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California and the West

Vegas Officials May Roll the Dice on Online Casino

Finance: City considers selling rights to its name to an offshore Internet betting firm. Critics fear legal and ethical problems, and hometown gambling concerns object.

November 15, 2000|TOM GORMAN | TIMES STAFF WRITER

LAS VEGAS — City officials here are looking to get into the gambling business themselves with a daring move: investing the Las Vegas name in an offshore Internet casino targeting the foreign market.

By selling the city seal to give the start-up company credibility, Las Vegas could earn $1 billion or more in just a few years--if, that is, the venture succeeds in the notoriously dicey world of Internet business.

Critics say affiliating the city with cyberspace gambling doesn't pass the smell test--especially with the industry on shaky legal ground, at least in the United States.

The deal is also drawing fire from hometown casino companies, which could find themselves in competition with the city if they ever launch their own Internet gambling sites.

Las Vegas' proposal goes far beyond the more conventional licensing of city names and logos on T-shirts, key rings and coffee mugs--even beyond Beverly Hills' allowing its name to be used for the "Beverly Hills Cop" movies.

If the City Council approves, Las Vegas will be joining, as a commercial partner, what could become one of the biggest companies in the emerging Internet gambling industry.

Flamboyant Mayor Oscar Goodman initially rolled out the red carpet for the proposal.

"I'm loving this idea," he said recently. "This is a virtual panacea" for the city's budget needs.

But two weeks ago he removed himself from the discussion because of a possible conflict of interest, after learning that his law firm once represented maverick casino owner Bob Stupak, a potential investor in the venture.

The question now is whether other City Council members will take up the cause. Although they have expressed legal and ethical concerns, they are intrigued enough by the proposal that it is being studied seriously at City Hall. The City Council will discuss it again today.

Online gambling was launched by largely unknown, offshore entrepreneurs in the mid-1990s. The business is now embraced by mainstream casino companies outside the United States and is expected to generate more than $5 billion a year in profit by 2003, Wall Street analysts say.

On the Internet, a gambler--after providing proof of identification and age and depositing money with a credit card or wired funds--can play blackjack, keno, video poker and even interactive poker with other online players.

It is illegal to maintain such sites in the United States, and the Justice Department contends that, under the 1961 Federal Wire Act, which banned sports betting by telephone, it is also illegal for U.S. citizens to place Internet wagers on casino games--regardless of where the site is physically based. This law is virtually impossible to enforce, however, and a gambling analyst for Bear, Stearns & Co. estimates that half of all Internet gamblers are Americans.

Because the application of the 1961 law is uncertain, Congress has struggled with the question of whether to specifically ban Internet gambling or to allow it under strict regulations.

But other countries around the world are hosts to such enterprises. Australia, the proposed home of the Las Vegas site, is generally considered the most advanced in its government's regulation of Internet gambling: It subjects principals to background checks and tests the integrity of gambling software.

The Las Vegas proposal comes from a newly formed Nevada company called VegasOne.com, which would operate from Australia. Backers say U.S. residents would not be allowed to wager on the site unless Congress allowed it.

In exchange for lending its name, the city would collect 25% of the company's net profits and an additional 5% of the gross profits to pay for the city's as-yet-undefined oversight of the venture.

Company officials estimate that, based in part on projected growth in Internet gambling, the city would make $90 million or more in 2003 and even more in successive years. Five years or more into the 20-year contract, the city could ask for $1 billion as a lump sum instead of gambling on an annual cut of future profits.

It would be an amazing return for the city on an investment of almost nothing--except, some fear, its reputation.

Among the critics are Jan Jones, senior vice president of the casino company Harrah's Entertainment and herself the mayor of Las Vegas for eight years, before she retired last year.

It's too risky, she said, for the city to align itself with the controversial online betting industry.

"To jeopardize the image of Las Vegas for a quick buck," she said, "is a bad gamble."

Representatives of Las Vegas' largest casino companies--Park Place Entertainment, MGM Mirage and the Mandalay Resort Group--have met with Goodman to oppose the idea.

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