All bets are on gambling Down Under

In the U.S., big American companies have avoided the nascent market for Web-based gambling. The reason: Under current laws, Web betting is illegal in some states, and soon it may be banned nationwide.

But down under, where Web gambling is being legalized in many Australian states and territories, the story is different. American giants such as Microsoft, Harrah's and Park Place Entertainment are emerging as current and potential partners in precedent-setting ventures that aim to dominate the global market for cyber-wagering.

The efforts promise to challenge regulators worldwide. Not only would the American-backed ventures have access to financial resources far beyond the means of the scores of five-and-dime gambling sites now online; The Australian ventures also will test the ability of regulators to keep Web gambling away from surfers in areas that ban Internet wagering.

"We're not at all comfortable that it can be regulated," said Ralph Berry, vice president of communications for Memphis-based casino company Harrah's Entertainment Inc. Ironically, however, Harrah's has a major stake in an Australian casino company that hopes to begin operating a Web-based gambling site by next year.

Billionaire betting club
Perhaps the most closely watched of Australian ventures would be one operated by the wealthiest man in the country, reclusive billionaire media magnate Kerry Packer -- potentially in a partnership with Redmond, Wash.-based Microsoft Corp. (Microsoft is a partner with NBC in MSNBC.)

Packer owns a controlling stake in Willoughby-based Publishing & Broadcasting Ltd., which operates the Nine television network in Australia, and holds stakes in a wide array of broadcasting, magazine and newspaper operations. Additionally, PBL also operates a popular Australian portal Web site, called NineMSN, in a 50/50 partnership with Microsoft.

PBL in March is expected to add to its empire by completing a $1.1 billion acquisition of Crown Ltd., which operates Melbourne's only licensed casino. In pitching the deal to investors, Packer and PBL officials have enthusiastically touted plans to use Crown as the basis for a new Web betting site, which would attempt to dominate the fledgling market for online gambling.

The state of Victoria, where Melbourne is located, would have to pass new legislation allowing Web gambling. But passage of the legislation is considered likely in the next several weeks.

As part of their pitch, PBL officials have suggested that the Crown Web site would be promoted as a prime feature of NineMSN. PBL officials declined to discuss their Web gambling plans with MSNBC.

But a NineMSN spokeswoman acknowledged that the partnership expects to be asked by PBL to carry the Web gambling as a "channel" on NineMSN.

There is "no doubt they see it as a significant opportunity," said NineMSN marketing director Kim Anderson.

NineMSN would not actually operate the Web casino, she added. Instead, NineMSN would receive financial consideration for promoting it. Anderson also emphasized that it was not a foregone conclusion that NineMSN would market the site. Instead, the board of the joint venture is waiting for a proposal from PBL, and is still holding open the possibility of rejecting the offer, she added.

But the head of PBL's online operations is also chairman of NineMSN's board. NineMSN also has exclusive rights to PBL's Internet content. And financial analysts consider it likely that NineMSN will carry the Web betting site.

"The distribution channel of PBL and Microsoft is almost unchallenged by other Internet gambling operations," Deutsche Bank's Australian-based gaming stock analyst Lily Kwong wrote in a research note supporting the Crown acquisition.

Kwong added that the PBL betting site "has the ingredients to be successful" and emerge as a dominant global player in online gambling. Kwong wrote that the Web wagering market is expected to total $2.3 billion by 2001, three times the $650 million wagered online last year, citing estimates by gambling industry consultant Christiansen/Cummings Associates.

Furthermore, Internet investors may get a chance to invest in PBL's online casino. Last week the company disclosed that it had hired Goldman Sachs to study spinning off a minority stake of its portfolio of Internet holdings in an initial public stock offering.

Microsoft officials declined to comment. But Microsoft chairman Bill Gates has expressed at least a passing interest in Internet betting, in his 1995 book, The Road Ahead.

In a passage describing how he occasionally plays blackjack in Las Vegas, Gates noted that gambling could prove popular on the Net.

