Oct. 3, 2001 — Even though the Legislature approved the territorys Internet gaming bill in July, Casino Control Commission members said Tuesday that major flaws remain in the law.
The problems center mostly around the Internet gaming "master franchisers" spelled out in the law. The law provides for two franchiser companies to fund and build a data center, or a "server farm," on St. Croix where Internet gaming firms will house their websites. Along with marketing the territory as an Internet gaming jurisdiction something the Casino Commission is not charged to do the master franchisers will charge the gaming firms to operate. Perspective gaming firms will also pay application and licensing fees to the Casino Commission, which will be responsible for investigating and approving them, as it does for brick-and-mortar casino applicants.
But Frederick Handleman, solicitor general for the V.I. Justice Department and legal counsel to the Casino Commission, said Tuesday that he believes the law inconsistent, especially when it comes to background checks of the franchisers and what happens if a check comes back negative. Both Casino Commission chairwoman Eileen Petersen and Oliver David, the head of the Division of Gaming Enforcement, said the ambiguous language would result in a waste of time and money for an already cash- and personnel-strapped agency.
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.
Yet another major glitch in the law is that while Internet gaming operators must pay fees to the Casino Commission and the master franchisers for the opportunity to base themselves in the territory, the franchisers wont pay any V.I. tax.
According to past 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 companys gross revenues, projected at about $50 million a year by 2003. But Handleman said that the way the law was finally approved, the franchisers dont pay any taxes to the V.I. government.
"I understand now that [Handleman] was correct. No taxes at all," Petersen said in a subsequent interview. She added that the law doesnt call for the payment of a franchise fee to the government either. "I dont know why the Legislature drafted it in that manner. I cant imagine they meant to draft it that way."
Handleman said that the tax issue along with the other problems where pointed out to senators during hearings on the Internet bill.
"One of the reasons given for Internet gaming being approved was for the economics," Handleman said.
"Ive never been presented with an objective analysis of how much money would come to the government," Petersen said.
At the Casino Commission meeting on Tuesday, Michael Bornn, a partner in of one the franchisers, V.I. Technological Initiative, was asked about revenues his company was projecting. He said the company wont know until the Casino Commission drafts its Internet gaming rules and regulations.
"It is one of our great anxieties about what we have. We dont know until the rules and regulations are done to allow us to compete," he said, adding that there are a lot of variables that will effect revenues. "I cant tell you a number straight up."
Proponents say Internet gambling will bring billions of dollars into the Virgin Islands treasury as a percentage of the money wagered. Neither Congress nor the U.S. Justice Department has taken a definitive stand on whether Internet gambling violates the federal Wire Act of 1960. The governor of Nevada signed a bill in June allowing the Internet gaming in that state, and observers say the outcome there will likely determine whether the V.I. government can clear the many legal hurdles of bringing the industry to the territory.
Petersen, meanwhile, said the V.I. Casino Control Act had to be amended three times before commissioners and prospective investors were comfortable with its provisions. She said the Internet gaming law will be similar, more so because it is unexplored territory for any American jurisdiction.
Drafting rules and regulation alone will take six to nine months she said. And that will come about with the help of Anthony Cabot, a world renown expert on Internet gaming working under contract with the Casino Commission. Then there must be a background investigation of the franchisers. Finally, the Casino Commission must be satisfied that the Internet gaming meets all applicable laws, not just nationally.
All that on $300,000 that has yet to be allocated by the Turnbull administration.
"As soon as the money is secured, I will give the go-ahead to start," Petersen said. "If there is no money we wont go forward.
"Las Vegas called Internet gaming for them a monumental challenge," she added. "For us, its a leap into the unknown."