June 21, 2001
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MGM Mirage Prepares
For Web-Based Gambling
By BECKEY BRIGHT
THE WALL STREET JOURNAL ONLINE
U.S. federal and state laws essentially prohibit online gambling, but this soon could change.
Earlier this month, Nevada lawmakers asked state gambling regulators to explore ways to license and regulate online casinos -- a move that could ultimately create a model for similar regulations in other states.
However, this potentially lucrative business continues to be highly controversial, facing opposition from politicians such as Rep. John Kyle (R. Ariz.), who has backed a bill to ban many forms of online gambling. Another hurdle is the 1961 Wire Act, which federal officials say prohibits operation of Internet casinos -- an interpretation that isn't shared by some courts and legal experts.
A primary consideration for regulators is whether casinos can demonstrate technology that prevents bets from being placed by minors or by anyone living in a jurisdiction where gambling is illegal -- which currently includes most states.
Jim Murren, the president and chief financial officer of MGM Mirage, talked recently with The Wall Street Journal Online about the impact of the Nevada legislation on his company, on other U.S. casinos and on the future of Web-based gambling.
The Wall Street Journal Online: Can you explain what the Nevada legislature's actions mean for the industry and for MGM Mirage specifically?
Mr. Murren: I don't know that it means much more than another data point in the inevitable evolution of Internet gaming. You can take an ostrich-type mentality to it -- kind of stick your head in the sand and hope you never have any competitive issues or threats. Or you can take a more proactive position.
Jim Murren
Q: So is MGM Mirage taking a proactive approach?
A: Well, certainly we have. But we've done so in a measured way. The first thing we did was sit down with our regulators, particularly here in Nevada and [told them] we certainly want to use the Internet more as a tool to reach out to our customers: to provide a better opportunity to service them through reservations, through ticketing, through rooms ...; provide an interactive opportunity; create a broader database of people; and get our brands, which are so valuable, further leveraged into nongaming environments. ...
I think they appreciated the fact that we sat down right from the very beginning, before we did anything. We view this as a collaborative effort that we are working with regulators, politicians and people in the technology to try to learn together about what this is all going to be. ...
Q: In March you launched a prize-based Internet gaming site with a company called WagerWorks. How has the site been received?
A: It's [too] early to tell. But the hits go up exponentially month by month. ... We haven't disclosed those figures, but they're tens of thousands of people, tens and tens of thousands of people. ...
As a prize site, this site is viable in and of itself because ... it's a very, very sticky site: People play close to an hour per session on the site, and of course that gets the advertisers salivating. ...
Q: What areas of the Internet are you thinking of moving into, beyond the prize-based site?
A: What we're learning as we go along is the complexities of Internet gaming. And we can apply that in ways that are completely legal today outside the U.S. That's our phase two: to explore jurisdictions outside the U.S. that set up a regulatory scheme that's rigorous; that's something we're comfortable with; that's something, as importantly, that our regulators in the U.S. would be comfortable with.
And [we want] to leverage our brands that are so well known world-wide into overseas markets where Internet [gambling] has either been approved from a legislative standpoint or could be approved in the future.
Q: So you're looking at overseas markets before you're looking at the U.S.?
A: Clearly, absolutely.
There are significant unanswered questions in the U.S. There's a variety of interpretations of the Wire Act. ... And an enormous amount of discussion has to occur here, probably years of negotiation and discussion if anything at all happens. ...
But that's not the situation everywhere in the world. If we find a jurisdiction that we like and if we find a regulatory scheme that [is] appropriate and rigorous; if we find a licensing regime that is tough and that would ensure the integrity of not only us, but anyone else operating in that same jurisdiction; if we find we can set up firewalls that are tight enough to prevent citizens of countries that do not allow their citizens to game from a cash basis and we involved the appropriate regulatory bodies, then there is potentially an opportunity there.
Q: How would you exclude users from a specific country? Is this technologically feasible?
