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NEON BABYLON

Even online gamblers can't resist casinos' call

October 29, 2006|Dan Ackman | DAN ACKMAN is a writer based in Jersey City, N.J.

Here in THE U.S., it's OK to bet on horses, play Lotto, gamble at Indian casinos, wager in Atlantic City. And in Las Vegas, it's virtually a patriotic duty to gamble. In all, you can legally bet in 46 of 50 states, but not over the Internet. Online gambling is illegal.

Although the online side of the business, while still small, is booming, Las Vegas casinos have hardly clamored for its legalization. That's partly because they figure that whenever folks develop a taste for gambling, they will sooner or later look to Vegas to satisfy their hunger.

If the distinction between gambling online and offline strikes you as hypocritical, you're not alone. In November 2004, the World Trade Organization ruled that the United States was in violation of international law by making it a crime for Americans to place bets with online bookies parked offshore. Its court agreed with the tiny island nation of Antigua that, with legal gambling so prevalent in the U.S., laws barring gambling online with offshore casinos was protectionist and, therefore, a violation of international treaties. Antigua's economy, because it depends on Internet casinos, was unduly harmed.

Since then, the case has bogged down in post-judgment proceedings to determine the extent of U.S. compliance with the ruling, which the U.S. can still appeal.

Aggravating the situation, however, American officials have stepped up enforcement of existing laws, and Congress passed legislation putting more obstacles in the way of online bettors.

This summer, federal and state officials arrested two British executives, David Carruthers, chief executive of BetonSports, and Peter Dicks, chairman of Sportingbet, when they touched down in the U.S. to change planes. Although Carruthers' and Dicks' businesses are lawful in their home countries, federal prosectors indicted Carruthers and BetonSports for taking wagers from U.S. residents. Dicks' gambling activities offended the sensibilities of Louisiana law.

Following the arrests, Congress passed the Unlawful Internet Gambling Enforcement Act of 2006. Although the new law doesn't make Internet casinos or bookies illegal (they already are), it bars banks and credit card companies from facilitating the transfer of funds to online casinos.

The actions have prompted some online casinos to announce that they will no longer accept bets from U.S. residents. Although there is some uncertainty about how the new law will work or how easily it might be evaded, shares of online casino companies, which are heavily dependent on U.S. wagers, dropped by as much as 58% on the London Stock Exchange.

Because Congress hasn't moved to shut down other gambling opportunities in the U.S., attacks on Internet gambling amount to little more than favoring vice that enriches bookmakers at home.

Casinos in the U.S. traditionally have "fundamentally opposed" online gambling, said Holly Thomsen, spokeswoman for the American Gaming Assn., the casino industry's lobbying arm. Without "proper regulations," she asked, who would protect the children or the "problem gamblers"?

In April, however, the industry group adopted a more neutral stance, saying the issue deserves further study, which was perhaps not a coincidence, because MGM Mirage and Harrah's, both members of the American Gaming Assn., now say they would like a piece of the action if it were legal.

Online gambling remains a tiny slice of the gaming pie. The gross wagers -- amount bet minus winnings -- on legal gambling in the U.S. was $83.7 billion in 2005, up $4.8 billion, or 6.1%, from 2004, according to Christiansen Capital Advisors, which tracks the numbers. By contrast, online gambling's gross revenue was $5.9 billion worldwide, just 7% of the U.S. total, despite a 42.2% rise from the year before.

All told, the online gaming revenues were just 27% of those of Indian casinos and one-quarter of those enjoyed by state lotteries. But, of course, these amounts probably would explode if online betting in the U.S. were legal and properly regulated. As it is, a 2005 survey commissioned by the American Gaming Assn. revealed that 4% of Americans gamble online, but 38% of them said they started last year, and 70% of them reported that they began betting online in the last two years.

Given such growth, the online share of the gaming market probably will increase unless law enforcement becomes more effective than anyone imagines.

U.S.-based casino companies have traditionally soft-pedaled their interest in online gaming, it being illegal and all that. But at least some casinos would rather participate than see the entire business outlawed.

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