Online gaming: Regulate or ban?

As the gambling industry watches billions of dollars in revenue flow to offshore casino operators via the Internet each year, the national debate over whether to regulate online gambling is taking shape in New Jersey.


Federal lawmakers are weighing a measure, generally considered a long shot for passage, that would ban Internet gambling outright. Other proposals call for allowing online betting on a limited basis, such as online lotteries.


But even as the Internet gambling ban proposed by Rep. Bob Goodlatte, R-Va., along with various milder proposals, are considered, New Jersey is getting closer to tackling the issue. Governor McGreevey formed a transition team on gaming that will examine, among other things, whether the state should regulate Internet gambling, barring an outright federal ban.


Proponents of online gambling say it would be icing on the cake for New Jersey’s $4.3 billion casino industry, pumping millions more into state coffers. Opponents generally believe online gambling would be too technologically difficult to control, and ripe for abuse by youngsters and compulsive gamblers.


Virtual casinos, currently unregulated, are proliferating. Anyone can go to an online gambling Web site and ante up for a game of blackjack, roulette, or video poker.


But some lawmakers argue that online betting is illegal under the federal 1961 Wire Act, which makes placing bets by phone unlawful.


The question, then, is whether New Jersey should regulate the industry, as Nevada took steps to do two years ago. Even though observers, like the New Jersey Casino Control Commission, believe the state isn’t ready to effectively regulate online betting now, they say regulation is inevitable.


“In our opinion, it’s going to happen some day,” James Hurley said in an interview prior to retiring Wednesday as chairman of the Casino Control Commission.


“It’s not going to happen soon or be easy,” said Hurley, whose replacement has yet to be named.


As it exists today, online gambling, a booming industry that UFA gaming researchers Christiansen Capital Advisers expects to be worth $10.4 billion by 2005, is offered by casino operators outside the United States.


Hurley says that for regulated online betting to come to the state, the Legislature, governor, Atlantic City casino operators, and probably the public would have to support it.


Although McGreevey has asked that the issue be studied, action is not imminent. Two Assembly bills aimed at regulating the industry are stalled in committee and the state’s casino trade association opposes the move toward regulation.


“Our research shows that the American public doesn’t want it,” said Timothy Wilmott, president of the Casino Association of New Jersey. “We feel that if the public doesn’t support it, that it shouldn’t be an initiative for our legislators.”


Wilmott, who also is eastern division president of Harrah’s Entertainment Inc., says the association believes Internet gambling would do nothing to bolster Atlantic City.


“It may actually decrease visitation,” he said. “And we also have grave concerns about the technology, whether it would be able to keep underage gamblers and problem gamblers out.”


Lloyd D. Levenson, a member of McGreevey’s team examining gaming issues, disagrees. He says that while it’s premature to recommend that McGreevey take action, he believes the state could effectively regulate the industry, such as using electronic tracking or other controls to keep compulsive gamblers and children away from the sites.


“The technology exists. Why not afford your citizens the opportunity to gamble legally by regulating it and taxing it?” said Levenson, an attorney specializing in gaming law. “Once people learn that electronic tracking is reliable and that online gambling can be made reputable, there will be a slow acceptance of this.”


Sponsors of bills aimed at regulating Internet gambling say the issue can no longer be ignored. Assemblyman Nicholas Asselta, R-Cumberland, says that stalling the effort is fiscally irresponsible.


“Tourism and gaming is the second largest industry in the state of New Jersey and this new law will help us get on board first and reap the benefits,” said Asselta, whose bill would allow for remote wagering over the Internet on live games at Atlantic City casinos. “We can’t let Las Vegas beat us here or we’ll be competing for crumbs later.”


Two years ago, Nevada became the first state to pass legislation empowering lawmakers to pursue regulation of Internet gambling there.


Specific rules governing the industry have yet to be written, and it could be years before online gambling is actually regulated in Nevada.


Mike Pollock, a former New Jersey Casino Control Commission employee who publishes the Gaming Industry Observer, recently studied the impact a bill such as Asselta’s – which aims to regulate real-time, online gambling – could have on revenue and employment in the Atlantic City market. His study, called Live Wagering from Remote Locations, found that new revenues would likely be created without cannibalizing those of land-based casinos, and that more jobs, tax revenues, and marketing opportunities also would result.


“The benefits are there,” Pollock said. “It’s just that there’s distrust between the brick-and-mortar casino industry and online gambling right now.”


He likens the distrust to the “classic” skepticism people tend to have toward new technologies.


“Baseball owners thought radio, and later television, would destroy their revenues at the stadiums and initially banned it,” Pollock said. “Now, who can imagine baseball without television or radio?”


Assemblyman Anthony Impreveduto, D-Secaucus, says regulation is necessary because online gambling already is available. His bill calls for allowing interested Atlantic City casinos to offer virtual betting via computers located on casino floors. That, he believes, would allow the current state Casino Control Act to govern the industry.


“I’m not saying online gambling is good or bad. I’m saying we can’t ignore that it already exists,” Impreveduto said.


Since the industry’s inception in 1998, offshore operators have seen their revenues grow rapidly. Christiansen Capital Advisers estimates that revenues have more than doubled annually. And analysts at Bear Stearns say there were as many as 1,400 virtual casino sites in 2000, up from about 700 in 1999.


“It’s a high-growth industry,” said Michael Tew, a gaming analyst with Bear Stearns. “Those revenues are going to non-U.S. companies.” Sebastian Sinclair, president of Christiansen Capital Advisers, said U.S. regulation of the industry will take more than a decade.


“Even if a prohibition bill is passed, it will go back to the drawing board after they realize a ban won’t work. At the end of the day, I think that however we get there, it will be a state-by-state regulated issue, probably in 15 years.”


Gene Johnson, a former casino employee who does marketing research for the industry, says not regulating online betting could harm all forms of gambling in New Jersey.


“The promise put forth in the Casino Control Act is that gaming would be carefully regulated in New Jersey,” says Johnson, who owns E.E. Johnson Research in Little Egg Harbor. “That whole concept is threatened by online operators, unless there’s oversight.”