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Two years ago Richard Bronson, a former Mirage Resorts executive, came to the conclusion that the Internet would be the next big thing in the casino industry. He co-founded U.S. Digital Gaming to provide software and advertising services to gaming operators and government agencies in the belief that regulated online gambling, especially poker, would eventually be introduced by cash-strapped states seeking revenue.
When it came to raising money for his venture, Bronson found that some of the richest people in America were keen to invest in his Internet gambling business. Bronson secured investments from billionaires like real estate mogul Steven Roth, chairman of Vornado Realty Trust, and shopping mall magnate Herbert Simon, the owner of the Indiana Pacers. “They are all in it for the long haul,” says Bronson, who also signed up Robert and William Taubman, sons of billionaire Alfred Taubman. “Not one of them thinks this will be a sprint, they think it will be a marathon.”
The American land rush for Internet gambling is on and it’s being led by the richest people in the country in anticipation that a regulatory regime for online gambling is coming at either the federal or state level. The U.S. online gambling market has long been the world’s biggest, but for years it has operated in the shadows of the law and a disapproving Department of Justice. Prominent U.S. billionaires and casino companies stayed out of the business, leaving its riches for offshore companies like PokerStars, Full Tilt Poker and Bodog. But now the casino industry is strongly pushing to get Internet gambling regulation through Congress and lawmakers in states like Nevada and New Jersey are also trying to get something done. It is widely believed that first-mover advantage will be key in seizing the Internet if and when online gambling gets regulated, leading to a mad mobilization.
Last week Donald Trump publicly threw his hat in the ring, saying “we have been looking at this for a while.” What makes Trump’s entry into online gambling even more interesting is that his effort includes Marc Lasry, the billionaire hedge fund manager who controls Avenue Capital Group, which manages $12 billion. The two make a bit of an odd couple, given Trump’s recent alignment with the Republican Party and Lasry’s staunch support of Democratic Party causes, including the reelection of President Barack Obama. But Avenue Capital controls Trump Entertainment Resorts, which will own 10% of the joint venture Lasry and Trump are planning if online gambling regulation comes into effect. “This has to happen because many other countries are doing it and like usual the U.S. is just missing out,” Trump said.
Still, billionaire joint ventures for online gambling don’t always work out as planned. Las Vegas casino mogul Steve Wynn announced a deal in April that he had struck with PokerStars, but had to backtrack and terminate the partnership days later when PokerStars got caught up in the Justice Department’s crackdown on online poker firms operating U.S. facing web sites. Wynn has not publicly disclosed any new plans for the Internet, but he has said that he supports online poker regulation. “We are convinced that the lack of regulation of Internet gaming within the U.S. must change,” Wynn said earlier this year.
Indeed, billionaires who were burned by the Justice Department’s indictment of some of the key executives behind PokerStars and Full Tilt Poker have not been scared away from online gambling. Lorenzo and Frank Fertitta, billionaire brothers who own Station Casinos, ripped up their partnership agreement with Full Tilt following the government crackdown on Full Tilt. But Fertitta Interactive, a company the brothers co-founded in 2010, is still going strong and just purchased CyberArts, an Oakland, Calif., outfit that produces online gambling software. “Fertitta Interactive fully supports the federal regulation of online poker in the United States,” Lorenzo Fertitta said in a statement in October.
It is not just the casino titans who are looking at Internet gambling as a potential goldmine. As Lasry’s move into this game shows, Wall Street’s Masters of the Universe are also paying close attention. In 2008 private equity firm Apollo Global Management, run by billionaires Leon Black, Joshua Harris and Marc Rowan, joined with TPG, the buyout shop run by billionaire David Bonderman, to purchase Harrah’s Entertainment in a massive $30 billion leveraged buyout. The deal has so far not been a good one, but Black and Bonderman are still trying to make it work. The company, now called Caesars Entertainment, has been investing heavily in its online operations and backing a new Washington D.C. lobbying effort that includes former FBI Director Louis Freeh. If online gambling in the U.S. opens for business, it would certainly help Black and Bonderman, two investing legends, get out of a tough spot. |