U.S. federal law demands that any online gaming company adhere to state laws -- but most states do not have specific Internet gaming laws. "There are problems all the way down the line," attorney Pat O'Brien told the E-Commerce Times, "because the Justice Department takes that position that it's all illegal. But they're wrong."
Just as Las Vegas pioneer Bugsy Siegel imagined a city of dice games and slot machines in the middle of the desert, entrepreneurs looked at the Web a few years ago and saw an audience hungry for online gaming.
They were right to suspect there was gold in all those clicks. A December 2002 report by the U.S. General Accounting Office stated that online gaming had worldwide revenues of more than US$4 billion, with roughly half of that total coming from the United States. According to many in the industry, the sector is still growing fast and raking in the cash.
There's only one problem: In the United States, running an online gaming company is illegal. Despite this roadblock, many gaming sites are succeeding in playing a significant, though stealthy, role in the e-commerce industry. In this two-part special report, the E-Commerce Times takes a good look at how they are doing it.
Up the Mountain
Internet gaming first began appearing in 1995, and since then, 73 governments have approved some form of play. Expansion and competition have intensified, with the number of sites rising from 900 to 1,400 in just the last two years.
Recent consolidation maneuvers may knock the number of sites down a bit, but that does not mean the industry is anywhere near a decline.
As David Carruthers, CEO of Internet gambling site BetonSports.com, told the E-Commerce Times: "This industry isn't different than any other. It's growing and stretching to meet demand. We've had meteoric growth in the last three to five years."
Crackdown in the Cards?
Yet prohibition is what some U.S. legislators would love to see. Pat O'Brien, an attorney at Greenberg Traurig who specializes in representing online gaming companies, told the E-Commerce Times that the United States would like nothing more than to make online gambling illegal.
In fact, doing business as an online gaming company in the United States is already illegal, which is why all online gambling sites are run from outside the country. BetonSports.com is located in Costa Rica, and other sites are spread across the globe, with companies based in Europe, Asia and especially the Caribbean.
Carruthers said the U.S. mania to wipe out online gaming seems to be more about legislating morality than catering to the wishes of the country's citizens. "Online gaming is entertainment," he noted. "It's not one of the seven deadly sins. But some people think it is."
Legal Quagmire
Indeed, the laws pertaining to online gaming are a messy batch. Federal law demands that any online gaming company adhere to state laws -- but most states do not have specific Internet gaming laws.
"There are problems all the way down the line," O'Brien said, "because the Justice Department takes that position that it's all illegal. But they're wrong."
The distributed nature of the sector and its customers makes matters even more confusing. For example, it is illegal in Georgia to operate a house of gambling, but if a resident of Atlanta is playing a casino game owned by a company located in Antigua, the law does not specify whether or not that company is in violation of Georgia law.
Despite the cloudiness of current legislation, O'Brien said companies have decided not to risk prosecution, so they simply run their businesses from outside the United Stats.
Playing with Fire
Another difficulty of playing games in the virtual world is lack of assurance about the reliability of the gaming company. A tourist in Las Vegas can walk into the Bellagio and feel confident that the casino is on the up and up because brick-and-mortar casinos are strictly regulated. Online casinos are not.
Although it would be nice for a potential player to have a way to check out a particular gambling site, no method for doing so is available. As a result, there is widespread suspicion that gambling sites are scams. "It's a very common misconception," O'Brien said. "There have been some sites that have gone bankrupt, but in general, they're pretty reliable."
Avery Cardoza, publisher of gambling lifestyle magazine Avery Cardoza's Player, told the E-Commerce Times: "The gaming sites don't need to cheat you. There's enough of a margin built in, and enough of a reason to keep people coming back, that you just don't do it."
Credit Workarounds
In some cases, credit card companies are less trusting than online gamblers. Transaction processing is a huge problem in the industry, partly because of the U.S. Department of Justice's crackdown, and partly because of a tendency on the part of consumers to disavow online gambling charges.
To get around this problem, many gambling sites use third-party companies that make the charges look like product purchases. Money is taken from the credit card, put in these accounts and used as a virtual pile of casino chips. Legislators have been trying to find ways to dismantle this system, but online gambling sites are wily.
Carruthers noted that despite efforts by U.S. legislators to stop U.S. residents from gaming online, the industry will remain strong and will grow fast.
"We just accommodate changes in legislation and find ways around it," he said. "There is far too much demand, and too many participants, for a prohibition to work."
The Future of Online Gambling
Forrester analyst Chris Charron noted that gamblers are more likely than other Internet users to click on ads, to be less annoyed by them and to be more likely to remember advertising messages. Also, they are more likely to sign up for e-mail marketing and to open e-mail promotions.
