Weak economy

Twice a month, casino player Marie Parker made the drive from Lufkin, Texas, to Lake Charles to try her luck at the city’s four riverboats. That is, until the economy took a nosedive.

Parker recently had to pull $5,000 out of her savings account to cover the expenses of once fully-rented property that is now only half-occupied. As a result, her casino trips are fewer in number.

“Everything is just gradually going down,” Parker said. “I’m sure it will go down to once a month, and maybe not at all.”

So far, none of Louisiana’s 14 state-licensed riverboat casinos and Harrah’s New Orleans Casino are forecasting hard times because of the economy and the sharp drop in tourism following the Sept. 11 terrorist attacks.

But there have been worker cutbacks at several of the gambling halls. In addition, casinos are facing tigher profit margins because of higher tax rates imposed for dockside gambling, which has failed to bring in the additional dollars once forecast.

“The bottom has not fallen out of it by any means,” said Wade Duty, director of the Casino Association of Louisiana, which represents nine of the state’s 14 riverboats. “But we’ve seen some slowing since Sept. 11. Besides that, consumer spending is not what it was last year.”

In October, the New Orleans land casino and the riverboats won $144 million, down from September’s tally of $150.7 million. But according to state casino revenue reports, the casino markets taking the biggest hits were Shreveport-Bossier City, with five boats, and Lake Charles, with four boats, both of which are heavily dependent upon gamblers from Texas.

Shreveport-Bossier City’s casino winnings dropped 8.6 percent from September to $59.9 million, while Lake Charles was down 4.5 percent to $28.7 million.

“People are just not traveling as much,” Duty said. “But I think that will change over time.”

Online Gambling in News Vegas

The fate of online gambling in Las Vegas could be resolved within a matter of weeks.

Backed by Wall Street, Nevada’s gaming industry, and a group of politicians led by Assemblywoman Merle Berman (R-Las Vegas), testimony began March 30 for Nevada’s casinos to get online and could vote next week to determine if the desert has a new home on the Internet.

Berman sponsored Assembly Bill 296, which would clear the path for legalized Internet gambling in Nevada, the world capitol of land-based gambling and entertainment. The bill would give state regulators the power to approve interactive gaming licenses.

Bill 296 would permit regulators to award a license should all applicable laws be met and the operator proves that the system is secure and reliable. The financial reasons for approving the online shift are obvious, with an estimated $56 million in taxable revenue forecast to be generated in 2001-02 and $111 million in 2002-03.

There were questions regarding the legality of such a decision by the Nevada Legislature from those who argue that online gambling is illegal in the United States under the federal Wire Act of 1961. But because gambling is already legal in Nevada, casinos based in the state could lawfully do business with any customer who does not reside in a U.S. state, or country, where gambling online is illegal.

There are concerns amongst gambling industry supporters that as the online industry grows, it will become increasingly more difficult for the land-based operators to get a foothold in the burgeoning industry. There is also a push by native American tribes in California to beat Vegas to the punch and set up shop online.

Berman said that her drive to legalize Nevada-based Internet gambling operations did not come at the request of Las Vegas operators, and in fact, she has initiated meetings with several undisclosed casino operators, but not yet those from Park Place, Harrah’s or MGM Mirage.

The urgency of the race to legalize online gambling in Nevada and New Jersey, is based upon the idea that, much like the retail industry, casinos are more likely to establish loyalty amongst players if they beat the other operators to the punch and get their sites legalized first.

In the booming online gambling industry, owners are anxiously waiting to receive the go-ahead and get their take of the millions of dollars Internet gambling produces each year.

Although they do not currently host online gambling, many Las Vegas casinos’ websites have the structure in order to make a seamless transition to full Internet gambling when and if it is legalized. Harrah’s and the Mirage have agreements with Silicon Gaming and iwin.com to co-develop games-for-prizes websites. Park Place, meanwhile, holds a 20 per cent share in Australia’s Jupiters, which owns centrebet.com, on online gambling site.

