Introduction: Going for Broke........................................3
1. Cyberspace: Borderless Betting....................................7
    The Poker Player--I.............................................16
2. Las Vegas: Let the Games Begin...................................22
    The Veteran--I..................................................57
3. Atlantic City: Resort of Broken Promises.........................62
    The Compulsive--I...............................................92
4. New Orleans: Mischief in the Big Easy............................98
    The Poker Player--II...........................................126
5. Mashantucket: The Rainmaker.....................................130
    The Veteran--II................................................151
6. Albany: Dollars and Dreams......................................155
    The Compulsive--II.............................................180
7. Louisville: Fading Jewel of the Sport of Kings..................186
    The Poker Player--III..........................................207
8. San Francisco: All That Glitters................................212
    The Veteran--III...............................................254
9. New York: Risky Business........................................258
10. Chicago: Churches, Charities, and Chance.......................282
    The Compulsive--III............................................293
Epilogue: Endgame..................................................297
Notes..............................................................301
Bibliography.......................................................317
Index..............................................................325

Bad Bet
The Inside Story of the Glamour, Glitz, and Danger of America's Gambling Industry

Read BW's Review of This Book

CHAPTER ONE

CYBERSPACE:
BORDERLESS BETTING

Want to bet?

    No need to make an airline reservation, get into your car, or even walk out of your front door. If you're ready to gamble, simply turn on your personal computer, click the mouse a few times, and launch an Internet browser. In minutes, you can be wagering in the privacy of your home courtesy of Centrebet, an on-line sports betting site based in Alice Springs, Australia.

    Alice Springs hardly appears to be on the cutting edge of twenty-first-century gambling. It is a tiny hamlet located in Australia's barren outback, directly east of Lake Disappointment and surrounded by arid scrubland and rugged hills. Although Alice Springs shares Las Vegas' desert heritage, has a local population of inveterate gamblers, and even has a small, struggling casino, it bears little resemblance to Nevada's gambling mecca. Most tourists visit Alice Springs to watch camel races and to trek into the wilderness, not to gamble. But computer bettors and Centrebet have made Alice Springs one of the most popular gambling destinations on the Internet.

    "We all can't just hop in a jet and fly to Las Vegas," says Ian Loughlin, Centrebet's assistant general manager. "We're just trying to satisfy the gambler's insatiable appetite."

    The reason for Centrebet's popularity is simple: it is convenient, anonymous, and open twenty-four hours a day to almost anyone, anywhere in the world, who has a computer. It offers gambling without walls, without taxes, and without guilt.

    "I think it's a great innovation that people can sit in the confines of their own home and disseminate information and place a bet without the stigma of walking down to the corner and placing a bet with [a] bookie," says Loughlin, whose company began accepting wagers over the Internet in early 1996.

    Centrebet's gambling site is unadorned, with several simple screens that lead the bettor to a series of rules and regulations and a long menu of possible wagers. Centrebet requires users to be at least eighteen years old, and it offers gamblers the opportunity to bet on football, basketball, and baseball games, as well as horse and auto racing, boxing, golf, cricket, soccer, rugby, and tennis.

    Centrebet, which operates with the legal blessing of its local government in Australia, says it will handle about $35 million worth of bets in 1997. The company has an older, more traditional bookmaking operation, but on-line betting is the fastest-growing part of its business, already accounting for about half the wagers it handles.

    Gamblers can open a Centrebet account with their credit cards, by sending funds via wire transfer, or by depositing cash in certain banks in the United States, Denmark, or Finland. After putting up the money, each gambler receives a membership number and a password. Then--click, click, click--it's off to the races.

    Winnings and losses are credited to or debited from gamblers' accounts. When gamblers want to withdraw funds, Centrebet will mail them a check or wire the money into their bank account. Bet on the World Series, bet on a rugby match. It's all so easy.

    It's also loaded with potential pitfalls.

    In just a few short years, Internet gambling--or "nambling," as aficionados call it--has emerged as one of the hottest on-line services. Observers of Internet commerce suspect that on-line gambling is as popular in the United States as on-line pornography--porno being one of the few profitable ventures on the Internet. While the exact size of the nambling market isn't known, International Gaming & Wagering Business, a trade publication, estimates that about $143 million worth of sports bets were placed on-line in the United States in 1996. The magazine expects that figure to leap to about $760 million by 2000.

    Although nambling is dwarfed by the multibillion-dollar casino business, it will unleash challenges for families, communities and regulators that will match or surpass any of those posed by casinos.

