Virtual Gambling's Real Challenges

Interactive Gaming Council's Keith Furlong discusses the industry's consolidation and the regulation issues Net casinos face

Keith Furlong has gone to the so-called dark side. After working for five years as the legislative liaison for the New Jersey Division of Gaming Enforcement -- the arm of the New Jersey Attorney General's office that regulates the state's casinos -- he joined a consulting firm and became deputy director of the Interactive Gaming Council. A Canadian-based nonprofit founded in 1996, the IGC is the foremost trade group representing the interests of the booming online gambling industry.

BusinessWeek Computers Editor Spencer E. Ante recently spoke with Furlong about the state of online gambling and efforts to regulate the industry. Edited excerpts from their conversation follow:

Q: How many members do you have?


Three years ago we had 100 members. Today we have 70. There has been a lot of consolidation. Three months ago, Sportingbet bought Paradise Poker for $300 million. That's by far the biggest deal. You might see some big deals going forward. I think the industry is on the verge of increasing credibility.

Q: Who are the big players in this industry?


The software companies that run the casinos are controlling the industry. The software companies would license software and in most cases would become a partner, getting 20% of gross commissions. PartyPoker is the biggest [gaming site]. The parent company is iGlobal Media, based in Gibraltar. They license their software to online casinos.

Casino-on-Net is a huge company in this space. The biggest software player is Microgaming, which is based in South Africa. The people that I deal with now are much more experienced businessmen. People don't realize how much money is involved.

Q: How can you regulate online gambling? It seems impossible with all the fly-by-night operators.


With this technology, there are actually better controls for regulators. There's a trail for every transaction. You need to know your players. There are registration processes that need to be implemented. In any case, how many times have you heard of a land-based casino stopping its players? In my experience as a regulator, I've never heard of a pit boss saying you have a problem.

Q: The U.S. Justice Dept. says online gambling companies have links to organized crime. Is that true?


I haven't seen it. I have heard there are some connections with sports-betting companies based in Costa Rica. But if the U.S. regulated online sports betting, they would hurt the organized-crime groups.

Q: So far, the U.S. government shows no appetite for regulating online gambling. What's the cost of maintaining such a policy?


The U.S. will be left out of the game. The U.S. government will be left out of the tax equation.

Q: The biggest news on the regulation front is the new British gambling bill. What's its purpose?


It deals with land-based casinos and online casinos. The gist of the bill is to set up new locations for land-based casinos and to regulate and tax online casinos. But there are so many different interests, if everyone doesn't get what they want, they'll just kill it. I just came back from the U.K. from an online gambling conference. I'd say there's a 20% chance it will pass.

Q: What challenges does the industry face?


It's not expensive to open a Web site. There are these wild sites that open up and disappear -- but not as much as before.

Transparency is another challenge. We need to have more background checks on owners and more phone numbers and contacts on Web sites. Player-protection issues are big. The industry is struggling with a lot: game fairness, underage playing, taxation issues, the potential for money laundering, problem gambling, and international standards.

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