High Stakes for Net Gambling

The Internet hosts over 700 online gaming sites, generating billions of dollars (US$) in revenue, yet you can bet that this is one industry your local officials are not likely to woo.

Legal issues notwithstanding — online gaming is officially prohibited by the 1961 Wire Act — cities that count on revenue from the gaming industry and the tourism that accompanies it find that the Internet poses a viable threat to their bottom line.

Impressive Numbers

A recent report from the online gaming industry estimates that there are one million Americans who gamble online each day and 4.5 million who have used the Internet to gamble at least once.

That “investment” blossomed into a $1.1 billion industry in 1999, a sum that is expected to increase to $3 billion by 2002, according to gambling industry consulting firm the River City Group.

While online gaming is worth a small fortune in cyberspace, its benefits are not enjoyed by real-world cities and communities. Critics argue that online gaming cannot help construct a tourist industry or generate economic growth in a city or native American reservation.

‘No Public Purpose’

According to regulatory officials like Dan Hennigan of the New Jersey Casino Control Commission, states with substantial legal gaming infrastructure are feeling the heat from online competitors. New Jersey officials fear that online gaming companies may not only rob Atlantic City of gaming dollars but of tourist industry dollars as well.

“We have concerns about online gambling and how effectively it can be regulated,” said Hennigan. “From a public policy standpoint, it would not be appropriate to legalize online gambling because nobody can find the public purpose.”

New Jersey adopted the gaming industry as a direct attempt to infuse cash into depressed city treasuries. “Casinos were approved as a unique tool of urban redevelopment for Atlantic City,” Hennigan explained.

The Casino Control Commission credits the gaming industry with investing $6 to $7 billion into the Atlantic City economy over the years. Casinos, the commission argues, have provided 48,000 jobs for employees directly connected to the casinos, and roughly 41,000 jobs in ancillary businesses associated with Atlantic City’s gaming industry.

“Casinos have invested enormous sums to rebuild Atlantic City,” added Hennigan. “Online casinos don’t create jobs and investment.”

Motown Casinos Not Concerned

Legalized gambling has only recently been introduced in Michigan, and the state’s Gaming Control Board does not consider online gaming a threat to the burgeoning gaming industry in the Detroit area. Two casinos have opened since voters approved gambling on a statewide ballot in 1996, and another casino is expected to open this fall.

Both operational casinos are enjoying better-than-expected revenue: the MGM takes in approximately $1 million per day and the Motor City Casino earns $800,000. It is too early, however, to see how many ancillary jobs and investment dollars the new Detroit casinos have generated.

Bob Nelson, director of communications at the Board, doubts that online gambling has had any impact on Detroit’s nascent gaming industry.

“I can’t even verify that they’re a threat now,” Nelson said. “If they are a threat, we don’t know about it.”

‘Total Experience’

The American Gaming Association (AGA) agrees, taking the position that Internet gaming cannot compete with the total entertainment experience offered by traditional, legal casinos. However, the AGA does oppose online gaming for regulatory purposes.

“In order to maintain the integrity of gaming, there needs to be tight regulation and law enforcement involvement, which is difficult to do for offshore Internet gaming,” AGA spokesperson Naomi Greer told the E-Commerce Times.

Future Uncertainty

Ultimately, the largest issues facing the online gaming industry are the legal uncertainties.

Last February, a federal jury in New York found Jay Cohen, president of World Sports Exchange in Antigua, guilty of accepting bets and wagers on sports events via the Internet and telephone in violation of the federal Wire Act. Cohen was sentenced to 21 months in prison and fined $5,000. Undercover FBI agents accessed his site from computers in New York, where gambling is illegal.

Cohen’s prison sentence raised the stakes for those who operate online gaming sites, as previous defendants had generally been able to settle out of court for relatively small fines. In January, for example, Los Angeles-based YouBet.com reportedly agreed to pay $1.3 million to California authorities to settle an investigation into the company’s online horse racing operation in the state.

Possible Legislation

The threat of federal legislation still looms on the horizon for the online gaming industry. Last month, the Internet Gambling Prohibition Act narrowly failed to muster the required two-thirds vote in the U.S. House of Representatives.

The Clinton administration opposed the legislation because it believed that loopholes in the measure could inadvertently allow the spread of the many forms of gambling that are currently illegal in many U.S. states.

The bill would have banned the sale of lottery tickets online, online casino games and online wagers on sporting events. Horse racing, greyhound racing and jai alai were exempted from the legislation.

The proposed law also carried up to four years in federal prison and fines of $20,000 or more for those who operate a Web site that accepts wagers from Americans.

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