Gaming world divided about Internet
by Frank Brown
Published: May 16,2014
BILOXI — One year ago, Internet gaming was about to make its big splash. New Jersey was on the forefront and some estimates put the potential revenue haul at $1.2 billion in the first year.
Today, there is a shortage of players, a shortage of credit card companies participating and a lack of unity among states and owners interested in jumping into the i-gaming market. Mississippi is one of those states.
“We’re a small state and can’t compete within our borders,” Mississippi State Rep. Bobby Moak, D-Bogue Chitto, first chairman of the Legislative Gaming Committee, said last week during the Southern Gaming Summit. “Actually, we couldn’t compete when we passed the gaming act in the early ‘90s, but there was no competition except for Louisiana, and, even though we had a small population, people came here, and we were up there among the top three or four gaming sitess.
“I think, Mississippi should have the opportunity to do that with Internet gaming. I think we’re doing nothing but holding back people in the state who have invested in this industry.
“We have had legislation introduced, and it has not been considered,” said Moak, who has introduced legislation in three straight sessions. “Next year is an election year in Mississippi, so it again probably won’t be considered again, but it will be introduced.”
“We already have Internet gaming in the U.S., but it’s unlawful Internet gaming and it’s an enormous market,” said John M. McManus, executive vice president, general counsel and secretary for MGM Resorts, which owns the Beau Rivage in Biloxi. “Laws are in place that clearly outlaw the activity, but it didn’t stop it. If you prohibit internet gaming in the U.S., you’ll leave it to the outlaws.”
Most agree that Internet gaming will be common in the United States eventually, but the form remains the point of division between states and casino operators. Smaller states like Mississippi and Nevada would like to see national legislation providing the framework, which states having the option to participate. Larger states, like New Jersey, would prefer to have their own rules.
“Unfortunately, it appears it will be a cumbersome state-by-state approach,” said McManus. “You will have to reinvent the wheel with each state. You’ll end up with different rules in each state. For Internet poker, in particular, where you need a volume of consumers, that becomes a challenge for the small state like Mississippi and Nevada.”
“I just don’t see any appetite in this Congress to pass gaming legislation,” said Kelly Duncan, a partner with Jones Walker law firm. “For the industry, I think is better to have federal legislation.”
While New Jersey’s state projection was $1.2 billion, the first quarter of this actually saw revenues of $31.6 million, which was closer to the $150-200 million projections of the Innovation Group, said that company’s research analyst Jennifer Day.
“A lot of analysts didn’t consider the period needed to ramp up,” she said. “Also, they still have some credit card companies not processing payments. In New Jersey, only 42-46 percent of credit card transactions had been accepted. Only 44 percent of Visa payments were accepted and American Express is not even accepting transactions.
“Also key is finding a way to market to people,” Day said. “In New Jersey, it’s no longer a piece of the gray market. It’s connected to existing casino and it is highly regulated.”
“It expands the market. Caesar’s Entertainment reported that 91 percent of online players were not in their land-base database. Of the 9 percent who were in the database, they saw an increase in play at the brick and mortar sites.
“And there’s a different demographic of online gamers – they’re younger, there are more women, and they tend to be more educated and spend more.”
“We have somehow taken a position of wait and see, which gets back to Innovation Group’s comment about a ramp up period,” said Moak. “It would be great to be at the head of the pack on this, but we’re in a wait and see position.
“Internet gaming is happening, but we’re not getting any tax revenue from it, and it’s not regulated.”
Geoff Freeman, president and CEO of the American Gaming Association, said his group is focused on common cause, and is waiting for the two sides to come together before that organization gets involved.
“Internet gaming has become much more complex in the last six months,” he said. “It’s an issue where two sides have dug in pretty deep. One side supports federal intervention and prohibition, and one side supports states’ rights and the ability to innovate as industry. The AGA won’t be involved in that debate today.”
The possibility of underage gaming, compulsive gamblers and fraud are the major arguing points against internet gaming.
“Whether it’s religious or child protection issues, I hear the same thing just about everywhere,” said Moak. “I spoke to colleagues in Nevada recently and they have many of the same arguments come up. There are a lot of religious arguments and several of us have taken our hits because of that.
“But you would be tapping into a market that’s not currently gaming in the land-based houses and would do it online, or you can capture that market that’s doing it illegally.”
“We have division within the industry, pointing out things they think may be problematic with Internet gaming,” said McManus. “Internet gaming has been thriving in Europe for quite a long time. It’s not like they don’t have the same concerns we do.
“Many of the fear mongers and other arguments don’t stand up to logic. I’ve visited sites in Europe and India, and it is remarkable what you can do with technology to protect players.
“The vision of someone in a beach house in Costa Rica with a laptop ripping people off — that’s what you can get with illegal i-gaming.
“I think we all would agree there is a sizable market out there,” said Darold Londo of Tunica, a senior vice president with Caesar’s Entertainment, owners of Harrah’s Gulf Coast, Horseshoe Casino Tunica, Tunica Roadhouse Casino and Harrah’s Tunica, which is closing in June. “That market is in all 50 states. I has 1,700 operators, it is offshore, and it is illegitimate. There are cheats and frauds and other issues with that market. And, by the way, there’s no tax revenue with that market.
“So the real questions becomes, do we have a duty to stand up against that marketplace. I think we do.”
Tilman Fertitta, owner and CEO of Fertitta Entertainment, which operates Landry’s restaurants and the three — soon to be four — Golden Nugget casinos, including one in Biloxi, has yet to see the benefit in Internet gaming.
“Internet gaming is a bust,” he said. “I’m in New Jersey, and I’m going to lose $7-8 million doing it this year. That’s the reason we haven’t rolled it out in Nevada – I think it will cost us $10 million. I don’t think there’s enough people to play it. Then you have to get all the big banks to get online.
“I’m just rolling the dice myself in case it works out in the next couple of years.”
Said Moak: “A prediction — since next year is an election year in Mississippi, I think it will be very difficult for Mississippi to pass a full-fledged legislation. So, let’s fast forward to 2016, if you get it on the floor, I think you can do it. The opportunity has been there, and I think you can get it done in some form.”
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