Sunday, October 29, 2006

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.

The casinos say their interest in betting via modem is not because they fear
the competition. Many have wrongly predicted the demise of Las Vegas because
venues for legal gambling - riverboats, lotteries, Indian casinos - have
expanded, said Robert LaFleur, gaming analyst with Susquehanna Financial
Group. But over the years, the conventional wisdom has become "the more
gamblers, the merrier," because they'll wind up eventually in Las Vegas.
"Anything that creates more gamblers is good for brick-and-mortar casinos,"
said Dennis Forst, an analyst for Keybanc Capital Markets.

If online gambling is ever legalized here, the big casino companies would
get into the business and no doubt dominate it with their trusted brands and
their deep-pocketed marketing budgets. Would you rather make a bet with some
crew in the Caribbean, or with Caesars Palace, which you might also visit
from time to time? The American Gaming Assn. survey indicated that 67% of
online gamblers visited a casino in the last 12 months.