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Battle to gamble on 'Net
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July 31, 1997: 6:49 a.m. ET
Lawmakers consider making gambling in cyberspace illegal
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NEW YORK (CNNfn) - Hearings this week in Washington are focusing on the issue of gambling on the Internet. Led by Senator Jon Kyl, R-Ariz., a bill currently under consideration by Congress would levy fines and prison terms for betting on the Web.
For the view from inside the Internet gambling business, David Herschman, the president and co-founder of Virtual Vegas Inc., joined anchor Steve Young on CNNfn's "Digital Jam." Wednesday. The following is a partial transcript:
YOUNG: Why do you say that gambling on the Internet should be perfectly legal?
HERSCHMAN: Well, I'm sure Senator Kyl has good intentions in trying to ban it and I'm sure he sees it as something he wants to achieve. But the reality is, it's really the wrong way to go because there's about 35 companies already set up offshore that are taking bets and 80 percent of their customers are coming from the U.S. And there really is no way to stop that.
And so, really what is going on right now is a totally anti-competitive situation for U.S. companies like ourselves. We've had all the technology ready for six months and we've been widely considered to have the best games in the market and we can't take a single bet because we're afraid to. Because the laws are uncertain.
YOUNG: We have some pictures of your website (Virtual Vegas), and if you're not doing gambling, what are you doing on there? How are you attracting people?
HERSCHMAN: Well basically, we have a pretty big customer base. We have a free casino and people can come and play for free and win prizes. And clearly, that's a big attraction because there's really no way to lose in Virtual Vegas, you can only win.
But clearly, part of our business plan is to take wagers and right now we're totally stalled in that effort because everything's going offshore.
YOUNG: Well, I gather that you're saying though that if this bill goes through, that would be enough to inhibit you from actually taking the wagers.
HERSCHMAN: Yes, certainly. If that bill goes through, it's going to make it illegal probably for gamblers themselves, the individuals, to play as well as companies like us who offer gambling. And the reality is, the companies that are based out of the U.S., they have no jurisdiction over them and they're going to keep on going as they are ... It's the wrong way to look at it I think in terms of legislation.
YOUNG: One thing I'm curious about. To be a casino in the real world, you need a lot of working capital. If you want to take a lot of wagers, aren't you going to have an awful lot of capital?
HERSCHMAN: Well, so far, there's never been a losing week on the Internet, from our research, in terms of gambling. ... There's a few companies that are pretty well capitalized that are starting to enter this market. One company has $40 million in the bank targeted for this effort; they're a Canadian company. But most of the companies that are out there are small entrepreneurs with a few hundred thousand dollars, and they're growing it all out of cash flow and so far, the cash flow has been pretty significant.
YOUNG: You were saying before that there are a couple of dozen sites that are offering wagering now. All of those virtually are offshore?
HERSCHMAN: As far as I know, just about everyone is offshore. There are none of them in the U.S. as far as I can tell.
YOUNG: Well, let's take a look at some of Senator Kyl's concerns. One of the things that concerns him he says, is that kids could use their parents' credit cards to gamble on the Internet. What about that?
HERSCHMAN: Well, the reality is, technology can solve all the concerns -- both with underage gambling, with problem gambling, even state by state gambling. We can regulate who comes from which state and stop certain people from different states. The reality is the only way that technology is going to really be perfected is through investment. And really the U.S. companies are the one's that have that technology and are in the best position to leverage it.
The problem is, we can go ahead and really solve these issues but we're hampered from investing. I can't put $2 million into this if there's not going to be a return on the other end. And so what you have is the companies who are small timers in the Caribbean. They don't have the same incentive to control this ... the right investment isn't being done because the capital isn't there.
YOUNG: Well, don't gamblers have to be a little bit naive to do gambling on the Internet. I mean, what assures that the game isn't rigged or the payoffs won't be made?
HERSCHMAN: Well, I mean there is always that risk. And I guess that's where brand awareness and respectability come into play and that's what we're trying to create -- a long-term brand where people will come to respect us. They'll play for free in Virtual Vegas, they'll win prizes, and then when we do offer gambling in some form, I'm sure we'll have good respect there.
The reality is, there's going to be all sorts of different things going on and it's really out of control right now. And that's why we need regulation. We, as an industry, want to be regulated. We're crying out for regulation, saying please, give us a set of guidelines. Make them more strict if you like and we'll follow them. We can set loss limits, we can make people only gamble once a week. There's all these things that can be done. It's all in the software. It's actually better than in real casinos the way that we can handle these problems.
YOUNG: But are you saying there that you would just accept voluntary guidelines or are you saying that you would accept the equivalent of state gambling commissions to be sure that you're doing the right thing?
HERSCHMAN: Not only would we accept it, we'd love it ... Right now we're trying to regulate ourselves. There's an Interactive Gaming Council, IGC, formed and that's all the companies that are basically in this industry. We're trying to regulate ourselves but what we really want is a governmental body, or world governmental body to step in and set the standards. There's nothing there.
YOUNG: I'm curious. Do you suspect that some states that are against this are against it because they see it as a threat to state lotteries, and if so, is that a legitimate reason to be against this?
HERSCHMAN: Well, I mean there's a lot of money that comes from state lotteries, there's a lot of money that comes from Nevada gaming and I guess they perceive the Internet as a threat. You know, there's a lot of money in it. The Internet gaming industry itself is starting to grow and ... I'm sure there's all sorts of interests involved there.
I can't speak for them, but I can say that this is a legitimate market that's really growing big. And I think the U.S. should be trying to lead this market and get the money coming into our country, and taxing it, rather than (allowing) all this money (to flow) offshore. Eighty percent of the gamblers are in the U.S. right now.
YOUNG: Final question and quickly. Some people would say that really, you and yours are being cynical. That it's kind of like putting ice cream in the home of somebody who is drastically overweight. Or putting a bar in the home of an alcoholic. I mean, this gambling would be on a PC in people's homes. What about that?
HERSCHMAN: ... There's actually a lot more controls you can have in the software than you could have in a real casino. I could go to Las Vegas everyday if I wanted to and lose my shirt everyday. Where in software we can regulate anything. We can say someone can play only a certain amount of time or lose only a certain amount that's within their means.
And, that's what we can do on the Internet that they can't do in the real world. 
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