"Gambling is a highly regulated industry, and we can't be sure what kinds will be allowed on the Net, or what the rules will be," Gates wrote.

"One thing's for sure," he added. "The global interactive network will make gambling far more difficult to control than it is today."

American Casinos: Actions vs. words
The involvement of American casino companies such as Harrah's and Park Place Entertainment ( which operates gambling properties that formerly were part of the Hilton hotel chain) in Australian gambling runs contrary to the publicly stated position of the U.S. casino industry.

The industry, through statements by its primary trade group and by large casino companies such as Harrah's, has supported a ban on Web gambling, saying it is not currently possible to adequately regulate Web betting sites, or to keep them away from minors and those living in areas that ban gambling.

"Harrah's is adamantly opposed to Internet gambling," maintained a spokeswoman for the company, which operates 20 casinos in the U.S. and overseas.

"We believe that at the present time there does not exist in the Internet area the technology to provide effective licensing regulation with appropriate law enforcement involvement," added Frank Fahrenkopf, chairman of the American Gaming Association.

Fahrenkopf has made similar statements before Congress on behalf of his trade group, which counts top executives of the ten largest American casino companies -- including the CEO of Harrah's -- on its board of directors.

Nonetheless, Harrah's is the largest investor in Star City Holdings Ltd., the Australian company that owns the only licensed gambling complex in Sydney. Harrah's holds a 25 percent stake in the Australian company, owns a controlling stake in Star City's casino subsidiary, and also operates the casino under a management contract. Harrah's CEO Philip Satre is a Star City director.

Star City is currently crafting plans to expand its land-based gambling franchise into cyberspace. Spokesman Peter Grimshaw said his company's "hope" is to establish a Web betting site within a year to eighteen months, assuming the Australian state of New South Wales, for which Sydney is the capital, passes rules allowing the expansion.

In anticipation of that approval, Star City is holding talks with telecommunications and Internet companies for help building and operating a Web betting site, Grimshaw added.

Harrah's vice president Berry said that Star City's efforts to develop Web gambling weren't at odds with Harrah's stated opposition to Web gambling. Instead, he said that Star City is an independent company, and that Satre, currently in Australia for a Star City board meeting, has conveyed his concerns to Star City's CEO. But Harrah's also isn't closing the door on Star City's Web ambitions.

"We certainly are not against them exploring the risks and opportunities that are available to them," Berry said.

Current challenge
But American involvement in Australian gambling isn't just a prospect for the future; it's an immediate challenge. Indeed, Park Place Entertainment, a Nevada-based company, holds a 20 percent stake in Jupiters Ltd., which operates four casinos in the Australian state of Queensland. In November, Jupiters bought a telephone and Web-based sports betting operation called Centrebet, which is currently taking bets at www.centrebet.com.au.

And Las Vegas-based American Wagering Inc., which runs sports betting books for 48 major hotels and casinos in Nevada, by March expects to begin taking bets on an Australian licensed sports betting Web site, www.megasports.com.au.

Collectively, industry experts say, the Australian sites appear poised to establish the continent as a global hub for cyber-wagering, taking advantage of moves by Australian regulators to make their country the first major gambling haven to legalize and license Web betting.

The key for the major Australian betting sites is that they will enjoy financial and marketing clout far beyond the capabilities of the approximately 200 small-time betting sites currently on the Web. Most of those sites are based in loosely regulated Caribbean countries, and are run by little-known entrepreneurs with modest financial backing.

The Australian sites, for now, are refusing to take bets from Americans, in order to comply with American prohibitions on Web gambling. But industry experts predict that Web bettors outside the U.S. will migrate to Australia, attracted by the better-known and more tightly regulated Web casinos the country will offer.

"Legitimate Australian Internet gambling business will attract investment capital," Christiansen/Cummings analyst Sebastian Sinclair wrote in a January report on Web gambling. "When this happens, the days of the Caribbean based kitchen table Internet gambling entrepreneurs are numbered."

