Super Bowl Spurs Online Gambling as Betting Firms Shun U.S. Law
Jan. 27 (Bloomberg) -- Steve Schillinger, a former options trader at San Francisco`s Pacific Exchange, says Internet gambling gave him a comfortable life on a Caribbean island. It also made him a fugitive from U.S. justice.
The 50-year-old co-owner of World Sports Exchange, the sports-betting Web site he helped found eight years ago, was indicted in 1998 on charges of violating the federal Wire Communications Act, which bars gambling businesses from taking bets over interstate or international wires. Schillinger, who now resides in Antigua, risks arrest if he visits his 14-year-old daughter and 13-year-old son, who live with his ex-wife in California.
Schillinger takes in about $600 million a year in bets. He`s planning a party for his 75 Antiguan employees as they watch Sunday`s National Football League Super Bowl championship game between the Carolina Panthers and New England Patriots. About 139 million people watched last year`s Super Bowl on television, the league says. Schillinger isn`t worried about extradition because Internet gambling is legal in Antigua.
``I don`t regret starting this business,`` Schillinger said in a telephone interview. ``The U.S. can`t control the Internet. There is tremendous growth opportunity here.``
Some U.S. lawmakers contend that online gambling has links to organized crime and lets youngsters bet with their parent`s credit cards. Gambling-company executives say that`s hypocritical. They note that governments gain revenue from licensed casinos and sanctioned lotteries. Industry officials generally favor a government-regulated marketplace as opposed to prosecutions under the Wire Act.
Worldwide Growth
Internet gambling, which is legal in the U.K., Australia, the Netherlands and elsewhere, is burgeoning worldwide. The industry`s revenue rose 42 percent to $5.69 billion last year over 2002, according to Sebastian Sinclair, a casino consultant and the president of Christiansen Capital Advisors LLC in New Gloucester, Maine. Sinclair said the 2003 figure will double to $11.6 billion by 2006.
About $2.63 billion, or roughly half of the 2003 total, was bet on sports last year, he says.
Sinclair`s research is based on data from publicly traded gambling companies, private companies that share information and Internet-software makers that process the bets. About 75 percent of his global estimate is based on such data and the remainder is an estimate, Sinclair says.
``Growth in the industry will continue unabated, despite U.S. laws that attempt to police the activity,`` Sinclair said in an interview. ``Bottom line will always be that if you want to place a bet on line, there will be a site out there designed to take it for you.``
U.K.`s Sportingbet
Sinclair analyzes the industry, not individual companies, and owns no casino industry stock.
About 100,000 people bet each month through London-based Sportingbet Plc, Chief Executive Nigel Payne said in a telephone interview. Of the 60 percent wagering on sports, more than half are from the U.S., he said.
To attract U.S. bets, Sportingbet sponsored the Grand Prix Americas car race in Miami last September, hanging 2,836 advertising banners around the track.
The company said its customer base surpassed 1 million in the third quarter of 2003, up from 559,000 in the first quarter of 2002. Sportingbet`s shares rose 22 percent last year. The shares of U.K. rival William Hill Plc, which operates a chain of betting and gaming shops, surged 88 percent. Hilton Group Plc, with hotels, health clubs and betting shops, increased 35 percent.
Schillinger projects that sales at his closely held company will rise in the range of 30 percent to 50 percent a year for the next three years. He said his revenue comes to about 3 percent of the total wagered; he declined to discuss profits.
Sunday`s Super Bowl will be one of the biggest events on the sports betting calendar.
Legal in Nevada
In Nevada, where direct gambling on sports events is legal in licensed casinos, fans wagered $71.6 million on last year`s Super Bowl, according to the Nevada Gaming Commission.
That`s a fraction of the $400 million that Sinclair says gamblers will wager on this year`s Super Bowl via the Internet.
Still, the industry faces the possibility of federal restrictions. Legislation moving through Congress to bar banks from allowing credit-card payments for online betting already has had an impact. Sportingbet told investors in July than some unidentified U.S. banks suspended processing of online betting transactions via credit card, limiting the company`s access to the U.S. market.
