Station Putting Internet Projects on Hold

21 November 2002

by Liz Benston

LAS VEGAS --Las Vegas neighborhood casino operator Station Casinos Inc. -- one of the gaming industry's most aggressive proponents of Internet gambling -- has put its online wagering initiatives on hold due to their uncertain legal status.

The initiatives were undertaken by GameCast Live LLC, a Station Casinos subsidiary launched in June 2001 that aimed to develop live casino games customers could play from televisions in their hotel rooms or from wireless devices and home computers. Instead of betting on software simulations, players would see images of actual video poker machines and other games.

GameCast aimed to market its technology to cruise lines and Indian casinos with the ultimate goal of expanding into Nevada resorts and other major casinos. Station would license the technology to customers who would apply their own brands to the products.

The subsidiary's two chief employees, Vice President of Interactive Gaming Tony Fontaine and General Manager Judy Rosensweig, left the Station Casinos about two months ago after the company decided to put the projects on hold, Station spokeswoman Lesley Pittman said.

"We are redirecting resources to other programs that we had focused on in the near term," she said.

Station is developing two traditional casinos, one near Sacramento that it will manage for an Indian tribe and its ninth Las Vegas neighborhood casino in the community of Summerlin.

Station announced GameCast with much fanfare the same month that the state Legislature approved a bill allowing regulators to explore regulations governing Internet gambling.

Internet gambling proponents hailed the new law as a catalyst for high-tech developments positioning Nevada at the forefront of an industry that could potentially grab more tax revenue for the state -- money now being funneled to overseas operators taking bets from U.S. citizens.

This year, a letter addressed to Nevada regulators from the U.S. Department of Justice stated that Internet gambling over interstate telephone lines is illegal under federal law.

That interpretation of the federal Wire Act of 1961, enacted to stop illegal sports betting, has nearly killed efforts by both major casino companies and technology entrepreneurs to launch Internet gambling sites in the United States, experts say.

The announcement of the letter in late August came just days after Station representatives said they would back off from another Internet effort. In a securities filing, the company said it would convert a planned $5 million purchase of online gambling venture Kerzner Interactive Ltd. into a $4.5 million option to buy. Kerzner holds one of three online gambling licenses issued last year by the Isle of Man, a tiny island nation off the coast of Britain that is now hosting a Web casino launched by MGM MIRAGE.

The news is disappointing yet somewhat expected given the lack of clearly- defined regulations, said Richard Fitzpatrick, chief executive of the Interactive Gaming Institute of Nevada, a Las Vegas nonprofit that helps startup companies.

"Until the regulatory pieces clear up, people are sitting back," he said.

Still, Fitzpatrick believes that some form of Internet gambling legalization could be on the way.

"I think it will happen on a state by state basis, like the lottery."

"Our concern is, does Nevada have the ability to lead this, to nurture companies ... and hire employees and build a whole industry here," he added.

Internet gambling analysts expect Web casinos to to yield from about $5 million to $6 million in revenues next year -- estimates that have been cut to reflect moves by major credit card issuers to stop processing online wagers.

This afternoon, the Nevada Gaming Commission is expected to hear several presentations by companies interested in launching Web casinos and other forms of "interactive gaming" that aim to stay within the law by allowing only residents of Nevada -- where gambling is already legal -- to bet online.

Station still retains the assets and intellectual property developed by its GameCast unit. This month, a Vancouver-based technology company announced it was buying the rights to an online blackjack game jointly owned by Station and MXM Media Services Inc., a Las Vegas-based company that develops live interactive casino games.

MXM Media sold off its interest to Omicron Technologies Inc., while Station has retained part ownership, said Station and MXM representatives.

The purchase price wasn't disclosed. Omicron representatives could not be reached for comment.

The blackjack game consists of multiple tables where live dealers in a real casino interact with players who access the game from a computer via an Internet connection. The technology was under development.

Omicron, a research and development company that acquires Internet business concepts, will manage the development of the game to completion.

It expects to offer the game, which will be called "BJ-Live," before the end of the year.

Omicron estimates each "table" would generate annual revenues of $278,000 and net income of $135,000. With 200 tables running, the company said the game should generate annual revenues of about $55 million and net income of about $27 million.

"We look forward to completing the development of this unique product and continuing our efforts to becoming the leader in providing live interactive gaming products for land-based casinos and bingo operators throughout the world," Omicron Chief Executive Officer Sak Narwal said in a statement.

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