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Internet Gambling

Why is Washington out to stop it?
Bruce Schoenfeld
From the Print Edition:
Gene Hackman, Sep/Oct 00

(continued from page 5)

In addition, he doesn't let anyone lose more than $4,000 a month on his site without submitting financial information that verifies he or she can afford to. "I don't let people get stuck who can't afford to get stuck," he says. "It's not good for me and it's not good for the industry."

Like the proprietors of other Internet sites that appear to be reputable, Stein talks a lot about what is and isn't good for his industry. As a businessman, it's his only hope for legitimacy. In that sense, the Kyl bill worries him. "He's going to bring the criminal element into the industry," Stein says. "Right now, it isn't there. Ninety-nine out of 100 are trustworthy sites. But once he starts making these people like Jay Cohen run, and making them criminals, what stops them from becoming complete criminals? What stops them from just screwing the customer?"

Stein claims to know an Internet sports book--not the biggest or the smallest, but one of about average size--making a $5 million monthly profit. Based on the industry standard of 3 to 5 percent profit, that translates into an $80 million monthly handle, which is almost $1 billion a year. "And that's just one site," he says. "And they're just doing sports. I don't know what you multiply that by to get a total number, but the amount of money involved is unbelievable. Billions and billions of dollars."

While waiting out their exile, Ware and Schillinger have become millionaires several times over. Though World Sports Exchange is privately held and isn't required to submit its books to an auditor by U.S. or Antiguan law, Schillinger, who says he made a steady $250,000 a year trading stocks, expects each of the partners will make at least four times that this year. His estimates may be stunningly low.

You might want to believe that World Sports Exchange is two guys in beach chairs, making odds with their toes curled into the sand. In reality, though, the office is set in a strip mall outside Antigua's capital. Except for the palm trees in the parking lot, it could be anywhere. To enter, you walk past a video shop and a pharmacy, up a flight of stairs, then through an unmarked door.

Along one wall is a bank of half a dozen computer terminals, manned by locals. They take phone bets and monitor online action. The system is rigged so that a tone sounds each time a bet is placed online, and the tone chatters away at the rate of about one every two seconds. Since the average bet is about $100 and the average take at the end of a week is 5 percent, each tone means about $5 profit. It is the sound of money.

Schillinger and Ware spend about eight hours a day watching sporting events, working the computers, and supervising a staff of 12. Weekend days are somewhat longer, but not too onerous. "When we first got down here, we were working 14-hour days setting the whole thing up," Ware says. "It isn't like that now. This isn't rocket science, what we're doing. We need to be around, make sure nothing goes wrong, but it's nothing that hard."

It's not deep thinking for the consumer, either, which is why it's so enticing. In a sense, sports gambling via computer isn't too different than playing the stock market using E*Trade, Ameritrade or any of the other securities Web sites. A major difference is that E*Trade and Ameritrade are legal and advertise on television.

That's odd, in a sense, because sports betting actually has more transparency than securities trading. How many of those online traders buying 100 shares of this stock and selling off 500 shares of that really understand the fundamentals of the businesses they invest in? And balance sheets are notoriously ambiguous. A football or basketball game, on the other hand, is played in public. There's nowhere to hide.

Kyl is right that point-and-click betting is easy. So easy that it would be tempting to bet online from your hotel room even if you were staying at Caesar's Palace, an elevator ride above the most complete sports book in the world. It should come as no surprise, then, that the consumer base for online sports gambling is growing exponentially every year. "The Caribbean this year will book more sports bets than all the sports books on the Strip," Ware says. "And in another year, this island alone will take that."

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