Kyl growing pessimistic about banning Internet gambling

In a sharp reversal, several of Las Vegas’ most powerful casino operators no longer want to ban Internet gambling, and some are starting websites and exploring technology that could eventually offer wagering in homes, offices or anywhere there is a computer wired into cyberspace.

The policy change is reverberating through Nevada and Washington, where some casino companies are gearing up to oppose legislation they once embraced that would explicitly ban Internet gambling and force Internet companies to block access to illegal sites.

The $40 billion casino industry is not unanimous on the issue. But those who oppose a ban on Internet gambling say they now believe such a ban is not technologically feasible and therefore they should be allowed to compete with the 1,400 sites, operated from overseas, that already offer gambling.

Some politicians and industry analysts have a more skeptical view of the casinos’ motives, asserting that the casinos are seeking to control a lucrative field that they have realized they cannot legislate out of existence. These critics expect the casinos eventually to seek regulation that could give them the only legitimate licenses, enabling them to co-opt, if not monopolize, the industry.

In the last Congress, legislation intended to halt Internet gambling passed the Senate and fell just short in the House. But the bill’s Senate sponsor, Jon Kyl, R-Ariz., said that because of the casino industry’s reversal and the power of its lobby, the window to pass such a law “may have closed.”

Already, members of Congress from Nevada who supported the bills just months ago are suggesting their positions have changed, echoing the sentiments of an industry that pours millions of dollars into campaign coffers.

Critics say the maneuvering appears to be a precursor to an effort by the casinos’ to take over Internet gambling, leaving legalized online betting in the hands of the existing casino companies.

According to a report in March by the investment bank Bear, Stearns, Internet gambling generated $1.6 billion in revenue worldwide in 2000 and is projected to grow to $5 billion in 2003. Roughly 1,400 sites are operated by 250 companies, located several dozen countries where Internet gaming is either not regulated or is explicitly licensed, said Marc Falcone, a gaming industry analyst with Bear, Stearns. He added that hundreds of them give unusually poor odds, fix games or do not pay gamblers what they are owed.

Still, Americans are logging on in droves. Around 4.5 million Americans have gambled online at least once, and a million do so every day, according to a study last year by the Pew Internet and American Life project. Sitting at home computers, players see vivid images that make it seem as if they are at a real blackjack table or slot machine, or sitting in the sports-betting area of a casino, complete with bells, whistles and even background chatter.

To wager, a player simply enters a credit or debit card number, enabling cash to be deducted from a bank or credit card account with the click of a mouse and winnings to be credited back. “You can literally wake up in the morning, log on and start losing all your money,” Kyl said.

Some states have passed laws making it illegal to place a bet on the Internet, while many others have laws that could be interpreted as doing so, according to legal experts. Meanwhile, the federal law enforcement officials say the foreign-based operators are breaking federal law, which prohibits telephone-based interstate gambling operations, including those run on the Internet. But enforcement has been almost nonexistent.

The bills sponsored by Kyl and Rep. Robert W. Goodlatte, R-Va., would have added new teeth to the federal law by explicitly prohibiting operation of an Internet gambling site. Under those bills, the federal government would also have been able to ask Internet service providers like America Online to prevent users from gaining access to illegal sites.

Kyl and Goodlatte said they planned to re-introduce online gambling legislation in this Congress, but neither has committed to a timetable.

They will find new opposition. J. Terrence Lanni, chairman and chief executive of MGM MIRAGE of Las Vegas and a member of the board of the American Gaming Association, the lobbying arm of the industry, predicted that when the organization next meets, on May 22, there “may well be a vote against reintroduction of the bill,” which the organization previously supported.

Philip G. Satre, chairman and chief executive of Harrah’s Entertainment Inc. of Las Vegas and another prominent member of the gaming association board, also will support reversal of the position, said Gary Thompson, Harrah’s spokesman.

Lanni, considered one of the most powerful men in the casino lobby, said that until late 1999 he opposed Internet gambling. But he said he came to believe that regardless of legislation that bans online wagering, people would still be able to gain access to gambling sites. He said people would find ways around restrictions by using foreign-based Internet service providers or foreign banks or credit cards, which the United States cannot regulate.

Given what Lanni deems the inevitability of Internet gambling, he said he favors legalizing Internet gambling but “regulating and taxing” it so that governments receive some benefit and consumers can feel assured they are dealing with reputable casinos.