``Our numbers could be 20 to 30 percent higher if every customer`s credit card transaction could go through, but no one seems to think the U.S. can stop it,`` Schillinger said. ``It`s like holding back the tide. I can`t imagine a Super Bowl when someone doesn`t want to bet on it. Can you?``
Credit Cards Targeted
In February 2003, the U.S. House of Representatives passed a bill that would make it illegal for banks to process credit card payments, checks and electronic fund transfers to Internet gambling companies.
The Senate Banking Committee has approved similar legislation. Its author, Senator Jon Kyl, an Arizona Republican, says the online gambling business ``is linked to organized crime, rife with fraud, ruins credit ratings and allows many young people to build up thousands of dollars in debt on their parents` credit cards.``
Schillinger moved to Antigua and created the sports betting Web site in 1996. He and a partner, Jay Cohen, were indicted in U.S. District Court in Manhattan two years later on charges of violating the Wire Act. The 1961 law originally was intended to fight organized crime.
Prison Time
Cohen returned to the U.S. in the belief that the government`s charges could be thrown out. He was convicted in 2000 and is serving a 21-month sentence at Nellis federal prison in Las Vegas. Schillinger remained in Antigua and continued to build his business.
``Right now, the U.S. is just a nagging thorn in my side,`` Schillinger says.
Gambling is largely regulated by states, and some are more permissive than others in issuing licenses. While it`s up to state prosecutors to decide whether an individual placing an online bet is breaking the law, the U.S. Department of Justice focuses on companies accepting bets. Selective prosecutions are designed to deter the creation of new online gaming sites.
``Online gambling is illegal, and those businesses accepting online bets do so at their own peril,`` said Casey Stavropoulos, a Justice Department spokeswoman.
PayPal Fined
Federal prosecutors have targeted companies that help collect the money. PayPal Inc., an electronic payments service that is a subsidiary of the online auction site EBay Inc., was charged last year in federal court in Missouri with processing offshore Internet gambling and sports-book transactions. It paid $10 million to settle the charge.
Even so, it would take an army of lawyers to investigate all the gambling sites on the World Wide Web. About 1,800 such sites exist, according to a 2002 letter to Congress from Lawrence Lindsey, then the chief economic adviser to President George W. Bush. Sportingbet`s Payne noted that although he could have been charged with accepting bets from the U.S., he wasn`t arrested when he flew to Miami and appeared with Mayor Manny Diaz along with other sponsors of the Grand Prix Americas.
The growth of online betting has some analysts and lawmakers wondering if it wouldn`t be better to legalize Internet gambling.
Representative John Conyers, a Michigan Democrat, favors state regulation of the business and introduced a bill last year to create a commission that would recommend ways to do so. The legislation remains in committee.
Web`s `Blacklist`
``Regulation will drive dishonest, fraudulent gambling sites out of business and provide states with much-needed tax revenue,`` Conyers said in an e-mail to Bloomberg News.
The Web site JoeWager.com, which reviews and rates sports betting sites, puts some on it what it calls its ``blacklist`` for reasons ranging from poor customer service to complaints of companies taking bets and not paying winners.
Schillinger and other operators of Internet gambling companies say a regulated industry would mean transactions could be tracked, the ages of bettors could be verified, problem gamblers would be cut off and states would be provided with licensing revenue.
``The government doesn`t have a problem with gambling when they are getting a cut of the business,`` said Haden Ware, Schillinger`s Antigua-based partner. ``They run state lotteries, there is gambling in Nevada and Atlantic City, there`s riverboat gambling, the Indians have casinos. Regulation would be fair and protect everyone.``
Sportingbet`s Payne agrees.
``A lot of governments in the world, including the U.S., have been rather quietly taking substantial tax revenue from citizens` gambling, whether through lotteries or sports betting. They are being hypocritical,`` he said.
Last Updated: January 27, 2004 00:02 EST
