'Net gambling seen as niche, not casino competition

Established casino operators could be the big winners if Internet gambling is legalized, Prudential Securities senior gaming analyst Joe Coccimiglio says.

In Prudential's annual forecast issue "Future Stocks," Coccimiglio notes the econometrics firm Christiansen/Cummings Associates predicts worldwide Internet gaming revenue will soar to $2.3 billion in 2001 from $650 million in 1998.

Yet the legality of Internet gaming in the United States is unclear, the analyst says. The federal law that prohibits interstate telephone sports betting was passed in 1961 -- long before the growth of the Internet, he says. And the law doesn't specifically bar casino games such as blackjack and video slots.

In addition, problems such as compulsive gambling, underage participation, fraud and the loss of state gaming tax revenue make it imperative for the government to clarify the law and, possibly, "take steps to legalize and regulate the industry," Coccimiglio says.

"A federal ban could be tough to enforce," he says. Currently, most Internet gaming companies are located offshore, regulated by governments such as Antigua. The absence of geographic and political boundaries in cyberspace would render any U.S. laws unenforceable, he says.

A ban would also strip U.S. states of their regulatory authority to determine what forms of gaming are legal within their borders.

If the United States opted to join the growing number of countries that are legalizing and regulating Internet gaming, established gaming companies could be the major beneficiaries, Coccimiglio says.

"Major gaming companies have brand recognition ... and the ability to build a broader, more loyal customer base," he notes.

Virtual gamblers currently have no way of knowing if they are playing against a "stacked deck," he says. That's caused sports betting to become the most popular form of online gambling, because a bettor knows which team wins.

And even if a cyberspace gambler wins, there's no assurance he or she can collect from some current Internet gaming site operators.

"A cyber-gamer playing at a legal, regulated casino run by a recognized casino operator could have more confidence that the Internet casino is fair and legitimate," Coccimiglio says.

To date, most "live" casino operators have been reluctant to consider Internet gaming because of concerns over its legality and their fear it would keep potential gamblers at home, rather than visiting casinos. But Coccimiglio believes the latter concern is unwarranted.

"Today's casino experience has extended beyond gambling," with entertainment, fine dining and shopping added attractions, he says.

"We find it more likely that online casinos would become a niche within the casino industry, possibly cannibalizing more from illegal gaming activities than becoming the primary casino gaming outlet for a majority of players."

archive