregulated and we support a federal law regulating Internet gambling.”
You might think that the prospect of competing against the likes of Microsoft would terrify a $20 million company like Inland. Failure to account for that specificity in legislation could stifle the Internet’s growth or chill its use as a communications tool. The Justice Department doesn’t think that online casinos (including those that offer gambling on sports events) can legally conduct business in the United States, even if they are based in places where gambling is legal. Says Opel, “Bringing in the big names and established companies only adds credibility and visibility to what we’re already doing.”
Is it legal?
A few hurdles have to be cleared before such ventures can take off – beginning with the federal government. He claims Inland’s Internet gambling business went slightly into the black in March, on annualized revenues of about $1 million. And for sports bettors – who make up a majority of online gamblers, according to industry insiders – the ease of using cyberbookies can’t be beat. In most cases, this means operating out of Australia. About 2,000 years later, Bugsy Siegel took the concept a step further and built the Flamingo Hotel in the desert town of Las Vegas. That may suggest that, as some legal observers have argued, the 1961 federal Wire Act is too old and too loosely written to prohibit online gambling. That makes for an Internet gambling environment too porous for U.S law enforcement to plug.
But even if Congress comes up with the best-crafted legislation in history, there are significant factors beyond its control. Estimates range from $650 million to $1 billion a year, worldwide – a tiny fraction of the amount spent on more traditional formats.
The original version of Kyl’s bill failed most of these tests
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