Calling All High Rollers--to the Web

Suddenly, online gambling is big business in Europe

The scruffy Paris headquarters of Biskott look like any other software startup's: desks piled with technical manuals and coffee cups, a collection of quirky toys, and a few carpet stains from the chief executive's dog. What you don't see are blue-haired ladies hunched over seas of bingo cards. Yet Biskott is one of the busiest gaming halls in France. Every month, more than a million people log onto its Web servers to play games of chance that win them points to spend on merchandise. The popularity of the free, ad-supported site helped Biskott log sales of $1.2 million in 2001.

A modest amount, but Biskott is merely the tip of the iceberg. All over Europe, Internet surfers are visiting gaming and gambling sites in record numbers, helping online betting become one of the fastest-growing businesses on the Net. "Face it, sin sells," says senior analyst Paolo Pescatore of researcher International Data Corp. in London. This year alone, figures British researcher Schema, Europeans will bet more than $3.7 billion online, vs. about $139 billion in traditional venues. By 2005, Schema says, the figure could climb to nearly $15.5 billion. And depending on payout rates, online bookmakers and casinos will pocket as much as 20% of that, making them among the Net's most profitable businesses.

Europe's love affair with e-gambling isn't unique. American Web surfers will wager an estimated $11.4 billion this year, even though doing so is largely illegal, and some Asian countries are coming on strong. What makes Europe unique, though, is how hospitable some governments--especially Britain's--are to e-gambling. Coupled with fast-growing residential Internet and broadband penetration, that tolerance is turning Europe into today's e-gambling hot spot.

Most important, online gambling is helping drive growth of new media channels. Schema figures 84% of e-betting this year will take place over the conventional Web, but by 2005, nearly a third of it will happen via mobile phones or interactive TV. Money from such services is manna for wireless operators, who face sagging average revenues per customer and need sexy services to drive demand for their expensive new 3G networks. On Apr. 4, France Télécom's cellular Orange unit launched wireless betting in Britain, in time for the Grand National Derby, and drew hundreds of customers without any promotion. Analysts figure European carriers will make 10% to 20% off gambling from commissions and access fees, boosting the wireless industry's top line by up to $500 million in 2005.

The same goes for Europe's interactive-TV companies--many of which are in financial crisis. They're looking for "killer apps," and some are already turning to gambling. Take the tieup between France's Pari Mutuel Urbain horse-racing monopoly and the country's two leading interactive-TV services, CanalSatellite and Télévision Par Satellite. One click on the remote takes viewers from sports channels to on-screen betting. Since the services were launched in 2000, some 70,000 punters have signed up and spent more than $92 million at the virtual track. Similar satellite-TV services are on tap in Sweden, Italy, and Portugal.

To be sure, online gambling faces big obstacles. Foremost among them: vast variation within Europe on its legality. Britain has adopted the most liberal approach and "could shortly offer the best environment for online gambling companies in the world," says Merrill Lynch & Co. analyst Andrew Burnett. Elsewhere in Europe, though, the picture is murkier. In most countries, either online gambling is banned, or only state-sanctioned activities such as lotteries are permitted. Another problem is fraud. In the U.S., banks and credit-card companies increasingly refuse to process transactions from e-casinos. Europeans may well decide to do the same. MasterCard's regional clearinghouse, Europay International, recently disclosed that e-gambling was its No. 1 source of fraudulent transactions.

No matter what happens, entrepreneurs will likely find ways around the roadblocks. Gambling on the Net is here to stay, whether it gains social acceptance or stays in the shadows. And it's bound to be a big moneymaker for everybody who touches it--except, of course, all those bettors.

By Andy Reinhardt in Paris

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