Point and Bet

Internet gambling's explosive growth has made it the Web's killer app. Now critics are trying to pull the plug.
Scores of visitors stream into the Barrymore Beach Club on the tiny Caribbean island of Antigua on a recent morning. But none of them swim in the warm water or sip tropical drinks on the white-sand beach. That's because they have come to Antigua via the Internet, drawn by one of the Web's most provocative diversions: online gambling.
ABOUT THE ONLY people actually in the hotel are a half-dozen bikini-clad women, toiling in guest rooms converted into tiny virtual casinos. As the dealers lean into Web cameras (each gets a monthly $50 "cleavage bonus") and flirt with bettors via instant messaging, a computer tracks the house's haul. Robert J. from the United States loses $475 on roulette in just seven bets, while Ricky L. of Hong Kong pockets $85 at baccarat. In a typical month, surfers plunk down $640,000. Because players make more bets per hour than they would at Caesar's Palace, they literally lose money to the house twice as fast, says Peter Kjaer, who runs the two-year-old site. "Of the two industries on the Internet that make money," Kjaer says, "this is the one I can tell my mother about."
Every week about 2 million players ante up at more than 1,800 virtual casinos, making Internet gambling one of the Web's fastest-growing killer apps. It's easy to understand why. Internet sex sites can only simulate the real thing, but online casinos are the real thing. Any hour of the day, from work, home or vacation, you can click a mouse and bet the house. But now the dizzying growth of online gambling-some $3.5 billion will be lost on Internet bets this year, about three times the revenue of porn sites-has triggered a sharp backlash that threatens to turn some of today's thriving online casinos into tomorrow's defunct eToys. In recent months most U.S. credit-card companies, and some Internet payment systems like PayPal, have responded to pressure from lawmakers by moving to block charges from online casinos. The House of Representatives earlier this month passed a bill making online gambling a federal crime (the bill has not yet come to a Senate vote). Perhaps the most chilling news to site operators: last week an American who ran an Internet sports-gambling site in Antigua started serving a 21-month jail sentence for violating a 1961 sports-gambling statute. "There's big trouble ahead," says Kjaer.
FOOLING MASTERCARD
Shutting down Internet wagering altogether may be as difficult as keeping a teenager from downloading MP3s. Several earlier attempts to pass federal legislation banning Internet gambling have stalled, generally because the bills can't reconcile opposition of online wagering with support for state lotteries and parimutuel betting like horse racing. And some credit-card companies, albeit inadvertently, are still processing these transactions. Just two weeks ago NEWSWEEK used a MasterCard issued by Citibank to deposit $100 at the DrHo888 site, where we quickly pocketed $50 in two winning roulette spins. The credit-card transaction was coded by DrHo as coming from a French catalog merchant. Citibank admits it was fooled. Says DrHo's Kjaer: "There's nothing illegal about it. We can code transactions however we want to."