In part 1 of this article, "The High-Stakes World of Online Gambling," the E-Commerce Times looked at the state of the Internet betting industry and its remarkable popularity. David Carruthers, CEO of Internet gambling site BetonSports.com, told the E-Commerce Times that his site has seen meteoric growth in the last three to five years.
Carruthers also mentioned that U.S. legislators have made online gambling into a favorite target; however, despite legal hurdles, roughly half of the industry's revenues come from U.S. residents.
Even with the potential for anti-gambling laws on the horizon, the industry seems to be going full speed ahead. What does the future hold for this expanding empire?
Casino Planet
A December 2002 report by the U.S. General Accounting Office stated that future growth in the online gaming industry will occur mainly outside the United States. Although Americans now account for half of industry revenues, the GAO predicted that by 2006, U.S. residents will account for only one-fourth of what, by then, will be a US$14.5 billion market.
Because of its extraordinarily high Internet penetration rate, Japan may be the next gaming powerhouse. Already, the country is seeing remarkable expansion in its online gaming activity. The sports obsession of many Japanese citizens may be driving some of that growth, as sports gambling sites are extremely popular among the online gaming set.
Other Asian countries like China and Malaysia also are poised to be wooed by gambling sites. The GAO reports that in those countries, twice as many people have gambled online as have purchased a product online.
However, the United States should not be completely counted out as an expansion market. Although there is a perception among some industry watchers that betting sites are scams, new customers still are entering the fray every day.
As Avery Cardoza, publisher of gambling lifestyle magazine Avery Cardoza's Player, told the E-Commerce Times: "People love to gamble. Even if they think they're being cheated, they'll still gamble. It's not about winning, it's about playing."
You Want It, You Got It
No matter where in the world online gamblers are located, the industry is ready to serve them. With nearly 1,400 sites in existence, there is no lack of online gambling destinations. At this point, the industry is working toward providing more variety.
The old favorites -- sports betting and casino games -- still dominate the Web, but in the future, there will be more quirky opportunities that could draw new gamblers into the fold.
"The product base is broadening," Carruthers noted. "For some, there's a migration away from being American sport-based and more toward some of the softer or nuevo betting areas."
He noted that on his company's site, a bet about whether Ben Affleck and Jennifer Lopez will get married by the end of the year has attracted more than 3,000 people ready to lay down cash on the result. If the celebrity couple ties the knot, Carruthers will have to pay out more than $250,000. Other entertainment-themed bets are getting more popular as well, he said.
"You see people wanting to bet on the outcome of the Oscars, or who will win on Survivor," he noted. "Those kind of bets are done by people who might not normally come to a gambling site."
Gaming Junkies
With a rise in online gambling comes a greater danger of addiction, according to Nancy Petry, a professor of psychiatry at the University of Connecticut's Center for Gambling Research and Treatment.
In a recent study, Petry found that Internet gamblers were more likely to have a serious gambling problem than other gamblers. In her research, she warned that the Internet's explosive growth likely will lead to more online gambling opportunities.
When this happens, she posited, health and emotional difficulties that come with gambling disorders are likely to follow. Such problems include substance abuse, circulatory disease, depression and risky sexual behaviors. As the report stated, "The availability of Internet gambling may draw individuals who seek out isolated and anonymous contexts for their gambling behaviors."
Petry told the E-Commerce Times: "With Internet gambling, it's going to become a major problem to treat people. Already, only about 10 percent of those who have an addiction problem seek help. With Internet gamblers, it's likely the percentage will be even less."
Target Market
Despite potential addiction problems, online gambling also could present a significant opportunity for companies that are willing to target gamblers. In a recent report on the industry, Forrester analyst Chris Charron noted that 7 percent of online consumers already gamble on the Net.
"Marketers, start your engines!" he wrote. "These online risk takers are big fans of online shopping, being more likely to buy online than nongamblers are."
Charron told the E-Commerce Times that Web bettors are receptive to marketing, have money and are willing to spend it.
"I think that folks selling shopping services, travel, certain types of consumer electronics or fashion would be well served to look at where these people go and what they do online," he said.
Better with Marketing
In his report, Charron also noted that gamblers are more likely than other Internet users to click on ads, to be less annoyed by them and to be more likely to remember advertising messages. Also, they are more likely to sign up for e-mail marketing and to open e-mail promotions.
"Any company that wants sell products online," he said, "would be wise to keep this audience in mind."
