| |
There has been a lot of rumours
about the biggest online casino - Casino On Net. Waas it run
by the mob or someone from the XXX Industry?
Nobody seemed to know, when I asked around.....
At one point I was told that it was run by 8 huge companies - which would
explain how they can afford advertising at the scale that they
do. Yesterday I finally found some answers in an article found
on business2.com - it was a interview with Casino
On Net, the worlds - by far - biggest online casino. Casino
On Net also runs the sister Casino Reef
Club Casino and the online poker room Pacific Poker. Below
You can read the very interesting article about Casino
On Net.
Click
here to read our review of Casino On Net
Online Gambling's Mr. Big
John Anderson's Web casino is a profit machine. If only
he could convince the U.S. government that online gambling
ought to be legal.
"There's something of the night about this industry," a Merrill
Lynch (MER) investment banker has warned. One evening in November
in the lobby of London's Landmark hotel, where the elusive
operator of the world's largest online casino is about to appear,
the banker's words ring true.
The few people in Internet gambling who have met the operator
refuse to talk about him. His organization, scattered around
the globe under names like Cassava Enterprises and Virtual
Holdings, hasn't responded to e-mail. It took weeks just to
learn his identity amid rumored ties to the Russian mob and
porn money. He never talks to the press. Any minute now, the
operator will arrive, probably in a Rolls Royce, wearing gold
chains, with bodyguards in tow. More likely, Mr. Big won't
show up at all.
Then, in strolls John Anderson. With shaggy brown hair and
round wire-rimmed glasses, he looks vaguely like John Lennon.
He is alone, buttoned-down, and speaks with the flat, clinical
precision of an accountant -- which, as it happens, he is.
Those rumors of mob or porn ties are, by all accounts, nonsense.
Sipping soda in the Landmark's lounge, Anderson explains how
the lessons of 26 years as a respected gaming and hotel executive
molded the company he now runs, an amazing profit machine called Casino-on-Net.
Anderson's online casino made about $50 million last year,
as much as a big Las Vegas casino and more than all but a handful
of Internet companies. Analysts estimate its 2002 revenue at
about $200 million and say the company is the biggest casino
in the fast-growing $4.2 billion-a-year online gambling industry.
Anderson, at 52, has found an especially sophisticated way
to tap a lucrative vein of stay-at-home bettors. "Lots of cash
flow, no distribution, and no real estate," Anderson says. "It's
the perfect business."
Actually, there are a few flaws. More than half of Casino-on-Net's
customers live in the United States, and the Justice Department
asserts that taking U.S. bets online is a crime. Congressional
critics have been thundering against the moral scourge of online
gambling, pressing for tougher laws, and even accusing Internet
casinos of laundering money for terrorists.
"Do I look like some money-laundering terrorist?" Anderson
asks in a thick Scottish brogue. Then he grins. "I don't know," he
says. "Maybe I do."
Click
here to read our review of Casino On Net
Or maybe not. The point is that Anderson's industry has a
monumental image problem, which poses a mortal threat to his
money machine. And so he has embarked on one of the biggest
long shots in business today: He's trying to clean up the online
gambling industry.
He's lobbying for regulation -- anathema to many of his colleagues
-- in hopes that a "legalize it, regulate it" message will
stave off the authorities. But more fundamentally, he is trying
to show, through the exacting and open way he's building his
own business, that online gambling is not just the shadowy
province of hustlers, ex-cons, and the occasional fugitive. "We
have to be cleaner than clean, transparent," he says.
Dragging the industry into the daylight won't be easy. But
a lot is at stake. A fully legal online gaming industry wouldn't
be a $4 billion-a-year proposition; it could peel off much
of the $150 billion gamblers spend in Vegas and anywhere else
you can lay down a legal bet. Anderson has already made some
headway. And in his dreamed-of world of highly regulated and
stigma-free online gambling, Casino-on-Net isn't a $200 million
business. It's a billion-dollar business -- at least. "The
opportunity is truly huge," he says. "It's exponential."
Casino-on-Net was
conceived in 1996 at, of all things, a dentistry convention.
True, it was in Monte Carlo, and there among the baccarat tables
and roulette wheels, Israeli dentist Aaron Shaked concluded
that a Web casino could be more rewarding than pulling molars.
He brought the idea to his brother, who knew a pair of computer
engineers. The four co-founders remortgaged their homes to
bankroll the company and buy a $100,000 gaming license from
the island of Antigua.
