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Best of Benjamin Spillman

Gaming Guru

Benjamin Spillman
 

Global Gaming Expo 2006: Hey, where did everybody go?

20 November 2006


LAS VEGAS, Nevada -- Alex Pratt works in the fastest-growing segment of the gambling industry, but casino bigwigs trolling the floor last week at the Las Vegas Convention Center didn't treat him like a high roller.

Pratt, publisher of the magazine iGaming Business, stood alone at an unadorned folding table in a far corner of the Global Gaming Expo reserved for Internet gambling companies.

The closest Pratt and his online comrades got to the dolled up models and elaborate swag on the main show floor was a nearby aisle where costumed girls practiced their steps for upcoming routines.

That's life in the United States for online gambling companies since the federal government arrested several Internet betting executives and banned companies from taking payments from American gamblers.

Although Internet gambling is a $12 billion business and growing fast, recognized companies have bailed out of the U.S. market since the government crackdown, even though it accounted for roughly half of that figure.

"It was looking like it was going to be a really good show," said Pratt from behind several stacks of unopened magazines. "Then it sort of dawned on us, and the industry, they are not going to take (Internet) gaming lightly. It is a funny time at the moment."

By funny, Pratt means risky.

In July federal agents arrested former CEO David Carruthers and several other officials at BetOnSports, one of the largest Internet betting companies in the world.


Another former Internet gambling chairman, Peter Dicks of SportingBet, was also arrested.

Then in September Congress passed a bill that made it illegal for financial companies to accept gambling payments from people in the United States.

The recent change to a Democratic majority, however, gives some in the gambling business hope the government will become friendlier toward Internet betting.

MGM Mirage Chief Executive Terry Lanni called the measure "ridiculous" because it was signed into law Oct. 13 as part of a larger port security bill -- and because it exempted horse races and lotteries, and online bets placed while on American Indian land.

"It makes no sense whatsoever," Lanni told gambling industry officials attending the trade show. "Prohibition didn't work, this isn't going to work."

Later, Lanni said he hoped Congress would commission a study into the effect of online gambling.

"We're looking even in the lame-duck session to reintroduce this bill with some of our compatriots in the House and Senate to study (Internet) gaming," said Lanni, who directs the world's second-largest casino company.

"We think it can be taxed, we think it can be regulated, we think it can be licensed," Lanni said.

"With the new leadership, with the Democrats winning the House and the Senate, we think we're going to have a much better opportunity to do that."

The Internet gambling ban prohibits banks from processing fund transfers from players to settle their online wagers. The Federal Reserve and other bank regulators were tasked with coming up with practical measures to enforce the law by July 2007.

Shortly after it passed, publicly traded Internet gambling companies saw their shares in the London stock market tumble.

Not only did publicly traded and recognizable Internet gambling brands stop accepting bets from one of their largest segments of customers, company officials are wary of even coming to the United States.

The top headline on the current edition of iGaming Business blared: Is this the end for iGaming and can the industry exist without America?

"If I was a big guy there is no way I would come here," said Patrick Smyth, founder and editor of GamingPublic.com, an online industry publication.

Smyth, of Costa Rica, said he's worked for several online gaming companies that were targeted by American authorities.

He told colleagues at the gaming show last week he planned to leave the Internet gambling industry to work in alternative energy.

"I like coming to the United States, I like running public companies," Smyth said.

His departure will likely be followed by others as long as the United States is unfriendly to the Internet gambling business.

And that could actually exacerbate problems Congress wanted to solve with the new anti-online law, observers say.

American Gaming Association President Frank Fahrenkopf Jr., said the bill that passed in Congress didn't outlaw Internet gambling, just the mechanisms players use to transfer money to online wagering sites.

The fallout, he said, was that some of the more popular foreign-run Internet gambling sites that try and screen out minors and promote responsible gaming, have decided not to accept wagers from Americans because of the law.

"The opposite is happening of what the proponents had hoped," Fahrenkopf said. "The responsible Internet gambling sites are getting out of doing business with American players. There are still 2,000 or so other gambling sites still out there."

Fahrenkopf said the Washington, D.C., based gaming advocacy group may try once again to see if Congress will create a federal commission to study the potential regulation of Internet gambling.

"Some of (the gaming association) members believe the technology does exist to successfully regulate Internet wagering," Fahrenkopf said. "That why we support a study."

It's also a safe bet that online companies that do a lucrative business in software, hardware and other products won't locate in the United States or even recruit business in the country.

This reluctance to move to America could have an economic effect considering the demand for products like Internet gambling software, which can generate $1.5 million and a cut of online casino revenue per every license.

"If it stays like this it is disappointing," said Olivier Lejade, CEO of the French Internet company Mekensleep.

Lejade and a colleague displayed animated poker software on a large, flat-screen television during the G2E show.

The software runs what is essentially an animated poker room. It allows people to walk in, sit down and bet against each other over the Internet. Characters on screen representing players throw down cards and react to the action.

Despite the sophisticated software, the two men weren't having much more luck than any of the other online exhibitors on the outskirts of the trade show floor.

"It is quiet," Lejade said. "Slow."

The Associated Press and Gaming Wire reporter Howard Stutz contributed to this report.

Global Gaming Expo 2006: Hey, where did everybody go? is republished from GamingMeets.com.