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Rod Smith

Ongoing Betting Growth Called Threat to Nevada

26 January 2004

Delays in dealing effectively with the burgeoning growth of online gaming is compounding the competitive and regulatory challenges it poses for Las Vegas, industry experts said this week.

Failing to act could cost Nevada significant gaming revenue, exacerbate the problems of money laundering and cede development opportunities to offshore interests, they said.

Legitimate casino operators in Nevada who otherwise would be interested in landing their fair share of what is projected to be a $6 billion to $10 billion a year pie by 2006 are stymied by the Bush administration's decision that online gaming is illegal and Congress' failure to resolve key issues, including whether to legalize and regulate the business.

University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said the online gaming business is too big to stop "without being Draconian," and he believes it will develop overseas because of the polices of the U.S. government.

The U.S. House of Representatives tried addressing the problems last year by passing legislation to prohibit the use of credit cards, checks and electronic fund transfers to pay for online betting transactions.

Scott Duncan, spokesman for the House committee that passed the legislation, said he is still hopeful Congress will complete action this year, but industry and Washington sources both say Senate action is "highly, highly unlikely" in an election year. Senate sponsors of the legislation could not be reached for comment.

However Tony Cabot, a partner in Las Vegas law firm Lionel, Sawyer & Collins, said the legislation bottled up in Congress only provides politicians political cover for failing to regulate online gaming, and is otherwise irrelevant to developments.

Most major credit card companies and PayPal, a California company that contracts with businesses to allow consumers to make payments over the Internet, independently prohibit payments to online operators.

"The situation is that prior enforcement action by private interests and the U.S. (Justice Department) have sifted all payment systems offshore so any legislation will legislate against something that's not occurring," said Cabot, chairman of the gaming practice group at Lionel, Sawyer & Collins.

At UNLV, Thompson said the alternative is to regulate online gaming.

"It needs to be regulated to make sure it's honest and that the flows of money are going through honest hands," he said.

Cabot said Nevada could recapture some of the money that is being spent overseas if the industry were regulated.

"It could also provide the government with a greater ability to prevent money laundering," he said.

A General Accounting Office report last year said online gaming is particularly susceptible to money laundering and related criminal activity because of the lack of regulations.

Other industry experts agree the only way to control online gaming and the revenues it generates is through government regulation.

Frank Catania, a former New Jersey state legislator and gaming regulator who represents the Interactive Gaming Council, told a recent meeting in Las Vegas of the National Council of Legislators and Gaming States that it would make most sense to develop a strict regulatory structure and let individual states preserve revenue prospects.

Cabot said it is important for public officials to understand there are efforts under way to regulate online gaming, mostly in Europe.

"Unfortunately for the U.S., the U.K. has the perception it'll be the online gaming capital of the world and will establish a world-class regulatory regime around its activities," he said.

Thompson said it is likely Great Britain will win the horse race to be the world capital for online gaming because it has a reputation for strict casino regulation.

Cabot said that will represent a serious missed opportunity for the United States in general and Nevada in particular.

However, Cabot said the issue in the United States is more complicated by politics than it has been in Great Britain.

"There's an unwillingness by many politicians to take a position that recognizes the practical and technological realities of online gaming because it'll cost them votes from the religious right, which is against all forms of gaming," Cabot said.

Thompson also warned that care would be necessary in regulating and attracting online gaming here.

"We don't want it too much because it really lends itself to problem gambling because it eliminates the social context," he said. "But if it's legalized and regulated, we could at least eliminate illegal operators (and protect children). Right now, that possibility doesn't exist."