    Nambling has created frontiers in computer fraud and money laundering that are largely unexplored. The nambling world is already populated by some individuals who have a history of abuses in other businesses. While companies such as Centrebet are considered reputable within the gambling community, at least one of the other major nambling companies, Interactive Gaming and Communications Corporation, has a track record that might concern even the most fearless of gamblers.

    Moreover, nambling's immediacy and ubiquity are unique. It offers dangerous temptations to any gambler unable to control his or her urge to splurge, especially when the casino is always open. And nambling's ubiquity means that Mom and Dad might have to worry about the nagging possibility that Junior is in his bedroom gambling away the family's mortgage.

    The world that allows gambling to skirt borders, slip beneath doors, and enter our bedrooms isn't found in the Nevada desert, or in the gentle curve of the Mississippi River, nor is it in the liquor store on the corner, or at a racetrack in Kentucky. It is located in the soft glow of computer screens, in an electronic realm known as cyberspace.

A CYBERSPACE ODYSSEY

As the annals of cyberlore thickened in later years, the tall white contraption sitting in a UCLA laboratory on September 2, 1969, would come to be known as Internet Node Number One.

    In a curious way, the gadget was a by-product of the anxiety that had gripped America twelve years earlier, when the Soviet Union won the first race for the heavens by launching its Sputnik satellite. A year after Sputnik pierced the nation's collective conscience, the Defense Department set up the Advanced Research Projects Agency to coordinate and fund scientific research nationwide. As ARPA's pool of scientists expanded over the next decade, the agency began developing a communications network to allow researchers in far-flung locations to share mainframe computers, thus saving ARPA the cost of buying an entire fleet of the expensive machines. The UCLA node, about the size of a small closet, represented the culmination of that network-building effort. And it represented the birth of what we now call the Internet, today's fastest-growing, and potentially most powerful, medium for communications, commerce, and entertainment.

    With its ability to route information between computers, the UCLA node was designed to be an electronic traffic cop. Its installation that September led, a month later, to the first "conversation" between computers using the Internet. The author of that initial message was a scientist named Leonard Kleinrock. Kleinrock and a team of researchers had been able to tie the computers together using tricks Kleinrock had developed while investigating applications for "packet-switching," a method of breaking data into little electronic bundles that could be shipped along telephone lines and routed to specific locations. That autumn, Kleinrock and a colleague began typing the word "login" into their computer in Los Angeles. Their "l" and their "o" appeared on a terminal near San Francisco--just before the system crashed. No matter. The revolution was under way.

    Once the new network was up and running, other universities and research institutes pursuing defense-related research were invited aboard, beginning the sprawl of what was still a relatively small system. By 1972, electronic mail was flying around various independent networks in the United States. A year later links were established overseas, in Norway and England. But the Internet's growth was still constrained by its specialized use and by the incompatible computer commands used by participants on different networks. After another team of government scientists lead by Vint Cerf designed a universal language, or "protocol," that allowed data to flow more freely among separate networks, use of the Internet exploded. As Cold War security concerns waned, the government broadened access to the Internet. By the early 1990s the Internet was a true "open system," accessible to anyone, anywhere in the world, who had a computer and a modem.

    Private, commercial on-line services had been around since the 1980s, growing alongside the Internet, but it wasn't until 1991 that the government allowed businesses to set up shop on the toll-free Internet itself. Within two years, commercial use of the Internet surpassed its use by academics. The government stopped managing the Internet in 1995, basically leaving oversight of the decentralized system to its participants--a formula that was at once collaborative, creative, and chaotic. In the early 1980s there were barely more than 200 nodes, or "host computers," supplying information and services on the Internet. By 1990, there were more than 300,000. By 1996, there were roughly 10 million. Electronic mail, shopping malls, chat rooms, media, and reference libraries proliferated on the Internet. Terms like "information superhighway" entered the language, and the word "cyberspace," coined in a novel by science fiction writer William Gibson, came to denote the borderless electronic universe of the Internet and its other on-line brethren.

    Today, while still in its infancy, the Internet is already transforming businesses as diverse as publishing, banking, retailing, and, of course, gambling.

    Nambling is dismissed by traditional casino operators as inconsequential. In the short run that may be true, because cyber-casinos are relatively humble affairs. They lack the ambience and speed they'll need to compete with casinos. But for some forms of gambling, especially sports betting, there is good reason to believe that Internet-based betting will eventually dominate the industry.

    As the quality and security of cyberspace gambling improves, it will continue to grow--in fits and starts, but inexorably. Eventually, nambling will deliver what bettors crave in the modern gambling era: fast-paced, furious "action" that is as near at hand as a light switch. The gambler searching for the emotional charge that only action can give will be able to get that high anywhere, anytime, just by turning on the computer.

