Casino Watch: Internet Gambling Foes Could Be New BFFs (LVS, WYNN, MGM, MPEL)

The companies that own bricks-and-mortars casinos have never been big fans of online gambling. In this they have been on the same side as the US Congress, which, in 2006, passed a law that effectively makes it illegal to gamble online.  A gambling industry group, the American Gaming Association, was founded in 1995 to lobby for the industry with the federal government. The association includes major casino companies including Las Vegas Sands Corp. (NYSE: LVS) and MGM Resorts International (NYSE: MGM). An article in The New York Times also notes that Wynn Resorts Ltd. (NASDAQ: WYNN) is a member, but the AGA website does not list Wynn among its members. Another large casino group, Melco Crown Entertainment Ltd. (NASDAQ: MPEL) is also missing from AGA’s roster as it is not operating US casinos.

What appears to have changed in the casinos’ position opposing online gambling is new industry research showing that online poker games do little harm to casino revenues. Gambling executives have long feared that online gambling would decimate their business, but now that that seems to have been proven untrue, the industry appears to be ready to review and perhaps modify its stance against online gambling.

Add to that diminishing tax revenue at both the federal and state levels, and the stars are aligning for a change in online gambling rules. Federal and state governments are looking for new sources of revenue, and taxing gambling could prove to be a winning hand.

Most of the pressure is coming from states, which have always been allowed to set their own gambling laws. Federal law prohibits inter-state gambling, but there is no prohibition against intra-state gambling. Well, except for the fact that it’s essentially impossible to enforce intra-state only gambling.

Because the federal government has still not implemented rules to enforce the 2006 law banning online payment for gambling sites, there’s no effective way to stop gamblers from indulging in offshore sites.

If the casino business supports online gambling, it will almost surely support only online poker. Sports betting and other casino games would not be included. And it’s also fair to assume that at least some of the casino operators would start up their own online poker games.

According to the AGA, 2009 gambling revenue totaled $30.74 billion, a drop of 5.5% from the 2008 total. If casinos could recover some of that with online poker it makes sense that they’d leap at the chance. Harrah’s has long supported online poker games because it sees those games as supporting the company’s World Series of Poker franchise.

If casinos get into the online gambling business, federal and state legislatures will experience intense pressure from all sides. Every gambling operator, from state lotteries to racetracks to Indian tribes, will be looking for a way to go online. Players could buy lottery tickets online, bet the ponies, and maybe even play roulette.

Opposition, if it comes, is likely to appear from the social conservative forces that have long opposed gambling on moral and ethical grounds. They are almost certain to lose this time, though, because the potential for new tax revenues may be too strong to resist.

The US House of Representatives has approved legislation that would legalize all online gambling except sports betting, but unless the big casinos line up behind the bill it is highly unlikely to pass the Senate.

But the big casinos appear to be changing their minds about online gambling, now seeing more dollars rather than fewer flowing into their pockets. Federal and state governments see the same thing, more tax dollars flowing in at very little political cost.

Paul Ausick