State-by-state approach
The American and Australian companies are taking advantage of a state-by-state approach to Internet gambling that has been embraced by Australian regulators. In 1997, gambling commissioners from around the country approved a national framework to legalize Web gambling, in which states take the lead in licensing online casinos. So far, four of Australia's eight states and territories -- Queensland, the Australian Capital Territory, Tasmania and the Northern territory -- allow Internet gambling. Most of the other jurisdictions are expected to enact legislation allowing Web gambling in the coming weeks and months. The regulations generally mandate that Web betting sites require bettors to show some kind of proof of who they are, in order to keep out minors and others who should not be allowed to bet online.

But the Australian approach to oversight is raising concerns among American gaming regulators, who question the Australians' commitment, or ability, to keep out bettors from the U.S.

That's key, since foreign sites would be deemed in violation of the law if they routinely accept bets from American states that ban Web wagering. The prohibition would be extended nationally, if Congress passes a Web gambling ban expected to be introduced this session by Sen. Jon Kyl (R-Ariz). The bill enjoys broad bipartisan support, and passage is considered likely.

Sue Sperry, assistant attorney general for Missouri, a leader among states in prosecuting Web gambling sites, said she is openly skeptical of the Australian regulations. Sperry was the top attorney for the states high profile, and successful, litigation to shut down Web gambling operations of the Coeur d' Alene Indians in Idaho, and a Caribbean-based betting site run by a Pennsylvania company.

"I have never been presented with what I consider to be a viable regulatory regime for Internet gambling," she said.

Sperry added that she would not hesitate to prosecute operators of Australian sites found to be taking bets from Missourians. Such activities can be civil or criminal violations, punishable by fines of up to $60,000 per violation, and up to five years in prison.

"It's not clear to us how you prevent anybody in a jurisdiction where that type of gaming is not permitted from accessing your Web site," added Steve DuCharme, chairman of the Nevada Gaming Control Board, which regulates the state's casinos.

DuCharme said that companies such as Harrah's, Park Place and American Wagering could be found liable for their involvement in Australian Web sites, if those sites take bets from surfers in areas where cyber-gambling is prohibited. Indeed, the Gaming Control Board has the authority to revoke the companies' Nevada gaming licenses if the violations are serious enough.

"It's a risk that's on their shoulders," DuCharme said. "We have cautioned them."

Weeding out the Americans
In response, the Australian Web site operators say they intend to enforce strict prohibitions on taking bets from Americans.

For example, when Jupiters bought Centrebet, the sports betting service stopped taking bets from Americans, and canceled the more than 300 accounts that Americans had opened there, said Piers Morgan, Jupiters' general manager for gaming and wagering development.

That meant abandoning one of the biggest potential markets, Morgan said. But Jupiters, and investor Park Place, did not want to take the risk of accepting bets from the U.S., he added. Morgan said that Jupiters enforces the ban on Americans by requiring customers to fax over some form of identification -- such as a copy of a drivers license -- before opening an account, and rejecting anyone listing a U.S. address.

Victor Salerno, CEO of American Wagering, added that his MegaSports site will employ multiple screens to keep out Americans and minors. Those will include requiring credit cards, which list home addresses for cardholders and presumably aren't available to minors, and using technology to verify the country of origin for a surfer's Internet service provider.

"Theoretically, anything is beatable," Salerno conceded. "But we are taking extremes."

Nonetheless, American regulators and law enforcement officials said they were skeptical that the controls would be sufficient, or that Australian regulators would be vigilant in policing the casinos.

Indeed, a top Australian gambling regulator, speaking to MSNBC on the condition that he not be identified, expressed ambivalence about enforcing other countries' bans on Web gambling.

"We would expect that those having licenses have regard for the laws of other countries," the regulator said.

But, he added, Australian Web casinos may be available to surfers -- in so many countries -- that local restrictions might be impossible to enforce.

"If they want to be arrested when they land on the ground in Los Angeles, that's their business," the regulator said.