VIRTUAL VEGAS

In nambling's short history, David Herschman, all of twenty-nine years old, qualifies as a seasoned pro. He founded his company, Virtual Vegas, in 1994, first in a small, sparsely furnished suite along the Pacific Ocean in Venice, California. Now Virtual Vegas does business out of a Santa Monica condominium that is, in Herschman's words, "a programming den full of people drinking Diet Cokes."

    The location where Virtual Vegas' programmers boot up their computers every day matters very little, however, since Herschman's casino can be visited from anywhere in the world. Just type the casino's address (http://www.virtualvegas.com) into an Internet browser on a personal computer. A few seconds later, red dice are rolling across the screen. After signing in, you'll enter a cartoonish, "three-dimensional," electronic cityscape that includes a casino, a shopping mall, a chat lounge, a bank, and a travel office. Enter the Virtual Vegas casino and you have a choice of games that include blackjack, craps, and slots.

    "I believe this is going to be a huge, huge market. There's a certain psychology to being on-line," says Herschman from beneath his mop of curly blond hair. "The Net's first draw has always been as a place to have fun. People aren't going to go to the Reebok page or the Pepsi page. They're going to come to our page. Gambling on the Net is attractive because you can do it anonymously and in your home."

    Herschman briefly ran an import-export business selling Asian textiles after being graduated with a philosophy degree from the University of California at Berkeley. He entertained the idea of also teaching philosophy while running that business, but changed career paths when the on-line industry captured his attention. Herschman says he considered other types of on-line ventures, but chose gambling because he thought it had the potential for the biggest payoff. A student of Buddhism and Hinduism, Herschman says he sees no conflicts between his spiritual and commercial pursuits.

    "Those philosophies are about living for the moment and embracing change. That's what the Internet is about, too, and I don't want to be some monk on a hill. I want to do things on the Internet that make the most money, and I think that's gambling."

    At one time, Herschman could boast that Virtual Vegas was part of an interactive cable television experiment conducted in Florida by media giant Time Warner, Incorporated. But he lost his blue-chip partner when it pulled the plug on its entire interactive effort in Florida; now he has a partnership with a smaller company, At Home Network. Herschman says Virtual Vegas attracts about 100,000 people per month but will have only about $250,000 in revenue for 1997. Herschman's failure to strike gold on the Internet isn't simply the result of trying to build a business in a nascent industry that is still largely unformed and untested: Herschman runs a casino where gamblers and the house don't exchange any cash.

    The classic legal definition of gambling is any activity that involves three things: consideration (i.e., a cash bet), chance, and a prize. Virtual Vegas doesn't strictly qualify. A whirl through Virtual Vegas' gambling den is free, and winners get prizes awarded by some of the site's sponsors. The reason everything is gratis in Virtual Vegas is because any real wagering would violate federal laws that forbid bookies to transmit bets or gambling information across state borders using "wires," such as telephone lines. Only the horse-racing industry is explicitly exempt from that law. That's why only a very few nambling operators have casinos based entirely in the United States.

    Herschman is content to wait until the regulatory picture becomes clearer in the United States, confident that Virtual Vegas can become the McDonald's of gambling when and if the rules change. But many other nambling impresarios have set sail for the Caribbean, where the air is warmer and the regulations much more forgiving.

    There are currently about thirty Internet sites offering live gambling, according to Sue Schneider, executive director of the Interactive Gaming Council, a Silver Springs, Maryland, trade group. Schneider says that most of the demographic and financial information for the industry is still sketchy, although early visitors to the gambling sites are expected to be upper-income, technologically proficient men in their twenties and thirties--the same people who typically like to surf the Internet looking for other fun and games.

    Certain types of nambling are expected to be far more lucrative businesses than others. Because lotteries tend to draw lower-income, impulse bettors who usually aren't computer savvy, Schneider doesn't expect such sites as Interlotto, an international lottery based in Liechtenstein, to be an early hit. Nor does the sagging horse-racing business, with demographics that teeter on the grave, hold much early promise on the Internet.

    Sports betting, however, has all the earmarks of being a killer application. "Killer app" is the moniker bestowed on any computer task that enthralls millions of users and produces a financial gusher for the entrepreneur smart enough or lucky enough to introduce it first or most attractively. Sports betting is likely to become a killer app on the Internet because it is a favorite activity among the computer-literate young men who like to surf through cyberspace. And any future growth in on-line sports betting will come at the expense of the illegal bookmaking industry in the United States; the prospect of raking in even a small part of that lucre is what propels nambling companies offshore, primarily toward the Caribbean.

