ATLANTIC CITY, N.J.: With legal gambling now moving beyond the casinos and onto the Internet, the industry is bracing for the most far-reaching changes in its history.
A Las Vegas firm, Ultimate Gaming, on Tuesday became the first in the United States to offer online poker. It is restricted for now to players in Nevada. New Jersey and Delaware also have legalized gambling over the Internet and expect to begin offering such bets by the end of this year.
And many inside and outside the industry say the recent position taken by the federal government that states are free to offer Internet gambling — as long as it doesn’t involve sports betting — will lead many cash-hungry state governments to turn to the Web as a new source of tax revenue.
Ten other states have considered some form of Internet gambling so far this year, but none has legalized it yet. Efforts to pass a national law legalizing online poker have sputtered, leaving states free to pass laws as they see fit.
“It’s no longer a question of if Internet gaming is coming; it’s a question of when,” said Frank Fahrenkopf, president of the American Gaming Association, the trade organization for the nation’s commercial brick-and -mortar casinos. “Unless there is a federal bill passed, we are going to have the greatest expansion of legalized gambling in the United States. I don’t think that’s what anyone intended, but it is what we’re seeing.”
The brave new world for gambling brings with it a host of questions and concerns. Will letting people bet online result in fewer visits to casinos, and therefore fewer dealers, beverage servers and hotel and restaurant workers at the casinos? Will Internet bets create a new revenue stream from new players, or will it simply redirect money from gamblers who otherwise would have visited a casino, and might have eaten dinner and seen a show, as well? And will it create even more problem gamblers?
Michael Frawley is chief operating officer of the Atlantic Club Casino Hotel, perhaps the most endangered of Atlantic City’s 12 casinos. A deal for it to be sold to the parent company of PokerStars, the world’s largest online poker website, is up in the air. The Atlantic Club’s owners said Wednesday the deal was dead, but PokerStars said the next day it still wants to salvage the purchase. It was not immediately clear whether the deal will ultimately get done.
Frawley said the Internet’s vast reach could help double business at his casino, provided the right balance is struck between the online and physical gambling experiences for customers.
“If you go to the movies, you can watch one at home, or you can watch one in the theater,” he said. “Both of them can be a great experience.”
Regardless of whether PokerStars buys the Atlantic Club, Internet gambling is expected to take off in New Jersey before long.
The Borgata Hotel Casino & Spa has said it is preparing to offer online gambling later this year, and Gary Loveman, CEO of Caesars Entertainment, has also said he expects his company’s four Atlantic City casinos to grab a large share of New Jersey’s online market.
Geoffrey Stewart is general manager of Caesars Online Poker. Parent company Caesars Entertainment’s World Series of Poker brands, as well as its 37 casinos across the United States, make it an early favorite to be a leader in online gambling. He said brick-and-mortar casinos such as Caesars Palace can use Internet play to complement physical casinos.
“Someone comes to play with us online, we will be able to offer them seats to the real World Series of Poker, or offer them hotel rooms at Caesars Palace,” he said. “Like any other business, you’re always looking for what is the next distribution channel.”
Not everyone in the industry is all-in, however.
The American Gaming Association conducted a study a few years ago on whether poker-only Internet gambling — which it supports — would cannibalize the existing brick-and-mortar casinos.
The study determined that it would not. But when Internet gambling allows for casino games, such as in the bill recently adopted by New Jersey, the traditional casinos could suffer, Fahrenkopf said.
The most popular form of Internet gambling is online poker.
When the Justice Department charged executives of three online poker sites in April 2011 with conducting illegal transactions, it was a $6 billion a year industry.
After the crackdown, it was largely on hiatus, because at the time, taking online bets from U.S. customers was illegal. But not long afterward, the U.S. Justice Department revised its stance, allowing states to take online bets so long as they didn’t involve sporting events.
Eric Baldwin is a professional poker player who’s eager to get back online again now that poker is once again available over the Net.
“The money’s good when things are good,” he said. On the other hand, he acknowledges, “Most people don’t go to work for 12 hours, do their best and come home down a couple thousand dollars.”
He plans to at least try out legalized Internet poker to see if the player pools are big enough to make it worthwhile.
Lawrence Vaughan, chief operating officer of South Point Poker, one of the first Nevada online licensees, said legalizing Internet poker removes the stigma some people had associated with it.
“You had to move money in shady ways around the world to even play online,” he said. “Now it’s the sort of thing your mom could sign up for.”
Ultimate Gaming CEO Tobin Prior, whose firm started taking poker bets Tuesday in Nevada, added, “Players won’t have to worry if their money is safe. They are going to be able to play with people they can trust and know the highest regulatory standards have been applied.”
PokerStars, one of the parties charged in the 2011 crackdown that came to be known in the industry as “Black Friday,” later bought Full Tilt Poker, another defendant, and reached a settlement with the federal government, paying $547 million to the Justice Department and $184 million to poker players overseas to settle a case alleging money laundering, bank fraud and illegal gambling. It admitted no wrongdoing and says it is in good standing with governments around the world.
Its parent company, the Rational Group, based on the Isle of Man in the United Kingdom, would not say whether it plans to try to buy another casino or partner with one to gain entry into the U.S. online gambling market.
Introducing new players to poker over the Internet makes it less scary and potentially more popular, said David Schwartz, director of the Center for Gaming Research at the University of Nevada Las Vegas.
“It was mostly old guys with cigars,” he said. “It was very intimidating to walk into a poker room and see a guy who’s a thousand years old, smoking 10 packs of cigarettes a day, giving you dirty looks because you’re taking the wrong card,” he said. “What online poker did was let people get familiar with the game, feel a little bit of confidence and then they said, ‘I want to go to Vegas and do the real thing.’ ”
Morgan Stanley predicts that by 2020, online gambling in the United States will produce the same amount of revenue as Las Vegas and Atlantic City markets combined bring in today: $9.3 billion.