US firms poised for Internet gambling

Jul 10, 2007 5:45 AM

By Ron Fortune

A bill before Congress that would legalize Internet gambling in the United States has so far been considered a longshot, but American casino operators including MGM Mirage are crouched on the sidelines, waiting to leap into a potentially humongous new gambling market.

The bill, the Internet Gambling Regulation and Enforcement Act, was introduced by Rep. Barney Frank, D-Mass., in April. Congressional hearings on the feasibility of the bill were held in early June, though no timetable has been set for a vote in either house of Congress.

The bill seeks to reverse the Unlawful Internet Gambling Enforcement Act, which Congress passed last October and which bans Internet gambling in the United States by prohibiting American banks and credit card companies from processing payments to and from online gambling sites.

The stakes in this political football game are huge. Frank’s bill would set up a framework for the government to legalize, license, regulate and tax Internet gambling. The bill would also set up safeguards to prevent underage and compulsive gambling, as well as money laundering and fraud.

Now, with Democrats in control of Congress, Frank wants to repeal the prohibition and legalize online gambling.

"I want to get it undone," Frank said. "If an adult in this country, with his or her own money, wants to engage in an activity that harms no one, how dare we prohibit it? Adults are entitled to do with their own money what they want."

Under his proposal, American companies for the first time could legally set up Internet casinos, run them from the United States and accept U.S. customers. Corporations that currently run land-based casinos in Las Vegas and elsewhere will likely be among the first to jump into the new industry, casino officials said, but they won’t be the only ones.

"We would do so as quickly as we could," said MGM Mirage Senior Vice President Alan Feldman. "We would have it up and running within a year. And I have to believe that just about everyone will get involved at some level. All the major players."

The major casino players?

"Yes," he said. "But not just them. All the major entertainment companies will get involved, too. Sony, Apple, Universal, Columbia, Time Warner. It just seems logical that at some point they would find their way into the industry."

Even a company as family-oriented as Disney could get involved in opening an Internet casino, Feldman said. "I know Disney has certain beliefs about its core brand structure that could prevent it," he said. "But they could always create a sub-brand, as they do with their movie company Touchstone Pictures (which produces R-rated movies)."

MGM Mirage owns and operates about a dozen major Las Vegas casinos, including MGM Grand, Mirage, Monte Carlo, Bellagio, Mandalay Bay, Luxor and Treasure Island.

MGM Mirage previously operated an Internet casino from the Isle of Man in the British Isles, from 2001 to 2003, that was open to people in every country but the United States. The casino failed, Feldman said, because of that ban.

"About 70 percent of the global online wagering market is from the U.S.," he said. "So we were competing, with only 30 percent of the market. It wasn’t enough to be profitable."

But with the U.S. market opening up, it would be profitable, Feldman predicted.

If the bill passes, MGM Mirage will operate its Internet casino from Nevada, Feldman said.

"That’s the point (of the bill)," he said. "For the home state to get the tax benefits."

Sheldon Adelson’s Las Vegas Sands Corp., which owns the Venetian in Las Vegas, as well as casinos in Macau, announced plans last year to open an Internet casino in 2007 that would operate from the Channel Islands and service the United Kingdom only. It hasn’t opened yet.

But now, with the potential new law, the company’s attentions are turning toward the more lucrative U.S. market.

An Internet casino run from the United States that Americans could patronize is definitely something the company would be interested in, should it become legal, according to Sands spokesman Ron Reese.

"We see it as another opportunity to grow our business," he said.

Representatives from other major casino operators made similar statements about Internet gambling, but didn’t want to be quoted or identified.

Internet gambling timeline

1995: First Internet casino opens. Blackjack, roulette, craps and other casino games can be played for fun, but not real money.

1996: First Internet casino that can be played for real money, InterCasino, opens. Thousands more virtual casinos will open in ensuing years.

1997: Three San Francisco residents and former Pacific Exchange employees, Jay Cohen, Steve Schillinger and Haden Ware, move to Antigua and start Web site called World Sports Exchange, an Internet sports book that accepts online wagers on sporting events.

1998: Country and western singer Kenny Rogers, who had the hit song "The Gambler," becomes first celebrity to open his own Internet casino. It’s based in Curacao. Fellow celebs including Rodney Dangerfield, Larry Holmes and Bubba Smith soon follow suit.

1998: The U.S. Justice Department issues felony arrest warrants for Cohen, Schillinger, Ware and 18 other Americans for their roles in the illegal operation of a half dozen different Internet casinos and sports books around the world. Feds say the accused violated the Federal Wire Act, which prohibits wagering over phone lines.

1998: Cohen and 13 others who were charged turn themselves in to federal authorities in the U.S. All but Cohen have charges dismissed or have plea bargains and receive fines. Cohen declines a plea bargain offering no jail time, choosing to go to trial. He hires attorney Ben Brafman, who previously defended Salvatore "Sammy the Bull" Gravano. Schillinger, Ware and five others who were charged remain fugitives.

2000: After a jury trial in federal court in New York, Cohen is convicted of seven felony counts of Internet bookmaking and related offenses, and sentenced to 21 months in federal prison. He appeals the verdict.

2000: Rogers becomes first celebrity to close his Internet casino. He cites the unclear legal status of the operation.

2001: The U.S. Court of Appeals upholds Cohen’s conviction.

2002: Cohen begins serving his sentence at a federal prison in Las Vegas. He becomes the only person to go to jail for Internet gambling.

2003: Chris Moneymaker, a Memphis accountant, wins the World Series of Poker in Las Vegas after qualifying by winning an online poker tournament. The Internet poker boom begins.

2004: Cohen is released from prison after serving 17 months.

2006: Congress passes the Unlawful Internet Gambling Enforcement Act, which bans U.S. banks and credit card companies from transferring monies to and from Internet gambling sites, making it difficult for Americans to fund online gambling.

2007: The Poker Players Alliance, a San Francisco lobby group, hires former Sen. Al D’Amato, a noted poker player, to help get the law changed so it doesn’t affect online poker. The alliance says poker is a game of skill, not luck, and therefore isn’t gambling.

2007: Rep. Barney Frank introduces bill called Internet Gambling Regulation and Enforcement Act, which would legalize Internet gambling in the U.S. The bill is yet to be voted on.