Blush is off online gaming

Jan 17, 2001 3:08 AM

Gambling on the Internet won’t be the economic Gold Rush many analysts have predicted, according to revised projections released by Bear Stearns Inc.

At last week’s American Gaming Summit, Bear Stearns reported that it has "revised downward" its projections for online gaming revenue in 2003, from over $6 billion to only $2.7 billion.

Although there is no reliable and accurate measure of Internet gaming revenue, most estimates for the year just ended have hovered around $1 billion.

Bear Stearns analyst Marc Falcone said the reasons for cutting its projections include a slowing economy, uncertainty over the legal future of Internet gambling, a "fallout" of gambling sites and a shortage of venture capital.

"Credibility is still an issue," Falcone said, adding that consumer mistrust is often fueled by horror stories of dishonest games or operators who fail to pay winnings.

Another problem associated with the unchecked spread of online gaming sites is that "the opportunity is spread too thin," Falcone said.

"Many companies are not achieving the high margins they anticipated," he said.

Finally, the overall decline of e-commerce, which has sent share prices into a tailspin, is also a factor that will impede the growth of online gaming, Falcone said.

Although Falcone paints a cloudy picture, online gaming proponents say regulating the industry can bring it back into crystal-clear focus.

"Regulation is the only logical answer," said Frank Catania, a former gaming regulator from New Jersey. "Regulation can alleviate issues of trust and comfort for consumers."

Internet gambling is illegal in Nevada. The U.S. Department of Justice considers it illegal under federal statutes.

Catania said regulating online gambling should take place at the state level, and be based on the same principles that govern "brick-and-mortar" casinos. These would include licensing procedures, evaluation of games and systems, financial requirements, monitoring and tracking gaming equipment.

"Regulation can also ”˜weed out’ the market as customers move their play from unregulated (offshore) sites to regulated sites," Catania said.

If regulation is the key, then the state of Nevada is still looking for the lock.

Nevada Gaming Commission Chairman Brian Sandoval said state regulators are "developing a cogent policy" for Internet gaming.

"We’re studying ... and learning the specifics associated with it," Sandoval said at last week’s Gaming Summit. "We need to know what’s going on with the online gaming industry, then set an informed policy."

Sandoval acknowledged "the issue is here to stay," and that the "time has come ... to begin with earnest a study of Internet gaming."

While Nevada regulators are studying, its legislators may be acting. Assemblywoman Merle Berman is drafting a bill that would legalize Internet betting sites for companies that have state gaming licenses.

Since Nevada’s Legislature meets in odd-numbered years, if no action on Internet gaming is taken this session, nothing could be enacted until 2003.

Proponents of online gaming say that could be too late.

"I think we have a window of one to two years for Nevada to move forward," said Tony Cabot, an attorney specializing in gaming and the Internet for Lionel Sawyers & Collins.

Cabot said "brand name" gaming companies in Nevada would have a difficult time catching up with the industry if another jurisdiction, such as New Jersey (which is also drafting similar legislation), gets a head start in the process.