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Analyst: Internet Ban is Likely

13 January 2003

by Liz Benston

LAS VEGAS -- A federal ban on Internet gambling is likely to pass this year after years of online gaming opponents trying and failing to push through a prohibition bill in Congress, a top Internet gambling analyst told a group of casino insiders Friday.

"Unless the industry speaks with one voice, prohibition will become a reality," Sebastian Sinclair, president of Christiansen Capital Advisors, said during the American Gaming Summit.

The announcement followed last week's reintroduction of a bill by Rep. James Leach, R-Iowa, to outlaw Web casinos by making it a crime to accept credit cards, checks and wire transfers for Internet bets. A similar bill passed the House but failed in the Senate last year.

Past versions of prohibition bills created exceptions for certain industries that created an "unholy alliance" among lotteries, racetracks and credit card companies, Sinclair said.

An all-out ban that removes those exceptions will appeal to a growing number of gambling foes who are likely to mobilize an attack on Internet gambling following a recent court decision that favored the industry, he said.

In November, a federal appeals court in Louisiana upheld an earlier dismissal of a lawsuit brought by gamblers who lost money in Internet casinos.

In a controversial decision, a three-judge panel said the gamblers failed to prove that the online casinos and their credit card processors violated the Wire Act -- the primary federal law that addresses online wagering.

The ruling went on to note that the Wire Act specifically outlaws sports betting and not casino-style gambling -- a decision that contradicts an existing interpretation offered by the U.S. Justice Department.

Tony Cabot, a leading Internet gambling expert and an attorney with Lionel Sawyer & Collins in Las Vegas, said a prohibition bill still won't hamper the spread of Internet gambling.

The online gambling industry, among the Internet's most lucrative businesses, will generate from $3 to $6 billion this year, according to analysts' estimates.

Cabot believes that figure can only go higher because of efforts by major U.S. credit card issuers over the past year to block Internet gambling transactions, an effect similar to the restrictions proposed under the Leach bill.

The bill won't be able to prosecute operations outside the United States -- where most illegal sites now operate, he said.

It also won't prevent entrepreneurs from seeking loopholes, he added.

Last year's bill defined gambling as a "game determined predominantly by chance" -- an interpretation that leaves open the possibility of offering online games with an element of skill, such as poker, he said.

That version of the bill also left open an exception for lotteries that would have opened the floodgates to online lottery jackpots with prizes "unheard of today."

"You could take that exception to the Leach bill and within three months go online with Powerball."

Powerball lotteries are multi-state contests that typically collect bigger jackpots than single states because they can attract more bettors.

Skill-based games played for prize money already are flourishing on the Internet, Cabot said. Last month, for example, players of the popular action video game "Half-Life" competed online for a total of $500,000 in prizes.

Given the federal government's position against Internet gambling, casino operators are still unlikely to test the boundaries of the law, Sinclair said.

They also disagree on whether to legalize Web casinos, which could hurt their ability to position themselves against future competition.

"Legalization is not a question of if, it's a question of when," he said. "Unfortunately that 'when' is going to be quite some time."

Media companies like Disney, Vivendi and News Corp. that have already dabbled in interactive entertainment may pick up the ball where casinos have left off, he said.

"Entertainment companies are not subject to the same kinds of regulations" as casinos, he said.

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