By William Roberts Bloomberg News
MONDAY, MAY 22, 2006
WASHINGTON MGM Mirage, Harrah’s Entertainment and other U.S. casino operators are increasing pressure on Congress to consider legalizing online gambling – at the same time that lawmakers are seeking to tighten criminal penalties for it.
The companies are trying to take advantage of a congressional backlash against gambling set off by the Jack Abramoff scandal, involving his lobbying on behalf of Indian casinos. The casinos say the best way to control the $12 billion Internet betting business – which is based overseas while drawing more than half its revenue from America – is to legalize, regulate and tax it.
“The argument the industry is making is, if it is being done offshore, why not bring it in to the U.S. so it can be regulated?” said Senator John Ensign, a Nevada Republican who has discussed the issue with representatives of Harrah’s, which is based in Las Vegas and is the world’s largest casino owner. “It doesn’t look like you can ban it.”
The companies, which according to Federal Election Commission records have so far contributed more than $900,000 to congressional candidates in this fall’s elections, are pushing lawmakers to take a first step toward legalization by creating a commission to study it. Ensign and the Senate minority leader, Harry Reid, a Nevada Democrat, said the proposal has a chance of clearing the Senate this year.
Lawmakers have become wary of gambling issues since an investigation of Abramoff uncovered a web of connections between some of them and casinos. Abramoff pleaded guilty in January to fraud and conspiring to corrupt public officials on behalf of clients, including Indian-tribe casino operators and eLottery, a Stamford, Connecticut-based online broker of state lottery tickets.
Following Abramoff’s guilty plea, two Virginia representatives, Bob Goodlatte, a Republican, and Rick Boucher, a Democrat, introduced legislation to force U.S. financial institutions to cooperate with law-enforcement authorities in shutting down the flow of cash to illegal gambling sites based outside the United States.
The Judiciary Committee of the House of Representatives is scheduled to take up the measure, which has the backing of the Bush administration, on Wednesday, and the majority leader, John Boehner, Republican of Ohio, said he intended to bring it to a floor vote later this year. Abramoff in 2000 lobbied to defeat a similar measure.
Even if the measure passes the House, it would face long odds in the Senate, said Matthew Gerard, a gaming industry analyst at Investec Securities in London. “Ultimately, we think it will be very, very difficult to get any prohibitive legislation through the Senate,” he said.
U.S. casino companies are “neutral” on the House measure, said Frank Fahrenkopf Jr., chief executive of the American Gaming Association, which represents Harrah’s and MGM Mirage, the No.2 gambling company. Right now, the online gambling industry “is just the wild, wild West,” he said. “Why not take a hard look at it?”
That’s what the U.S casinos are seeking with their proposal for a U.S. study. Fahrenkopf, a former Republican Party chairman, said the study’s purpose would be to determine if legalization, regulation and taxation of online gambling would reduce the risk of fraud and abuse and increase government revenue.
Fahrenkopf said the “big boys” like MGM and Harrah’s wanted to get into the online gaming business if Congress eventually decided to legalize it. MGM and Harrah’s declined requests for comment and referred questions to him.
The gambling association projects that the global online betting business will double to about $24 billion a year in revenue by 2010. The association said a study it conducted showed that as many as 15 million American players logged on to more than 2,600 Web sites last year; it said it also found that 81 percent of Americans were unaware of the 1961 law making it illegal to use phone lines for wagers.
The U.S. Justice Department continues to investigate and prosecute online casinos that accept funds from U.S. customers. On May 17, prosecutors in Washington announced money-laundering charges against two people, including an American, who operated an Internet betting parlor in Antigua that received $250 million in bets on professional football, baseball, hockey and college basketball from U.S. gamblers. Antigua has filed a complaint with the World Trade Organization against the U.S. ban on online gambling.
With U.S. companies shut out of the online market, the principal beneficiaries are European companies and investors and unregulated online casinos in the Caribbean.
Britain legalized online gambling a year ago. Since then, two companies based in the British territory of Gibraltar – PartyGaming and 888 Holdings – have sold shares to the public.
John Shepherd, a spokesman for PartyGaming in London, said the company “advocates regulation” of online gambling and backs the proposed U.S. study. British law recognizes “that the only difference between gambling in a casino and gambling online is the word ‘Internet,'” he said.
In addition to making campaign contributions, the U.S. casino operators have retained some of Washington’s top lobbying firms to promote their issues.
Gambling has long been a politically sensitive issue, and online betting draws opposition from evangelical Christians, an important Republican constituency. Focus on the Family and the Traditional Values Coalition, two religious-advocacy groups, have come out in favor of the House legislation stiffening penalties.
In the Senate, meanwhile, Reid – a former member of the Nevada Gaming Commission who said he opposes legalization – is willing to go along with the companies’ plan for a commission to look at the issue.