Beginning a two-part series
July 1, 2001 — With gambling behemoth Nevada the first jurisdiction in the United States about to enter into the realm of Internet gambling, the stakes have been raised for Virgin Islands lawmakers trying to hammer out an acceptable online gaming bill for the territory.
As Nevada positions itself again to be the nation's pioneer in gambling -– this time in cyberspace — one question is whether it’s too late for other jurisdictions, such as the Virgin Islands, to deal themselves into the Internet game. Some supporters of Internet gaming in the territory say that having Nevada take the point on cyberspace gaming issues could be a good thing for the Virgin Islands.
Early in June, the Nevada Legislature passed an Internet gaming law — a 180-degree turn from the position it (and most Nevada casino operators) held just a few years ago. Nevada's governor signed the bill into law last week.
Why the about-face? Internet gambling is projected to generate more than $10 billion a year by 2005. And the world’s leader in casino gaming doesn’t want to be left out of the action.
A critical question now is how other jurisdictions that have been considering dealing themselves into online gaming will fare up against the name recognition and draw of Las Vegas. No question: It's a gamble.
There are legal hurdles, too. Neither Congress nor the U.S. Justice Department has taken a definitive stand on whether Internet gambling violates the federal Wire Act of 1960. That question is open to interpretation and will likely be put to the test by the gaming industry in Nevada.
Meantime, the Virgin Islands is drafting its own Internet gaming legislation. Is it too late, given Nevada’s premier positioning?
Not in the least, supporters say.
Follow the leader
Anthony Cabot, a Las Vegas-based attorney and expert on Internet gambling who is familiar with the Virgin Islands gaming industry, told the Source that it will take the powerful, well-financed Nevada gaming industry more than a year to launch a viable and legal Internet gaming framework. He said the Nevada Gaming Commission and the Gaming Control Board would have to be assured that Internet gaming software can keep underage players from participating and that the games will be accessible only in places where Internet gaming is legal — which at the moment doesn’t include anyplace in the United States or its territories.
"Software, hardware and procedures: They all go together," Cabot said. "Work needs to be done."
The timeline for accomplishing it could work in favor of the Virgin Islands by letting Nevada blaze the trail, Eileen Petersen, chair of the V.I. Casino Control Commission, said in a recent interview.
"If we were to follow the lead of Las Vegas, we would be in good company," Petersen said. "They don’t want to run afoul of federal statutes. They have the resources to do that. We don’t."
Ahead of the curve
The V.I. Legislature passed the Casino Control Act of 1995 decades after the casino boom hit the United States. And then it took another five years for the first casino to open on St. Croix, the only island in the territory where casino gambling is legal.
But Senate President Almando "Rocky" Liburd, one of the sponsors of the territory’s Internet gaming bill, said the Virgin Islands is now a "pioneer" as far as Internet gaming goes. Besides Nevada, he said, New Jersey is the only other U.S. jurisdiction seriously considering such an endeavor at the moment.
The territory is in an ideal position to launch itself as an Internet-gaming center for three reasons, Liburd said: It has an established Casino Control Commission, it is under the U.S. flag, and St. Croix is a hub for two major fiber-optic cable systems that span the globe.
Internet gambling industry investors "are looking for a credible base so they can say they are clearly legal and above board," he said. "I think it’s a new day in the Virgin Islands. We have nothing to lose and everything to gain."
On Friday, the Senate Economic Development, Agriculture and Consumer Protection Committee amended the Internet bill and sent it to the Rules Committee. At the committee hearing, Petersen emphasized that, if her commission will have to license and regulate Internet gaming companies that set up their servers on St. Croix, it will need more support and funding.
In a previous interview, too, Petersen had noted that it could take some time for Nevada to get online, "and they have all the resources." She expressed concern that local politicians and others in the community might criticize the commission if it takes what may seem like a long time to get Internet gaming rolling once legislation is passed — as happened with casinos.
"In the Virgin Islands, if they passed the legislation, they’d want it to be up and running in two months," she said. "When it took us three years [for the first casino], the Virgin Islands felt they didn’t need the Casino Control Commission."
Two master franchisers and a server farm
What will likely speed up the establishment of online gambling in the territory, despite the cash-poor government, is how the proposed Internet gaming legislation is written. One amendment to the bill approved by the committee Friday provides for two "master franchisers" to fund and build a data center, or a "server farm," where Internet gaming firms will house their websites.
The master franchisers will charge the gaming firms to operate and then pay taxes to the government. Perspective gaming firms will pay application and licensing fees to the Casino Control Commission, which will be responsible for investigating and approving them, as it does for brick-and-mortar casino applicants.
Initially, V.I. Technological Initiative LLP, a company formed specifically for Internet gaming by St. Thomas businessmen Nick Pourzal, Michael Bornn and Tom Colameco, was to hold the sole franchise. But even though the St. Thomas trio did the initial work on the proposed bill, senators decided to allow a franchiser from St. Croix into the game.
Two principals in the company, St. Croix Gaming LLP, are Bernie Burkholder, president and CEO of Treasure Bay Gaming & Resorts Inc., which operates the Divi Casino on St. Croix, and St. Croix businessman Paul Arnold. According to Liburd, if either firm fails to pass the Casino Control Commission’s rigorous background check, others will be allowed to apply for the franchise.
According to estimates from V.I. Technological Initiative when it was proposed as the sole franchise holder, the government would stand to collect 10 percent of the company’s gross revenues, projected at about $50 million a year by 2003.
Nevada will tax the revenues generated by its Internet gaming firms at 6.25 percent, which is also the rate for casinos in the state. Internet gaming firms will also have to pay a $500,000 fee every two years to continue operating.
Rolling the cyber-dice
Bornn said he had mixed feelings about Nevada’s entry into Internet gaming before the Virgin Islands. He also said Puerto Rico is considering online gambling legislation. Because of that, he said, the Virgin Islands can’t afford to let the pending legislation languish.
"It’s not like we came up with this idea out of the blue," he said. "We knew what Nevada was up to."
Now, Bornn said, the territory needs to "piggy-back" onto the state's pioneering efforts. Having Las Vegas at the table won’t knock the Virgin Islands out of the game, he said, but it will make it harder for the territory to be viable.
"Lo and behold, they beat us to the punch. We are in the shadow, no doubt," he said. "Having Nevada in the picture makes it difficult. The package the Virgin Islands has to offer has to be more enticing."
What t
hat will be remains to be seen. Liburd was the Senate president in 1995, when legislation for casino gaming was being drawn up. The initial proposal and the final bill were worlds apart. The Internet gaming bill is already on the same path, Liburd said.
"It’s not final," he said. "We know from experience with the casino bill there will be new issues."
Next: The legal hurdles facing Internet gaming
