Of all the ways fortunes are won and lost over the Internet, few endeavors have enjoyed the explosive growth or weathered the intense scrutiny of online gambling. Its popularity is surging, thanks to a proliferation of Web sites that cater to bettors, a poker craze that shows no signs of abating, and continued interest in wagering on huge sporting events such as the Super Bowl and the World Cup.
At the same time, debate over the legality and morality of Internet gambling has raged since the very first bet on the virtual blackjack table. The brief history of online gambling is an ever-evolving drama that has swept up lawmakers, entrepreneurs, criminals, lobbyists, and opportunists of every stripe.
Although it is currently illegal to operate a gambling Web site within the United States, that did not stop 30 million U.S. Internet users from visiting offshore gambling sites in 2005. While efforts in Congress to strengthen existing laws have been stymied for years, the industry has matured quickly, with the larger players consolidating to such an extent that prohibition might be impossible. Many experts believe the U.S. has little choice but to embrace regulation.
A quick look at the numbers confirms that fo
Online gambling is a $10 billion-plus behemoth that benefits from a powerful combination of cutting-edge technology, widespread broadband availability, and unprecedented interest in betting.
Worldwide online gambling revenues rose from $8.5 billion in 2004 to $10.9 billion in 2005, according to a December 2005 report from the New York-based research firm eMarketer. Its paper, “Online Gambling: Bet, Call or Fold,” also reports that visits to online gambling sites increased substantially in recent years: The 30 million Americans who participated in 2005 more than doubled the ranks of the 13.6 million players in 2001.
Koleman Strumpf, an Associate Professor of Economics at the University of North Carolina at Chapel Hill and an expert on sports bookmaking, said that as people who are Internet-savvy take up an increasing share of the population, interest in online wagering will continue to rise. The legal status of online gambling in the U.S. will do little to slow the fervor, he said.
“When there is a large demand for an activity,” Strumpf said, “supply will figure out a way to get around regulatory roadblocks.” In other words, people like gambling online — a lot — and will continue to do it, especially as broadband Internet access becomes more widespread and people are able to reach highly interactive gaming sites with enough bells and whistles to make for an engaging experience.
The convenience of online gambling also has fed its tremendous appeal. R.J. Bell, founder of Pregame.com, a sports-wagering information site, said that even though U.S. gambling hotspots such as Las Vegas or Atlantic City offer an “all five senses” experience that cannot be matched online, those places cannot compete with the ease of gambling by computer.
But Vegas needn’t worry just yet. Calvin Ayres, founder and CEO of Bodog.com, an online gambling and entertainment company based in Costa Rica, said the relationship between brick-and-mortar outlets and online gambling is synergistic and will only get stronger in the years ahead.
The best example of that mutual benefit is poker, Ayres said. Players can hone their skills using online poker sites in a setting that is less intimidating for a beginner than a smoke-filled room filled with card sharps. Most online poker sites give players the option to participate in games using “play money,” so a rookie easily can get plenty of practice without risking insolvency.
Eventually, online poker players move on to actual poker tournaments, where they can test their newfound skills face-to-face against other players. In 2005, two thirds of the entrants in the World Series of Poker, held every year in Las Vegas, qualified on online poker sites, according to eMarketer’s gambling report.
And after all, it’s nice to be handed a cocktail while playing your favorite game at a casino, Ayres said. Bottoms up!
Gambling with Corporate Dollars.
In spite of the gambling industry’s best efforts at PR, people likely will continue to associate it with unsavory criminal elements. This is especially true for gambling Web sites, which stay clear of U.S. antigambling laws by setting up shop abroad.
In many countries, including the United Kingdom and several Caribbean nations, online gambling is legal and regulated. The rules in the U.S. are somewhat murky. Currently, the Federal Wire Act of 1961 prohibits using telephone transmissions to bet across state lines, but no new law has yet amended the Wire Act for the Internet age. Gambling sites remain nonexistent in the U.S. because a license is required by law to set up a site, and no state has yet granted one. Some states also have specific laws against online gambling.
Opponents of Internet gambling frequently point to money laundering as one of the main reasons the practice should be outlawed. But are all gambling sites owned by shady characters only interested in skirting the law and lining their pockets at the expense of others?
he truth is that many of today’s online gambling sites are owned by either corporations or individual entrepreneurs. PartyGaming PLC, the largest online gambling company, was cofounded by American attorney Ruth Parasol, who, at 38, is now one of the youngest self-made billionaires in the world with a net worth of $1.8 billion, according to Forbes magazine.
Based in Gibraltar, PartyGaming operates the PartyPoker Web site, which claims to be the Internet’s most popular destination for online poker. The company went public on the London Stock Exchange in 2005 and, according to eMarketer, made $171 million in net profits during 2005, a 25.3 percent increase over 2004.
Other prolific online gambling companies include Bodog, Sportingbet, William Hill, and Cassava Enterprises. These are large, profitable businesses enjoying increasing popularity. But there are hundreds of other smaller sites operating around the world that are not as healthy economically, according to Bodog’s Ayres. In this environment, he said, a shake-up is inevitable.
We are already seeing signs of successful online gambling brands separating themselves from the rest of the pack,” Ayres said. He added that a wave of consolidation eventually will leave a few mass-market-friendly, online-entertainment giants with the lion’s share of the gaming market.