May 23, 2006
Casinos bewail missed opportunity of Web betting
By Paritosh Bansal
NEW YORK (Reuters) - U.S. casinos wish they had access to
the growing universe of gamblers that seem intent on placing
bets online, but companies claim they are not losing customers
to the foreign operators that offer Web wagering.
"It represents an enormous opportunity," said Alan Feldman,
spokesman for U.S.-based MGM Mirage, the world's second-largest
gaming operator. "And it is an opportunity that is being
completely handed to foreign companies right now."
Standing in the way of this potential windfall is a 1961
federal law that forbids interstate telephone betting that the
U.S. Justice Department has said also applies to the Internet,
making it illegal for U.S. companies to offer online gambling.
But the law is difficult to enforce on operators based
abroad, who are luring a growing number of American gamblers to
their Web sites, even as some U.S. lawmakers renew attempts to
snuff out the business.
Worldwide revenue from online gambling increased to about
$12 billion last year from $3.1 billion in 2001 and is expected
to hit $24.5 billion by 2010, according to estimates from
Christiansen Capital Advisors, an industry consulting group.
U.S. residents now make up about half of that market.
The number of Americans who placed bets on the Web doubled
in 2005 to about 4 percent of the adult population, or about 8
million people, according to a survey by the American Gaming
Association, an industry group that represents U.S. casinos and
"It is a new place for people to gamble," said Eugene
Christiansen, a consultant with Christiansen Capital. "These
are big businesses."
Several online gambling companies now rival traditional
casinos in market value. The world's biggest online gaming
group, PartyGaming Plc, is valued at $10.6 billion and reported
$978 million in sales in 2005. Harrah's Entertainment Inc., the
world's top gaming company, is valued at $14.6 billion, with
revenue of $7.1 billion last year.
MGM Mirage launched PlayMGMMirage.com in 2001, but shut the
Web site down in 2003, as it was not allowed to serve U.S.
residents. "There is no business if you keep out everyone from
the United States," Feldman said.
"Some of our companies would think of it as a missed
opportunity," AGA Chief Executive Frank Fahrenkopf said. "Most
of our companies view Internet gambling as possibly another
Companies such as MGM Mirage and Harrah's Entertainment
would almost certainly start Web sites if Internet gambling
were legalized in the United States, Fahrenkopf said.
Still, he added that U.S. gaming companies did not see
Internet gambling as a threat to their business, as more than
half of their revenue now comes from non-gaming activities that
could not be replicated online.
Internet gambling may instead help expand the market in the
United States. The AGA survey showed that people who wagered
online were more likely to live far from casinos.
"Online gaming is probably ... finding a different customer
base," Calyon Securities' analyst Smedes Rose said.
"Longer-term implication could be that you develop more people
who want to gamble."
But one expert said companies would feel the pinch in the
long run if they were kept away from cyberspace.
The "long-term implication is that part of your consumer
base is going to walk away from you," Christiansen said.
REGULATION VERSUS PROHIBITION
U.S. companies represented by the AGA, which until recently
opposed the activity, are now calling for a Congressional study
into its impact. Some foreign online gambling companies are
kicking off their own campaigns, too, hoping to see online
gambling legalized in the United States in the next few years.
But at the same time, bills recently introduced in the U.S.
Congress propose a complete ban on Internet gambling as well as
the use of credit cards and other electronic means to pay for
Experts said they did not expect a definitive outcome
either way in the near future, though the debate could
ultimately lead to a compromise that limits access and
increases regulation of online gaming.
"I would not be surprised if there were some compromise
passed within the next two Congresses," said Harold Krent, dean
of the Chicago-Kent College of Law.