In other words, despite the zeal of U.S. legislators to bring down online gambling, many people still are placing their bets on the industry's future. Right now, the odds favor the gambling world.
www.ecommercetimes.com
Just as Las Vegas pioneer Bugsy Siegel imagined a city of dice games and slot machines in the middle of the desert, entrepreneurs looked at the Web a few years ago and saw an audience hungry for online gaming.
They were right to suspect there was gold in all those clicks. A December 2002 report by the U.S. General Accounting Office stated that online gaming had worldwide revenues of more than US$4 billion, with roughly half of that total coming from the United States. According to many in the industry, the sector is still growing fast and raking in the cash.
There's only one problem: In the United States, running an online gaming company is illegal. Despite this roadblock, many gaming sites are succeeding in playing a significant, though stealthy, role in the e-commerce industry. In this two-part special report, the E-Commerce Times takes a good look at how they are doing it.
Up the Mountain
Internet gaming first began appearing in 1995, and since then, 73 governments have approved some form of play. Expansion and competition have intensified, with the number of sites rising from 900 to 1,400 in just the last two years.
Recent consolidation maneuvers may knock the number of sites down a bit, but that does not mean the industry is anywhere near a decline.
As David Carruthers, CEO of Internet gambling site BetonSports.com, told the E-Commerce Times: "This industry isn't different than any other. It's growing and stretching to meet demand. We've had meteoric growth in the last three to five years."
Crackdown in the Cards?
Yet prohibition is what some U.S. legislators would love to see. Pat O'Brien, an attorney at Greenberg Traurig who specializes in representing online gaming companies, told the E-Commerce Times that the United States would like nothing more than to make online gambling illegal.
In fact, doing business as an online gaming company in the United States is already illegal, which is why all online gambling sites are run from outside the country. BetonSports.com is located in Costa Rica, and other sites are spread across the globe, with companies based in Europe, Asia and especially the Caribbean.
Carruthers said the U.S. mania to wipe out online gaming seems to be more about legislating morality than catering to the wishes of the country's citizens. "Online gaming is entertainment," he noted. "It's not one of the seven deadly sins. But some people think it is."
Legal Quagmire
Indeed, the laws pertaining to online gaming are a messy batch. Federal law demands that any online gaming company adhere to state laws -- but most states do not have specific Internet gaming laws.
"There are problems all the way down the line," O'Brien said, "because the Justice Department takes that position that it's all illegal. But they're wrong."
The distributed nature of the sector and its customers makes matters even more confusing. For example, it is illegal in Georgia to operate a house of gambling, but if a resident of Atlanta is playing a casino game owned by a company located in Antigua, the law does not specify whether or not that company is in violation of Georgia law.
Despite the cloudiness of current legislation, O'Brien said companies have decided not to risk prosecution, so they simply run their businesses from outside the United Stats.
Playing with Fire
Another difficulty of playing games in the virtual world is lack of assurance about the reliability of the gaming company. A tourist in Las Vegas can walk into the Bellagio and feel confident that the casino is on the up and up because brick-and-mortar casinos are strictly regulated. Online casinos are not.
Although it would be nice for a potential player to have a way to check out a particular gambling site, no method for doing so is available. As a result, there is widespread suspicion that gambling sites are scams. "It's a very common misconception," O'Brien said. "There have been some sites that have gone bankrupt, but in general, they're pretty reliable."
Avery Cardoza, publisher of gambling lifestyle magazine Avery Cardoza's Player, told the E-Commerce Times: "The gaming sites don't need to cheat you. There's enough of a margin built in, and enough of a reason to keep people coming back, that you just don't do it."
Credit Workarounds
In some cases, credit card companies are less trusting than online gamblers. Transaction processing is a huge problem in the industry, partly because of the U.S. Department of Justice's crackdown, and partly because of a tendency on the part of consumers to disavow online gambling charges.
To get around this problem, many gambling sites use third-party companies that make the charges look like product purchases. Money is taken from the credit card, put in these accounts and used as a virtual pile of casino chips. Legislators have been trying to find ways to dismantle this system, but online gambling sites are wily.
Carruthers noted that despite efforts by U.S. legislators to stop U.S. residents from gaming online, the industry will remain strong and will grow fast.
"We just accommodate changes in legislation and find ways around it," he said. "There is far too much demand, and too many participants, for a prohibition to work."
The Future of Online Gambling
Forrester analyst Chris Charron noted that gamblers are more likely than other Internet users to click on ads, to be less annoyed by them and to be more likely to remember advertising messages. Also, they are more likely to sign up for e-mail marketing and to open e-mail promotions.
