July 3, 2000 -- Ed Starrs may be a gambling man, but his latest bet has him worried.
Starrs is president of Antigua-based Starnet Systems, one of a number of Internet gambling operations that have increasingly come under the scrutiny of U.S. lawmakers who would like to put online gaming out of business.
But so far, legislators have remained unable to push through Congress any substantial measures to curb Web wagering.
And in the absence of such laws, say observers, Internet gambling has flourished.
Explosive Growth, Unchecked by Law
Online gaming — operated mostly by offshore, unregulated companies — has grown at an explosive rate. There are now over 250 online casinos, 64 lotteries, 20 bingo games and 139 sports books in operation on the Internet, according to the National Gambling Impact Study Commission.
Starrs remains concerned that U.S. laws to do away with gambling on the Net could harm his company, which licenses customized Internet gaming software to 60 Web-based gaming operations that derive about $2 billion from wagers placed in the United States.
But he appears to have little to fret over, at least for now. That’s because efforts by lawmakers to fight to outlaw the expanding Internet-based gambling industry have so far come to naught.
Bills Sidetracked in Congress
Anti-gaming legislation, citing the dangers of addiction, crime and consumer debt, first made its way before Congress in early 1997. After working its way through the House at a snail’s pace, those those legislative efforts have recently become sidetracked.
In late June, Christian activists and conservatives pressured House Republican leaders into withdrawing the Internet Gambling Prohibition Act (H.R. 3125), a bill that prohibits gambling businesses from taking bets or wagers over the Internet, in order to toughen its language and alter its exceptions.
Another anti-gaming bill’s prospects are also in doubt, say experts. The measure, H.R. 4419, is designed to stem the flow of funds to Web-based wagering sites by prohibiting the use of credit cards or other financial instruments for Internet gambling transactions. Most online gambling sites accept payment via credit card or let you wire cash electronically.
“They think that this bill will stop people with credit using these sites,” says Sebastian Sinclair, an Internet analyst at investment bank Christiansen Capital Advisors in New York. “But these companies will simply open an account for consumers at an offshore bank.”
Growth Amid Legislative Inaction
Despite the anti-gaming efforts, the use of gambling Web sites continues to rise, says Ed Lopez, an analyst at Cyber Dialogue, an Internet services and research firm based in New York.
The number of Web-based gaming site users in the United States grew to 5.2 million in the first quarter of this year, up from 3.4 million in the third quarter of 1999, according to Cyber Dialogue.
And if Congress is not able to tie up anti-gaming legislation soon, Sen. Richard Bryan, R-Nev., recently speculated, some big Nevada casino companies might be tempted to launch their own Web-based gaming operations.
The trade group that represents the commercial casino entertainment industry disagrees with that assessment. Accoring to John Shelk, vice president of the American Gaming Association in Washington, D.C., the mounting legal barriers will make it difficult for casino companies to get into online gaming.
Lack of Jobs, Taxes Cited
The association has strongly opposed Internet-based casinos, arguing that those running offshore gaming sites are evading state taxes, licensing requirements and regulations, all of which apply to conventional bricks-and-mortar establishments.
“Our concern is that gaming regulations in each state will be overruled,” says Shelk. “This sort of business, when it comes in the form of bricks and mortar, brings in economic development in the form of jobs and taxes — Internet gaming does none of those things.”
For its part, the Interactive Gaming Council, which represents Internet-based casino companies and companies like Starrs’, likens the prohibition of Internet gaming to the prohibition of alcohol. Instead, the association is pushing for establishing the online gaming industry as a regulated business.
“Prohibition didn’t lower the consumption of alcohol,” says Albe Angel, head of public policy at the Interactive Gaming Council. “We believe that the efforts of legislators to limit people’s rights to gamble online and short-sighted and inappropriate, and we think there ought to be a way for responsible companies to offer online wagering as a regulated product.”
While U.S. legislators consider the legality of online gaming, experts say that the business is flourishing overseas.
It might a legal gray area in the United States, but online gaming is still legal in many parts of Europe, Australia and the Caribbean. Indeed, the global online gaming market has the potential to grow to $10 billion by 2002, according to Internet research firms Frost & Sullivan and Datamonitor.
“This is a global marketplace,” says Sinclair. “Other first world countries are considering changing their gaming laws to allow for online gaming so the United States could find itself out-of-sync with other countries as the market continues to grow.”
And by backing the outlawing of online gaming, the established casino industry is very shortsighted, Sinclair says. “They are doing the same thing as the big entertainment companies like Disney tried to do when the VCR came out,” Sinclair says. “They thought that people wouldn’t go to theaters anymore, but they did keep going to see movies and now the video has become a whole new revenue source for the entertainment industry because it’s a different product.”
And for Starrs, whose company supplies around 40 percent of the world’s online gaming operations, even prohibitive U.S. laws won’t mean he’ll be closing up shop.
Such restrictions simply mean he’ll concentrate his efforts in the rapidly expanding overseas market for Internet gaming, in particular nations like Europe and Australia, where the regulatory environment is much more friendly.
“The gaming market is changing and the biggest area of growth is in places like Europe and Asia,” says Starrs. “The United States government is missing the big picture here.”