    Some of the more prominent sports betting sites, such as Austria's Intertops and Australia's Centrebet, don't need to worry about relocating to the Caribbean. Their home countries already permit them to dial for dollars on the Internet. Others have taken wagering to the skies. Foreign airlines, including British Airways and Swissair, have tested in-flight gambling systems. Singapore Airlines and Austria's Lauda Air are readying similar systems for their planes, though all of the systems would have to be shut off over U.S. airspace to comply with Federal Aviation Administration rules against in-flight gambling.

    For U.S. nambling companies that can't set up shop at home or take their business to the air, offshore havens hold the same attraction as they do for banks, investment funds, and other institutions that traffic in cash and prefer to be left alone. As long as companies pony up local taxes and fees, the tiny islands of the Caribbean are content to let visitors conduct business as they see fit, regardless of the sources or uses of the money that flows through the enterprises. Free of the yoke of federal regulation, nambling companies have installed their computers in such hot spots as Antigua, which boasts an undersea fiber-optic link directly to the United States, allowing for crisp, speedy Internet transmissions to gamblers.

    Antigua's open-door policy has lured World Wide Web Casinos there. World Wide has corporate offices in Santa Ana, California, but its Internet computer server is housed in Antigua. The reason for this is made clear in a brief statement World Wide has posted on its Internet site: "The Internet is a global communications technology not bound by the laws or control of any one government. Internet casinos are only bound by the laws of their host country. Placing bets cannot be illegal because, despite their origination, bets will technically be placed on the computers at our off-shore land-based casino site that is legally licensed and taxed by the host government." Thus, World Wide argues, it is free to beam its casino straight into gamblers' homes in the United States via the Internet, regardless of U.S. gambling laws.

    The privacy and security of all Internet transactions are still not fool-proof, thanks to the ingenuity and schemes of computer hackers and other codebreakers, but many nambling companies are offering wagerers all the conveniences of their local bank. World Wide is developing an "on-line debit card" that will allow winnings and losses to be added to or deducted from the card electronically whenever one of its bettors wagers. If a gambler wants to cash in, World Wide says it will deposit winnings "at any ATM...anywhere in the world."

    Another high-profile nambling operation that has taken a shine to the Caribbean is Interactive Gaming and Communications Corporation, with corporate headquarters in Blue Bell, Pennsylvania, and an Internet server in Grenada. Interactive Gaming has an on-line sports betting unit, Sports International, and an on-line casino division, Global Casinos. Interactive claims that on May 11, 1996, it became the first company to accept a sports bet on the Internet.

    Interactive's stock is publicly traded, so it's one of the few nambling companies that openly reports its finances. Interactive says it handled $58 million in bets in 1996 and lost $695,920 on revenue of $2.9 million that same year. Its stock, which trades in the speculative over-the-counter market, has been a real gamble, never rising above $3 a share after the company went public for 56.25 cents a share in early 1996. By late 1997, the stock was trading for about 39 cents a share.

    Like its land-based cousins in Las Vegas, Interactive allows gamblers to open an account and bet on almost any sporting event. Unlike those operators, Interactive warns its gamblers that their accounts may not weather any downturns in the company's business. In its annual report, Interactive notes that accounts may not be "readily available to the bettor in case of an emergency or change of plans." Interactive also says that its customers had credit balances of about $1 million in 1996 and cautions that there "is no assurance that the Company will develop the liquidity to repay customers, if required, without other financing."

    And Interactive has already had its share of run-ins with law enforcement officials. The FBI executed a search warrant at the company's Pennsylvania headquarters in early 1997, alleging that an illegal gambling business was being conducted there. However, no federal charges had been filed against Interactive by July 1997, and in press releases the company maintains that it hasn't broken any laws. In June 1997, a Missouri grand jury indicted Interactive for illegally promoting gambling, alleging that the company had violated a court order forbidding it to take bets from Missouri residents. Michael Simone, a former banker who personally owns about 50 percent of Interactive's stock and is the company's chairman and chief executive, described the indictment as "bogus" and asserted that it represented a test case for "freedom of speech and commerce" on the Internet.

    But gamblers and investors may want to take note of Interactive's pedigree before buying its shares or placing any bets with the company. Interactive began life in 1986 as a video delivery company, Entertainment Tonight Video Express Limited, which ceased operations a year later. The company was dormant until 1994, when it acquired Sports International. It began doing business as Interactive Gaming in 1996. A key figure behind Interactive is Louis M. Mayo, a partner with Simone in Caribbean Communications Limited, a consulting concern that owns about 7 percent of Interactive's stock. Mayo has a history of federal securities-laws violations dating back to at least 1967, and he is currently a defendant in a civil wire-fraud and money-laundering suit brought by the U.S. Attorney's office in Philadelphia. He has loaned about $4 million to Interactive. A woman described in court papers as his girlfriend and a former clothing designer, Rina Moscariello, owns almost 30 percent of Interactive's stock and until very recently was the company's vice president. Moscariello founded Sports International with Simone.