In part 1 of this article, "The High-Stakes World of Online Gambling," the E-Commerce Times looked at the state of the Internet betting industry and its remarkable popularity. David Carruthers, CEO of Internet gambling site BetonSports.com, told the E-Commerce Times that his site has seen meteoric growth in the last three to five years.
Carruthers also mentioned that U.S. legislators have made online gambling into a favorite target; however, despite legal hurdles, roughly half of the industry's revenues come from U.S. residents.
Even with the potential for anti-gambling laws on the horizon, the industry seems to be going full speed ahead. What does the future hold for this expanding empire?
Casino Planet
A December 2002 report by the U.S. General Accounting Office stated that future growth in the online gaming industry will occur mainly outside the United States. Although Americans now account for half of industry revenues, the GAO predicted that by 2006, U.S. residents will account for only one-fourth of what, by then, will be a US$14.5 billion market.
Because of its extraordinarily high Internet penetration rate, Japan may be the next gaming powerhouse. Already, the country is seeing remarkable expansion in its online gaming activity. The sports obsession of many Japanese citizens may be driving some of that growth, as sports gambling sites are extremely popular among the online gaming set.
Other Asian countries like China and Malaysia also are poised to be wooed by gambling sites. The GAO reports that in those countries, twice as many people have gambled online as have purchased a product online.
However, the United States should not be completely counted out as an expansion market. Although there is a perception among some industry watchers that betting sites are scams, new customers still are entering the fray every day.
As Avery Cardoza, publisher of gambling lifestyle magazine Avery Cardoza's Player, told the E-Commerce Times: "People love to gamble. Even if they think they're being cheated, they'll still gamble. It's not about winning, it's about playing."
You Want It, You Got It
No matter where in the world online gamblers are located, the industry is ready to serve them. With nearly 1,400 sites in existence, there is no lack of online gambling destinations. At this point, the industry is working toward providing more variety.
The old favorites -- sports betting and casino games -- still dominate the Web, but in the future, there will be more quirky opportunities that could draw new gamblers into the fold.
"The product base is broadening," Carruthers noted. "For some, there's a migration away from being American sport-based and more toward some of the softer or nuevo betting areas."
He noted that on his company's site, a bet about whether Ben Affleck and Jennifer Lopez will get married by the end of the year has attracted more than 3,000 people ready to lay down cash on the result. If the celebrity couple ties the knot, Carruthers will have to pay out more than $250,000. Other entertainment-themed bets are getting more popular as well, he said.
"You see people wanting to bet on the outcome of the Oscars, or who will win on Survivor," he noted. "Those kind of bets are done by people who might not normally come to a gambling site."
Gaming Junkies
With a rise in online gambling comes a greater danger of addiction, according to Nancy Petry, a professor of psychiatry at the University of Connecticut's Center for Gambling Research and Treatment.
In a recent study, Petry found that Internet gamblers were more likely to have a serious gambling problem than other gamblers. In her research, she warned that the Internet's explosive growth likely will lead to more online gambling opportunities.
When this happens, she posited, health and emotional difficulties that come with gambling disorders are likely to follow. Such problems include substance abuse, circulatory disease, depression and risky sexual behaviors. As the report stated, "The availability of Internet gambling may draw individuals who seek out isolated and anonymous contexts for their gambling behaviors."
Petry told the E-Commerce Times: "With Internet gambling, it's going to become a major problem to treat people. Already, only about 10 percent of those who have an addiction problem seek help. With Internet gamblers, it's likely the percentage will be even less."
Target Market
Despite potential addiction problems, online gambling also could present a significant opportunity for companies that are willing to target gamblers. In a recent report on the industry, Forrester analyst Chris Charron noted that 7 percent of online consumers already gamble on the Net.
"Marketers, start your engines!" he wrote. "These online risk takers are big fans of online shopping, being more likely to buy online than nongamblers are."
Charron told the E-Commerce Times that Web bettors are receptive to marketing, have money and are willing to spend it.
"I think that folks selling shopping services, travel, certain types of consumer electronics or fashion would be well served to look at where these people go and what they do online," he said.
Better with Marketing
In his report, Charron also noted that gamblers are more likely than other Internet users to click on ads, to be less annoyed by them and to be more likely to remember advertising messages. Also, they are more likely to sign up for e-mail marketing and to open e-mail promotions.
"Any company that wants sell products online," he said, "would be wise to keep this audience in mind."
In other words, despite the zeal of U.S. legislators to bring down online gambling, many people still are placing their bets on the industry's future. Right now, the odds favor the gambling world.
www.ecommercetimes.com
