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U.S. firms in trouble over Net betting

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Two U.S. gambling companies that dared to dip a toe into the perilous waters of Internet wagering have been bitten. Both International Game Technology Inc and American Wagering Inc. face possible disciplinary action by regulators in Nevada — which could include loss of their valuable state gaming licenses — because of their involvement in online wagering-related enterprises in Australia.

Though the circumstances surrounding the two cases are very different, taken together they clearly illustrate why most other U.S. gambling firms are content to stay on the sidelines until legal questions surrounding the status of online betting are clarified.

In fact, International Game Technology (IGT), the world’s largest slot machine manufacturer and one of the biggest U.S. companies to attempt to carve out a foothold in Net gambling, has decided the headaches aren’t worth it. The Reno-based company is shedding its stake in Access Systems, a Sydney software maker specializing in online gaming systems that is the source of IGT’s problem in Nevada, MSNBC has learned.

The divestment, expected to be completed during the first quarter of 2000, would likely allow the company to avoid severe penalties, such as revocation of its gaming license, officials at the Nevada State Gaming Control Board indicated.

Company fights back
American Wagering Inc.(AWI), on the other hand, has decided to fight what it considers overzealous attempts by an undercover investigator from the gaming board to circumvent protections designed to prevent Americans from wagering with the company’s online sportsbook in Australia, Mega$ports.

The Las Vegas company, a licensed sportsbook operator in Nevada, agreed to abide by state regulations prohibiting it from taking wagers over the Internet from U.S. bettors when it launched Mega$ports in October 1998.

But, according to a complaint filed Dec. 16 with the Nevada Gaming Commission, an agent of the board who was in Las Vegas was able to place 12 bets on Major League Baseball games after opening an account with Mega$ports.

The complaint shows that the agent was able to get past software designed to prevent Americans from placing bets with Mega$ports by opening an account with a Canadian Internet service provider. He later attempted to collect his original $100 investment and $14 in winnings and by sending the company a falsified birth certificate .

What the complaint charges
Though Mega$ports closed the account and returned the initial $100 deposit after employees became suspicious that the documentation was bogus, the board charged AWI with failing to verify the identity of the agent within 10 days of the account being opened. It also accused the company of failing to “exercise discretion and sound judgment to prevent incidents which might reflect on the repute of the State of Nevada an act as a detriment to the development of the gaming industry.”

The board urged the gaming commission to take disciplinary action against AWI. The range of possible outcomes could range from no action to fines and suspension, or even revocation, of AWI’s state gaming license.

Company officials were not available Thursday or Friday to comment on the complaint, but AWI said in a press release shortly after the complaint was issued that it would challenge it.

IGT’s problem with Nevada regulators apparently results from an crucial oversight when it purchased a minority stake in Access Systems of Sydney early this year.

When it announced its agreement in Access in January 1999, IGT said the venture would conduct business only in “regulated and legalized gaming markets.”

But company officials apparently failed to take heed of a contract that predated IGT’s investment in the company: a software deal with Lasseters Online, the first licensed and regulated Internet casino in Australia and an aggressive marketer of its wares to American bettors.

‘Performance-based incentive’
Under its contract with Access, Lasseters pays maintenance fees and a “performance-based incentive” to Access, said Peter Bridge, president of the casino firm, which also has a brick-and-mortar operation in the Australian resort of Alice Springs.

Neither IGT officials nor Access CEO Stephen Mulcahey would confirm that such payments had been received from Lasseters, which opened its virtual doors to Internet gamblers in April.

But Ed Rogich, a vice president for marketing with Reno-based IGT, confirmed that the company would end its relationship with Access amid “growing concerns” over online gambling.

“We will be withdrawing our involvement,” he said. “We just recognize there are divergent views toward Internet gaming and we believe it is in the company’s best interest to dissolve it.”

Rogich said that rather than selling its interest, IGT was “changing the investment into a debt situation.” He said he could not provide details of how the deal would be structured.

Steve DuCharme, chairman of the Nevada Gaming and Wagering Board, indicated the company would likely avoid harsh penalties such as suspension or revocation of its gaming license if it parts ways with Access in a timely fashion.

Harsh punishment unlikely
“We’ve had a number of discussions with IGT and their compliance personnel, and I believe they are aware of the potential problems and have been attempting to divest themselves while trying to maintain shareholder value as best they can,” he said. “We are waiting to see the outcome.”

The withdrawal of IGT from Internet gaming would leave only two U.S. gaming firms involved in the budding industry: AWI and Park Place Entertainment, the gaming division of Hilton Hotels Corp., which owns 19.9 percent of Jupiters Ltd., a casino and hotel chain that bought the Australian Internet sports betting site Centerbet in November 1998.