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American Companies Ready to Throw the Dice?

Gambling is part of the current of American life, from the Numbers Game that was the underground fore-runner to today's state-run lotteries to horse racing, office betting pools and, of course, casinos.

Like all other parts of American life, gambling has found its way onto the Internet and has made a comfortable home for itself there. According to a report from Bear Stearns, "E-Gaming Revisited -- At Odds With the World," released Thursday, the popularity of online gaming is soaring and the industry has the potential to become extremely profitable. The report said the number of online gaming sites has more than doubled in the past year, rising to between 1,200 and 1,400 from 600 to 700 a year ago.

"This is becoming a real opportunity," said Marc Falcone, Bear Stearns gaming analyst. "There is a great deal of potential and it is evidenced by the number of sites that are sprouting up."

Online gaming sites offer a variety of gaming activities, from lottery games to horseracing, sports wagering and casino games -- virtually all the games of chance available offline.

"These sites are getting pretty sophisticated," Falcone said. "They have high tech graphics, live video and they allow you to play some of the same games you would find on the casino floor."

Also, according to data Bear Stearns gathered from comScore Networks and Nielsen Netratings, the online gaming population's income bracket is skewed slightly lower than that of the overall Internet population, but that demographic also has a higher propensity to spend more on general e-commerce transactions.

But while the audience and demand seems to exist -- not all that surprising considering that real life gaming flourishes even in states that have laws against most forms of gambling -- American companies have not really had the opportunity to reap the benefits.

"Due to the regulatory uncertainty that exists in the United States, many online gaming sites have emerged in other countries," Bear Stearns said. "Operators have sought out gambling-friendly havens such as Antigua, Bermuda, Costa Rica, the United Kingdom and South Africa. The United States government has yet to give clear signs how they will deal with the issue of online gambling. Currently, legislative proposals to ban online gaming have stalled in Congress and there does not seem to be any great push to revive them."

Indeed, Falcone said he feels legislators may be willing to explore regulating the industry rather than banning it outright.

"I get the impression most legislators realize how difficult it would be to ban online gambling from every computer in the United States," he said. "I think they would be much more successful at shaping a regulatory landscape."

If that occurs, Falcone said, U.S. casinos and gaming companies are ready to ante up. MGM Mirage and Harrah's Entertainment, two well-known casinos, have already forged agreements with existing online gaming companies to develop play-for-fun sites, hoping to create brand recognition and customer loyalty.

"It is a smart move," Falcone said. "They are building a large customer base that they should easily be able to tap if the regulatory environment becomes more accommodating."



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