“My view, very simply, is you should not put American business at a disadvantage to business outside the U.S.,” he said, adding later: “We want to move ahead with an Internet future to our gaming.”

Three big gaming companies — MGM MIRAGE, Harrah’s and Park Place Entertainment Corp. of Las Vegas, which owns Caesars Palace, Bally’s, Paris, the Flamingo and the Las Vegas Hilton in Las Vegas — have already established Internet sites where players can gamble, not for money but for prizes. Thompson, Harrah’s spokesman, said that if questions about enforcement and legality can be cleared up, and presuming Internet gambling fits the company’s code of ethics, “we plan to be a player.” Not all casino executives are convinced. Thomas E. Gallagher, president and chief executive of Park Place, said he had not decided his position on the Kyl legislation and was not certain that Internet gambling was inevitable. And Frank J. Fahrenkopf Jr., president and chief executive of the American Gaming Association, said it was not possible to predict yet, as Lanni had sugg ested, that the group would come out against the Kyl legislation.

The argument that Internet gaming is inevitable carries little weight with Kyl and Goodlatte, who said that just because all Internet gambling cannot be stopped does not mean it should be ignored or sanctioned to benefit corporations.

“So all illegal activity we should keep in the U.S. so we can get our take?” Kyl said. “You don’t have to accept something you can stop most of.”

Nevertheless, he said in an interview last week that he had become more pessimistic about the chances his bill would become law if the industry opposes it. Kyl said the industry “has a ton of money, and money is what killed us last time.” The bill was opposed then by some Indian tribes, which are permitted to operate casinos on their reservations, Internet service providers that did not want to have to enforce blocks on gambling sites and e-lottery interests seeking to make lotteries available online.

Goodlatte was more optimistic about chances for a bill, saying that governments that are losing lottery revenue to the Internet might support a ban, giving his side a new ally.

According to the Center for Responsive Politics, an organization that monitors political spending, the gambling industry spent $10.7 million in the 2000 election cycle, up from $6.6 million in 1998, making it one of the fastest-growing special interests in the United States.

Legislators from Nevada, who not long ago supported Kyl and Goodlatte’s legislation, are starting to move toward the position of the casinos.

Sen. John Ensign, R-Nev., a freshman senator who voted for the Goodlatte bill in the last Congress when he was a member of the House, said he now has reservations. He said he still found Internet gambling to be an “unhealthy form of gambling.”

But, echoing the sentiments of the gambling lobby, he said he would like to see it legalized and regulated if a ban was not enforceable, adding that United States casinos were “going to have to get in there and try to compete.”

Rep. Shelley Berkley, D-Nev., who represents the Las Vegas area, said that since last July, when she voted for the Goodlatte bill, her position has changed, too. “I was beginning to have serious reservations” last year, she said. She added that sources in the industry have assured her that technology is emerging that would make it possible to regulate and tax games and keep them fair, and when that happens she will embrace legalization.

The groundwork to legalize Internet gambling has been laid in Nevada, where the Legislature is debating a bill permitting online wagering.

Lanni of MGM MIRAGE said he was optimistic regulators would see fit to grant such licenses, noting that the regulators, who he said were lukewarm to the idea of Internet gambling as recently as last year, had changed their minds, too.

Casinos in New Jersey are taking a different tack. Proposed legislation in New Jersey that would lead to licensing casinos there for online gambling “is being defeated, because not a single casino company supports the idea,” said I. Nelson Rose, a professor and gambling law expert at the Whittier Law School in California.

Rose said that the difference between Nevada and New Jersey on Internet gaming revolve around the states views’ in general toward gambling. Nevada’s livelihood revolves around gambling, Rose said, while New Jersey has always sough to limit casino gambling to Atlantic City.

Lanni characterized his own change of viewpoint as a 180-degree turn. And he said that was partly because he believed technology might soon be available that could make it possible to verify whether Internet users, no matter how far-flung, are old enough to gamble.

With a small device attached to an individual’s computer, “we could identify the person who has the account,” he said.

The industry has also talked of using global positioning systems to establish a user’s physical location, to determine if the person is wagering from a jurisdiction where gambling is permitted. But industry critics question how reliable such technology could be.

Kyl said he did not know whether it was feasible to create such technology, but he said the activity to create it suggested just how much money was at stake.

“Considering the expense one would go to to employ it,” he said, “what does that tell you about the potential economic benefits? “Should society be promoting taking that much money out of productive use and putting it in the hands of MGM?”