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Best of Tony Batt
Tony Batt

Casinos May Stand to Gain in Cyberspace

21 June 2004

WASHINGTON -- If casinos in Nevada and elsewhere in the United States plunged into the Internet gambling market, they would likely gain up to $190 billion annually in sports bets, said Koleman Strumpf, an assistant professor of economics at the University of North Carolina.

Not only would brick-and-mortar casinos capture a large share of the wagers placed on offshore Web sites, estimated to be about $20 billion per year, but they would also take about half of the $80 billion to $380 billion market in illegal sports betting, Strumpf says.

"The biggest advantage (the casinos) have is a known brand name," Strumpf said. "My guess is the big guys in Nevada could get 50 percent of this market if they went on the Internet."

But Strumpf says one more thing: It's not going to happen anytime soon.

As a visiting scholar at the Cato Institute, a nonprofit libertarian think tank in Washington, D.C., Strumpf is researching the economics of Internet gambling and online file sharing.

"The question of how individuals make decisions when there is risk and uncertainty is a huge, outstanding topic in economics," Strumpf said. "There hasn't been a lot of empirical research about how people make decisions about gambling."

Strumpf, 35, believes Internet gambling should be legalized and regulated because there is no way to stop it.

"The United States is not the whole world, and with the Internet, national boundaries are pretty much irrelevant," Strumpf said.

Strumpf is not alone.

On June 17, the U.S. Chamber of Commerce sent a letter to members of the U.S. Senate, urging them to oppose a bill by Sen. Jon Kyl, R-Ariz., to restrict Internet gambling.

This follows a March 24 ruling by the World Trade Organization that the U.S. prohibition of Internet gambling is an unfair trade barrier.

Strumpf says Nevada-style regulation of Internet gambling could prevent illegal sports bookmakers from victimizing gamblers. For example, in his recent study of illegal sports betting in New York City, Strumpf discovered bookies charge gamblers a higher price for betting on the Yankees.

But Strumpf also recognizes the political power of Internet gambling opponents, such as some Nevada casinos, state lotteries and Indian tribes worried about their profit margins dipping if online wagering is legalized.

MGM Mirage began operating an online casino venture in September 2001 from the Isle of Man, but shut it down last year. Caesars Entertainment and Station Casinos also have flirted with and abandoned Internet gambling operations.

"More restrictions (on Internet gambling) are much more likely than less restrictions," Strumpf said. "But the best guess is that nothing is going to happen."

And if nothing happens, Internet gambling will continue to grow as it has since Congress first tried to pass a ban in 1996.

In 1997, Internet gambling revenues were estimated to be $300 million. Revenues for 2005 are projected to reach $17.5 billion, the Casino and Gaming Market Research handbook shows.

"This is a reaffirmation to me of how markets rise up to meet demand," Strumpf said. "(Internet gambling) had this built-in advantage of being prohibited, and as a result, there was this vacuum that the markets rose up and filled.

"It's like this perfect storm: a combination of this technology that gets rid of boundaries and the fact that all these other countries permit the activity and regulate it."

But for the foreseeable future, Nevada's casino industry, which produced $9.6 billion in gross revenues last year, apparently will stay out of the lucrative Internet gambling market.

If and when Nevada's gambling industry changes its mind, Strumpf said, the casinos should be ready.