Any legislation must pass the house in which it originated by April 16.

Prohibition vs. Regulation

Online Gambling Report Prohibition vs. Regulation

We can think of several reasons why governments might want to prohibit online gaming. These might include moral reasons, social reasons (e.g. concern about under-age gambling, addictive gambling, money laundering, etc.) and economic reasons (e.g. the possibility that online gaming will erode tax revenues if it competes with traditional gaming, but cannot be effectively taxed).

Our general view is that we would rather see regulation of online gaming rather than outright prohibition, but this is a topic that can generate heated debate. Aside from the issue of whether online gaming should be prohibited, there are questions about whether online gaming could be prohibited as a practical matter.

Most discussions about how to prohibit online gaming have focused on (i) operators of online gaming sites, (ii) individual consumers (iii) Internet Service Providers (“ISPs”), (iv) search engines/portals, and (v) credit card companies. Legislation aimed at prohibition would probably need to be directed at some or all of these industry “participants.”

Targeting online operators, by itself, is unlikely to result in effective prohibition of online gaming. The Internet is borderless so offshore companies can offer online gaming to U.S. residents. In many cases, it may be impossible for U.S. law enforcement officials to even determine the identity and location of the company offering online gaming. Even if the identity and location of the online company can be determined, U.S. courts may not have legal jurisdiction over the online operators.

Targeting home users also provides challenges. First, it may not be politically feasible to pass legislation aimed at punishing citizens that gamble online from the privacy of their own homes. Second, even if such a law was enacted, the enforcement issues could be significant (wiretaps and raids of personal residences would presumably be key parts of an enforcement strategy). At the end of the day, punishing citizens for casual betting is probably not going to be a high priority for law enforcement officers.

Targeting ISPs, the gateways to the Internet, is another way to pursue prohibition of online gaming. Some of the major ISPs include UNNET, G-Home, T-Online, and AT&T.; In general, enforcing prohibition would involve limiting access to the ISPs or trying to control the content offered by ISPs. Although some countries limit access to ISPs (i.e. they limit access to the Internet), this is probably not a realistic option in the U.S. It is more likely that laws aimed at prohibiting online gaming would focus on restricting content on the Internet. However, this raises practical issues (could the content successfully be blocked) and freedom of speech issues that could be significant. Similar issues arise with regard to regulation of online service providers (“OSPs”) and “backbone providers.” OSPs differ from ISPs because they offer both access to the Internet and a private network. Some of the major OSPs include (America Online, CompuServe, and Prodigy).

Regulators could also choose to focus on search engines/portals such as Yahoo, Alta Vista, Excite, and Infoseek. Different search engines work in different ways, but they all help Internet users find out what sites are available and they provide the URL address of sites. Search engines/portals also typically make a majority of their revenues from advertising. Targeting search engines as a way to implement prohibition could be based on the idea of restricting advertising about online gaming or on the idea of blocking searches related to online gaming.

Credit cards have sometimes been referred to as the “life blood of the online gaming industry.” Most transactions on the Internet involve a credit card, but other alternatives (e.g. debit cards, electronic checking, or digital cash) may become more prevalent over time. Some credit card companies already try to prohibit the use of their cards for gambling. This is partly because there is a risk that credit card obligations related to gambling could be viewed as “unenforceable gambling debts.” The issue of whether a credit card bill for a customer that used his credit card to gamble constitutes an unenforceable gambling debt is being considered in the courts.

NJ Looking Again

While the US Federal government continues toying with an outright ban on internet gaming, millions of dollars continue to leave the country, ending up in the pockets of offshore operators. Enter New Jersey governor McGreevey, who’s taking a look at legal, regulated online betting in one of North America’s gambling hotbeds.

Some are calling for an end to ignorance on the issue, worried that further delay could put them behind rivals in Nevada, a state that has already legislated legal online gambling, pending appoved methods of regulating the industry and keeping minors away.

Assemblyman Anthony Impreveduto, having already championed this cause in his home state, argues that 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.