A: Every time you come up with something really great, some hacker comes around and breaks it. But there's all kinds of identification technology being developed, whether it be via eye lasers or fingerprints or digital photography or voice activation. And this identification software and technology is critically important -- not only to gaming, which is small -- but in general commerce ... to ensure that the person on their computer is who he or she says they are. If you can get that technology in a very comprehensive way, then you can ensure that the law is not being skirted in some way.
Q: Are you in talks with software companies about developing this type of technology for MGM Mirage?
A: A lot of companies are approaching us; I think they realize the potential there. ... We're blessed with the fact that we have probably half a dozen brands that you know ... and that's a big advantage for us.
Q: Will you be working with Nevada's Gaming Control Board, which is now charged with looking at how to draft specific rules to govern online gambling?
A: As a licensee in the state, if called upon for input, we would be happy and ready to provide it. But they, of course, would drive the process ...
I'm sure that they will probably bring in a variety of experts from the Internet world, from other jurisdictions, probably even overseas, where there's already an Internet presence. And I imagine they would ask for the input of operators and licensees. But we're in the back of the bus, not the front of the bus there.
Q: The Nevada bill proposes a licensing fee of $500,000 every two years and a 6% tax on casino profits. What do you think of these provisions?
A: The reality is, most of that is putting the cart so far ahead of the horse as to not even see the cart anymore. To set up a tax regime for something that isn't even remotely legal today seems a little bit ambitious. Also, because of the very mobile nature of Internet [gambling], if the tax rate is ridiculously high -- and I'm not saying this one is -- but if it's ridiculously high, then there would be a significant impulse to set up shop some place else.
But from a standpoint of setting what may be perceived to be high thresholds for a license fee, what we go to bed at night thinking about is the fact that MGM Mirage has billions of dollars invested in Nevada, literally billions: We are the largest employer in the state. We are one of the largest taxpayers, if not the largest one, in the state. ... And we would do nothing to jeopardize our license in the state of Nevada, which is so critical to us in the operation of a multibillion-dollar public company. …
And if the objective was to make sure that for every license handed out, the potential operator would have a vested interest in maintaining the integrity of [its Web] site, then nobody has a bigger interest than we do. ...
Q: So are you saying the licensing fee is a way to protect the public from potential fly-by-night operations?
A: Well, it will certainly have a cooling effect on the fly-by-night operations. That's one screen of many that would have to be in place.
Q: How else would regulation affect online gambling?
A: Well, to get a license in this state is the most comprehensive invasion of your life that you've ever been through. They'll go back to your childhood. They'll look at every possible financial record that you have. They have access to every bit of information that's ever been created about you. ... The objective is to find people who are appropriate to have a privileged license. ...
Some people say there are about 1,400 [gambling] Web sites. Who knows the right number, because so many are of a dubious nature. They're here today, gone tomorrow, and there's absolutely no level of customer security in that type of operation. ...
Q: What other potential hurdles do you see for making online gambling legal in the U.S.?
A: Well, I think a significant one will be a definitive legal opinion on the Wire Act. From what I've read ... in terms of Internet betting on horse racing and sports, the court has ruled that is prohibited by the Wire Act, but casino gambling -- table and slot-style gambling -- is not covered. Still, there has to be some conclusion as to whether or not the Wire Act has any kind of jurisdiction here. And if not, whether the Kyle Bill or any other bills get through and decide one way or another the state of Internet gambling for U.S. citizens.
I personally think it seems inevitable that within my lifetime there will be Internet gaming that is available and permissible for U.S. citizens. So I just think if I hang out for a while, we're going to see it. ...
Q: And MGM Mirage would benefit from this?
A: Well, I would think so. There is a counter-opinion to that: that if you can do it at home or in a cyber café someplace, why bother to go out to Las Vegas. ... That would be a problem if we were simply a supermarket with slot machines. But we're not. We create these very captivating buildings that people really, really like to go to. There are a lot of reasons to come here [Las Vegas] without ever gambling. That's why I think Las Vegas will do just fine, even if Internet gaming becomes more pervasive. ... But not everyone thinks that.
Write to Beckey Bright at beckey.bright@wsj.com |
