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All In! Start-ups Bet on Online Gambling Boom

Is 2012 the year for online poker start-ups? Some entrepreneurs are betting on it, even if they foresee a long road ahead.
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Stakes are high, and gaming entrepreneurs and casino moguls alike have their stacks on the table, waiting for the next draw.

The U.S. Justice Department recently clarified its interpretation of the Interstate Wire Act of 1961, ruling that intra-state Internet gambling, aside from sports betting, does not violate federal law.

Poker start-ups and plenty of casinos applauded the December decision, and some state lawmakers jumped at the chance to get online poker—which was made illegal in the United States after the Unlawful Internet Gambling Enforcement Act was passed in 2006—back up and running.

New Jersey is at the helm of the movement to get the cards shuffling online—but that's going to take legislative action. Democratic State Senator Raymond Lesniak, for instance, became one of the first politicians to push New Jersey governor Chris Christie to pass a bill legalizing online gambling within the state's borders. "We can be the Silicon Valley of Internet gaming," Lesniak told The Associated Press in early January. "It's the wave of the future. It's going to come and we can be in the lead on it."

"We can be the Silicon Valley of Internet gaming. It's the wave of the future. It's going to come and we can be in the lead on it." —New Jersey Senator Raymond Lesniak

Already, major casinos are gearing up to transition their efforts online. In October, predicting a potential favorable DOJ ruling, MGM Resorts International joined forces with Bwin.Party, Europe's largest online poker site, which owns PartyPoker—the second-biggest online poker service in the world—and the World Poker Tour. MGM chief executive Jim Murren said the partnership was an anticipatory move "to be prepared should [online gambling] be legalized."

In January, Murren became even more adamant about pushing into online poker, telling CNBC that more states will adopt rules to allow online gambling, and that legislation "is going to pass here in 2012 in the United States" and that "It will be a multi-billion-dollar business…It will be hundreds of millions of dollars of revenue to us as a company, billions to the industry, and it will happen this year."

Even Donald Trump is getting in on the action. The AP reported in October that Trump Entertainment Resorts are "moving forward with plans to establish an online betting venture as soon as it's legal."

"We think we have the hottest brand there is, the Trump brand, my personal brand," Trump told the AP. "We think it's going to do phenomenally well."

Online poker may prove to be a lucrative business, but it's one that will be difficult to break into as an entrepreneur without backing of lobbying efforts. According to experts, online gaming licenses will likely be granted to land-based casinos—especially those owned by Indian reservations.

"If a new market as big as online gambling opened up, I think a lot of people would take a serious look at it," says Jason Trost, co-founder of Smarkets, a UK-based online sports betting site. Trost, who is originally from the United States, moved overseas four years ago to launch Smarkets. Since launch, Trost has hired eight employees and has seen about $100 million in bets. Still, he's not convinced U.S. start-ups will be able to compete.

"I think unfortunately in America there's going to be a lot of inside ball with a lot of these laws," he says. "The ones with the lobbyists will probably win the short-term. A lot of the Indian casinos will get the first crack, I imagine. The laws are probably not going to be in written in the most open and fair way, so the ones with the deepest pockets will probably win."

Still, other entrepreneurs are cautiously optimistic that the DOJ decision may provide a boon for small business. Taylor Caby, the CEO of DraftDay.com, points toward a general ethos among entrepreneurs in the online gaming space who feel the momentum is shifting in their favor.

"People are starting to feel cautiously optimistic," says Caby, who also founded Card Runners, an instructional video poker site. "For a while, there was this gray area where nobody really knew what the laws were with online poker. But given these new events, everyone is starting to think 'Yeah, it's probably pretty likely that the laws will change favorably, and certainly, there's lots of opportunity.'"

Jason Sallman, CEO of Sure Bet Poker, which operates in Costa Rica with 14 employees, agrees that the DOJ decision is a move in the right direction, but fears that barring any federal ruling, independent state laws regarding online poker would fracture the online poker industry. At the same time, he's optimistic that there's wiggle room for entrepreneurs and start-ups to enter the space. They may even have an edge over some casinos.

"The casino giants would be hard to go against, but there's definitely some advantages on our side as well," he says. "We've been in this industry, and they're just entering. They're just trying to start moving online. They haven't seen everything we've seen over the years in what's going on in the industry, so to come in and start now puts them at a disadvantage. But obviously, they have plenty of power behind them."

Last updated: Jan 19, 2012




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