    Whatever the character of nambling companies, their very presence has created a growing regulatory nightmare for U.S. law enforcement officials. The scope and sprawl of the Internet currently make consistent policing almost impossible, and cyberspace's inhabitants are by nature an antiregulatory lot. Furthermore, the legal basis for enforcing gambling laws on the Internet is murky, since the Interstate Wire Act, which forbids the transmission of gambling information across state lines, was passed in 1961 when the on-line world didn't exist.

    In 1997, Senator Jon Kyl, an Arizona Republican, introduced legislation seeking to make nambling illegal and the National Association of State Attorneys General has also urged the federal government to make nambling a crime. But the Justice Department has expressed a lack of interest in deploying the extensive and expensive resources needed to be nambling's top cop. That has thrown the ball back at the states, and some, particularly Minnesota, Missouri, California, and Wisconsin, have pledged to take an aggressive stance against nambling companies.

    "The great concern is that everybody who has access to the Internet will have a video gambling machine sitting in front of them," says Wisconsin Attorney General James Doyle. "By all measures, these kinds of machines are the most addictive and the least social."

    Not so fast, say nambling's advocates. They argue that states, such as Wisconsin, that are already heavily involved in the lottery business are hypocrites for bemoaning the proliferation and dangers of nambling.

    "My personal view is that yes, it is hypocritical," responds Doyle. "I'm an opponent of the lottery and I don't like the state of Wisconsin going out and advertising the lottery to promote the business of gambling. I think it's wrong."

    Yet even taking into consideration these conflicting points of view, there is no question that nambling has the potential to be a much more pervasive presence in people's lives than any form of gambling that has preceded it. Meanwhile, nambling companies are hard at work improving the quality of their sites, adding sound and improved animation to persuade gamblers to visit more frequently and wager for longer stretches. The companies recognize, as casinos did long before them, that a pleasant environment is the surest path to a bettor's wallet.

    Although betting in cyberspace represents the beginning of the end of gambling as a social event rooted in the habits and temperaments of different communities, nambling companies still have much to learn from the generations of schemers, rogues, fast-talkers, and corporate planners who have made modern gambling such a force to be reckoned with in America.

    All the anticipation and hand-wringing that have accompanied nambling's rise are far out of proportion to the amount of action it currently generates. Gambling's big daddy is still the casino business, which accounted for about 85 percent of all the legal gambling dollars wagered in the United States in 1996. And the starting block for modern gambling's sprint across the country is, of course, Las Vegas.

The Poker Player--I

David "Chip" Reese, forty-six years old, is the best poker player in the world. Other players, such as his close friend and poker legend Doyle Brunson, are better at individual poker games such as Hold 'Em. But ask for an all-around poker virtuoso, and Reese's name is the first on people's lips.

    Reese occasionally plays in tournaments, such as the World Series of Poker, which he has never won. But tournament poker players are a different breed from "live-action" players like Reese. Tournament players compete with a prescribed bankroll over a short period of time and, because they can't dig back into their wallet to stay in the game, they depend more on the luck of the draw than live-action players do. Most tournament players would be "broken" by Reese, as at least one World Series winner has been, if they sat down at the same table with him for a few days.

    The night Reese dropped out of the 1996 World Series at Binion's in Las Vegas, he won $280,000 playing at a small table just a few dozen feet away from the tournament tables. It isn't uncommon for $2 million or $3 million in cash and chips to be piled atop a table where Reese is playing, and numerous multimillionaires and Wall Street financiers have walked away from a game with him licking their wounds. Cherubic, warm, and as friendly as a small-town mayor, Reese is transformed into a formidable, no-nonsense predator when he plays poker.

    Reese's prowess has made him something unusual, almost isolated, in the poker world: a wealthy man with diverse business interests. As one friend of his, a Los Angeles bookie known as Big Al, says: "For every Chip Reese there are a million poker players who are total losers."

You better learn to plug up all your leaks or you'll be broke. I mean, if you have one crack in your chain, you know, in your cement, it'll get exploited. Because in order to survive in this town, you just got to have 'em all plastered up....When people have to make tough decisions, when they really show their frailties, is when they're uncomfortable and they're on unsure ground.

    I never planned things out. It just flowed. It just happened. I loved it, I've always loved it. I just never quit enjoying it.