New Jersey rides the Four Horsemen

… of online gambling. So writes IAM Corp. CEO Peter KarrollS&G‘s newest guest blogger. To wit:

Recently in New Jersey, Gov. Chris Christie vetoed the legalization of online gaming, pointing to the prospect of backroom gambling shops popping up all over the state, combined with undefined protection for problem gamblers. It appears Gov. Christie has not consulted with an online-gaming expert because if he did, he would understand that the customer doesn’t want to drive to a casino or backroom to play: He wants to sit on the couch in his pajamas, drinking a glass of wine, enjoying a few hours of poker or casino in the comfort of his own home. “Backroom gambling” is Prohibition Era language and it’s funny hearing it in 2011. Christie is not the only person who does not understand how the Internet works. The majority of casino operators seem to be mentally restricted by the invisible border of the State of New Jersey.

Question: Why have so few land-based casinos created online-gambling sites? For the life of me I can’t get an answer that makes any sense. With the exception of many United Kingdom betting shops and Harrah’s Entertainment in Las Vegas, there are very few land-based casinos operating on the Internet.

Is it because the investment would be too large to get the online business off the ground? That can’t be the answer, as the cost of launching a fully functional casino complete with all of the casino games, as well as slots, poker room, sports book costs less than the price of a few fancy slot machines in a land-based casino.

Is it the licensing and legality? This may be because of the difficulty for casino operators to think outside  a land-based model. Many may have not wrapped their heads around marketing to multiple languages in multiple currencies around the world while hosting the Web site in a licensed location — and doing all of this without breaking a single law in America. Lack of understanding of how the virtual world does business may be at work here.

Let’s take a hypothetical online-casino startup, run by a smart and motivated executive. Let’s call him “Our Guy,” because we are on his side. We like smart, effective people.

Our Guy is the head of the casino operations at the Vunderbar Casino in Atlantic City and if he is worth his salt, he will understand that gaining significant revenue share in the fastest-growing segment of entertainment in the world today is worth investing his organization’s time and money. Now let’s look at the four-horsemen concept …

First-Strike Capability; While competitors are standing around waiting for the letter of the law for New Jersey, O.G. is going to develop his online gaming site, working with independent consultants to find and negotiate the best software available and integrate it into a solid online brand. What are the competitors doing? Looking at their shoes.

Indecision of Competitors: I’ve worked inside and outside of major corporations in entertainment, and it is often a quagmire of politics, budget cuts, indecision and traction-less meetings. It is a very similar lack of momentum and indecision by Gov. Christie that created an advantage for Our Guy.  It will be the single most effective decision he makes, moving aggressively, as long as he has chosen the right gaming consultants with whom to collaborate.

Window of Opportunity to Lock in your Brand: It is not against the law to operate an online casino from the U.S. It is against the law if you are taking money from Americans to play at your online casino. The reason most (if not all) of these online-gaming companies are offshore in tax-incentive jurisdictions is because it costs them less in taxes and they can sink more revenue into their operation.

Whatever licensing structure O.G. decides upon for the online business, he can still make one hell of a dent in the international marketplace by working his (already significant) casino brand into the online world and cross marketing to his international customer base. Major software companies will be falling all over themselves to be positioned with a U.S.-based casino, even if during the first year or two they are not doing business in America. Let’s face it, the U.S. is the Holy Grail of online gaming. Our Guy knows this and is using his international startup in a window of opportunity to fine-tune the online product, work out bugs, market to play for free players — creating a database of potential future gamblers to market to — while cross-pollinating those online customers with the land-based casino. The timing on this window is tight; however the cross-brand recognition is huge

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