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August 20, 2014

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Experts: Online gambling slowed by illegal action

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ASSOCIATED PRESS

A sample poker game is played on the Ultimate Gaming website, in Las Vegas, April 29, 2013. Ultimate Gaming began offering Internet gambling in Nevada in early 2013.

ATLANTIC CITY — Internet gambling in the United States is off to a slower start than many had imagined, held back, experts say, by illegal offshore operators who are continuing to draw users and siphon off millions of dollars.

A year since the first legal online U.S. poker company opened, the industry's growth has been slowed by a number of factors, including technical hurdles as well as laws limiting players to the three states where Internet gambling is legal.

"Internet gambling exists in all 50 states today," said David Rebuck, director of the New Jersey Division of Gaming Enforcement, speaking Monday at the East Coast Gaming Congress in Atlantic City. "It's just not regulated."

Rebuck said his state recently sent cease-and-desist letters to out-of-state gambling companies that are marketing to New Jersey residents. State law says online gambling can only be conducted within New Jersey's borders.

Nevada and Delaware, the other states where it's legal, signed a pact that eventually will allow poker players in the two states to challenge each other, but the impact is bound to be limited. The two states have less than 4 million residents total.

Despite its relatively slow start, panelists were unanimous that online gambling has plenty of room for growth in the U.S.

"We think what's happening in the U.S. is the single most exciting happening in I-gaming in the world," said Eamonn Toland, president of the North American arm of the Irish-based Paddy Power online betting firm.

Morgan Stanley predicts that by 2020, legal online gambling in the U.S. will generate $8 billion a year. At least eight states have introduced legislation in hopes of capturing the windfall, according to the National Conference of State Legislatures.

Ultimate Poker, the first legal online U.S. poker company to start dealing, and two other Nevada-based operators brought in $926,000 in revenue in March. All Nevada casinos brought in $982 million that month.

Nevada regulators did not publicly release projections about the first year, saying there was too much uncertainty. Online poker revenues totaled $9.4 million in their first 11 months.

New Jersey Gov. Chris Christie initially estimated that online games in his state would bring in $1 billion in their first year. Wall Street analysts now predict the haul will be closer to $200 million.

Online gambling companies face plenty of hurdles, including technical glitches with the software, getting players comfortable with using the system, industry in-fighting and, most ominously, the threat of new federal legislation to ban online gambling.

After a 2011 crackdown, the Justice Department ruled all online gambling except sports betting legal, so long as it's permitted on the state level. Republicans in both chambers of Congress have introduced bills to ban online gambling.

The bills, backed by casino mogul Sheldon Adelson, illustrate larger divisions within the casino industry.

MGM Resorts and Caesars Entertainment have launched online gambling divisions and are pushing to legalize the practice, while Adelson, CEO of Las Vegas Sands, is bankrolling the Coalition to Stop Internet Gambling.

"I see what exploitation of poor and vulnerable people does to a family," the billionaire said, citing his impoverished childhood and his father's gambling. "I don't want a casino to be put on every kitchen table or iPad."

His statements seem to mirror public sentiment. A Fairleigh Dickinson University PublicMind poll released this month found that 27 percent of respondents support legalizing Internet gambling in the 47 states that don't allow it, while 63 percent oppose it.

Proponents of online gambling have organized into a group called Coalition for Consumer and Online Protection, arguing that legalizing and regulating the practice will protect people from unscrupulous operators.

"Banning online gaming will only make it less safe and drive it deeper into the shadows," said Mary Bono, a former Republican congresswoman from California and the group's co-chair.

Nevada state law requires online poker companies to maintain tight controls that keep minors out of the system and block players from out of state. But sensitive geolocation technology has booted out some players who live close to state lines.

"There was a steep learning curve in the beginning," Gaming Control Board Enforcement Chief Karl Bennison said.

Rebuck said some people are hesitant to give their Social Security number and credit card information to a gambling provider, even one licensed by the state. Toland said continuing problems with credit card acceptance are a drag, too.

"People who come online have 20 minutes in the den; they don't have three hours to work out payments," Toland said.

California gambling control commissioner Richard Schuetz and several others compared Internet gambling to an infant.

"The people who say it's not doing well enough are like the two parents who look at their 5-month-old and say, 'It doesn't speak any languages!" Schuetz said. "Let's get our expectations in line."

Rindels reported from Las Vegas.

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