News

LA Times: Concerns growing over how spread of online gambling will play out

February 16, 2014

By Michael Hiltzik, Los Angeles Times
2/16/14

The most sinister video you’re likely to find online just now comes from people who oppose online gambling.

“Disreputable gaming interests are lobbying hard to spread Internet gambling throughout the country,” a voice over intones. Cue the grainy black-and-white footage of something sketchy going on in an alleyway, the ominous music and allusions to criminal “syndicates” and terrorism. The narrator warns that “an established Al Qaeda poker network could extract enough untraceable money from the United States in just a few days to fund several 9/11-sized attacks.”

Well, I’m sold. Or at least I was until I realized that the video’s sponsor, the Coalition to Stop Internet Gambling, was formed by Sheldon Adelson, the chairman and chief executive of Las Vegas Sands, which owns the Venetian on the Las Vegas strip and has a huge gambling business in Macau. (Adelson’s family controlled 53.3% of Las Vegas Sands as of last April, the date of its proxy statement.)

And that the “disreputable gaming interests” lobbying so hard for Internet gambling include Caesars Entertainment and MGM Resorts, whose properties sit cheek-by-jowl with Adelson’s on the Strip.

(Of course, if you’re worried about “disreputable” gaming interests, you might want to keep in mind that Adelson’s company has come under federal investigation for possible violations of the Foreign Corrupt Practices Act, and that a committee of its own board has found that it committed “likely violations of the books and records and internal controls provisions of the FCPA.” That’s according to its most recent quarterly report, filed Nov. 7, which also stated that the company is cooperating with the probes by the Securities and Exchange Commission and the Department of Justice, and that it can’t say how they’ll turn out.)

Internet gambling appears to be on the verge of exploding in the U.S. Last year, according to the gaming industry consulting firm Gambling Compliance, 10 states considered, enacted, or launched Internet gambling programs. Nevada began offering online poker in April, New Jersey launched online poker and other games including slot machine-like gaming in late November, and Delaware a full suite of games in early November. All three states use technological means to ensure that players are physically located within the state lines.

That could pose a threat to established gambling interests, whether they’re Las Vegas casinos, on Midwestern riverboats or on American Indian tribal lands.

In California, the issue has driven a wedge between casino-owning American Indian tribes that on many other issues have presented a united front. Some even have been driven into alliances with card clubs, which traditionally had found themselves on the opposite side from the tribes on questions of gambling expansion. Most of the tribes see Internet gambling as “a threat, not an opportunity,” one tribal source told me, but the big gaming tribes have come around to the idea that legalizing Internet poker and licensing tribes and card clubs to offer it “may be the best way to approach that threat.”

Adelson is openly worried that Internet gambling could cut into business at his U.S. properties, which include the Venetian and a casino in eastern Pennsylvania, as well as at other Las Vegas casinos, costing profits and jobs. But he says his real concerns are moral and social — Internet gambling will exploit the young and poor in ways that can’t be monitored as easily as they can on a casino floor. That’s one of the main themes of the coalition’s campaign.

Two factors contribute to this new wave of gambling expansion. One is that the expansion of bricks-and-mortar casinos has largely played out — legal gambling has infiltrated every state except Hawaii and Utah. Scarcely a population center exists in any other state without access to a casino.

The other factor is a change in the interpretation of federal law issued by the Obama administration in 2011. The new interpretation was that the federal Wire Act barred only online sports betting. Every other form of play was permissible, on an intrastate basis.

The change was especially heartening for online poker aficionados, who had been knocked off their favorite sites since the previous April 15, 2011, a date known in the game as “Black Friday,” when the Department of Justice unsealed an indictment charging leaders of the three biggest sites with bank fraud and money laundering. The case effectively ended online poker in the U.S., except for rogue sites that served players illicitly, and at the players’ own risk.

“All sorts of Internet gambling has been happening,” says John Pappas, head of the Poker Players Alliance, a lobbying group in Washington. “But they’re preying on problem gamblers and they’re not accountable to regulators and government.” If you think you’ve been cheated by one of these services, he observes, you have no recourse.

Players seeking their online fix have turned Rosarito Beach, just over the Mexican border from San Diego, into a poker hive from which they can legally access Poker Stars or other sites. To a seasoned player, online poker is a game that can’t be entirely replicated live at a California card club or other legal poker room in the U.S. “They’re almost two different games,” according to Ryan Buckholtz, a successful player who says the online game is quicker and more analytical than the live version.

New Jersey and Delaware, however, have expanded their Internet offerings beyond poker. And it’s in that expansion that Sheldon Adelson might actually have a point — self-interested as it is.

Uniquely among casino games, poker is a game of skill. (Skilled blackjack players can reduce the house advantage to a thin margin, but actually shifting the edge to their own favor is very hard.) That in itself arguably limits its addictive quality, but games such as video slots can be traps for the unwary. The Adelson coalition says its goal is to have a “national debate” on the scope and regulation of online gambling before it rolls across the country — one published version of its draft legislation would restore the old interpretation of the Wire Act until Congress and the public can “fully examine” such issues as “the potential for money laundering, fraud, terrorism financing, cybercrimes and participation by minors.”

Yet games other than poker are the real moneymakers — in the casinos and online. The Gambling Compliance study projects that online poker play in New Jersey will plateau after about four years, and that most of the more than $460 million a year generated in online action in the state by 2017 will come from other games.

That presents a quandary for California, the largest gambling market in the country. Proposals to legalize online gambling have foundered in the Legislature over the last couple of years, largely because of opposition from American Indian tribes with thriving casinos who fear their revenues would be at risk; tribes without big casinos, however, have been in favor.

More recently, the bigger tribes, including the Pechanga and Agua Caliente, have come around, recognizing that the best way to defend against Internet gambling is to co-opt and manage it. A bill to legalize, regulate and tax online gambling, with licenses available to tribes and card clubs, is expected to be introduced during the current legislative session in Sacramento. But it will be limited to poker.

The size of the California market is hard to assess — American Indian sources say it will be a fraction of the $9-billion annual wager in tribal casinos, but it could still be in the healthy nine figures a year. The biggest fans may be players weary of the poker-only social scene in Rosarito and who say the California game’s most inviting feature will be the large pool of players available to meet online, which will easily outstrip the pool in New Jersey and Nevada, much less Delaware. “If California legislated online poker,” says Alex Masek, a 29-year-old player in Long Beach who has set aside his 2011 law degree to play full-time, “there wouldn’t be too much reason to leave the country to play.”