Hundreds of sites offering more or less the same games and
a similar look and feel launched at about the same time, but
what quickly set Casino-on-Net apart
was that it poured most of its profits into developing a highly
sophisticated Web marketing system. Its real-time tracking
software, developed by graduates of Israel's famed Technion
institute, monitored the results of banner ads and pop-ups
on thousands of websites simultaneously and could instantly
boost the company's presence on productive sites while dumping
laggards. As rivals squandered millions on offline advertising
and fancy websites, Casino-on-Net trained
this powerful technological vacuum on a hunt for the sizable
fraction of the population that likes to gamble frequently.
The bets rolled in. More than 7 million people have downloaded Casino-on-Net game
software. The company currently has about 300,000 active customer
accounts.
By early 2000 the founders realized they needed a seasoned
manager, and turned to Anderson. His first job, at age 12,
had been delivering hot buns at 3 a.m. to factory workers in
his native Dundee, and he never attended college. In the late
1960s, he sang and played guitar in a rock band that had one
immortal moment: It was on the same bill as a group that included
future members of Led Zeppelin -- and Anderson's band was the
headline act. But his real gift lay in a knack for numbers,
and it won him a cashier's job at Ladbrokes, the gaming giant
that transformed two-bit bookmaking into a respected business
with betting parlors all over Britain. He rose quickly, moved
over to the hotel side of the business after Ladbrokes bought
Hilton Group PLC, and wound up running the company's real estate
division. He left in 1996 and later led a buyout of Burford
Group, owner of London's landmark Trocadero retail complex.
Through business contacts in Israel, he met Casino-on-Net's
ultra-private founders.
"I did my due diligence," Anderson says. "They checked out
100 percent."
They may have checked out, but a lot of people in the business
did not -- especially down in Antigua, where Casino-on-Net had
its license. A lovely little Caribbean spot with lax extradition
laws and a carefree attitude toward games of chance, Antigua
had become the main global headquarters of online gaming --
the Vegas of the virtual world. It also had attracted a cast
of characters that anti-online-gambling forces could hardly
help but notice.
There's Jack Stroll, for instance. A marketing whiz from Montreal,
Stroll founded Golden Palace, considered the second-largest
Web casino, in Antigua in 1997. In the mid-1990s, Stroll (a.k.a.
Jack Strulovitch) ran a boiler room that promised respondents
fabulous prizes that turned out to be near-worthless junk,
Canadian authorities say. He pleaded guilty in 1999 to "deceptive
telemarketing," and he and his firm paid a then-record $300,000
fine.
Another Antigua pioneer, William "Billy" Scott, launched InterCasino.
A Toledo, Ohio, bookmaker jailed in 1984 for racketeering,
Scott was charged in 1998 by U.S. prosecutors with illegally
taking online sports bets. He's been a fugitive since. Steve
Adkins for a time headed the Online Players Association. His
real name, it turns out, is Sam Alvin Ashley Jr. His criminal
past allegedly includes passing counterfeit cash and bad checks.
He was nabbed in 2001 by Ohio authorities after 17 years at
large and is currently in jail awaiting sentencing for tax
evasion and defrauding a charity he once ran.
Stroll says he pleaded guilty in the telemarketing case to
avoid the trial expense and denies doing anything improper.
Golden Palace has since been relicensed in the Mohawk Indian
tribe's Kahnawake territory in Canada. A spokesperson for Scott
says he has sold InterCasino; the new owners couldn't be reached
for comment. Ashley also couldn't be reached for comment.
Meanwhile, sleazy if aboveboard operators keep rolling in.
DrHo888.com, another Antigua casino, uses webcams to show its
bikini-clad dealers in action. The dealers get $50 monthly "cleavage
bonuses" and flirt with bettors via instant messaging.
The brazenness of the Antigua crowd fueled the U.S. government's
crackdown on online gambling, which at first focused on sports
betting. Accepting sports bets electronically is expressly
barred by law. The legality of online casinos is a murkier
question. The Justice Department says they're illegal, but
a federal appeals court ruled in November that they aren't
banned by current statute. The unsettled state of the law is
the reason Anderson and other online casino operators have
to date not been charged with any crimes. It has also prompted
Rep. Jim Leach, R-Iowa, and several allies to propose legislation
that would effectively ban any form of Internet gambling. Many
U.S. banks, bowing to pressure, have already blocked the use
of credit cards to pay gambling debts.
Anderson knew when he came to Casino-on-Net that
he would never hold off the prohibitionists if he didn't distance
himself from the business's seedier elements. "The days of
carrying a laptop to Antigua and opening up shop are gone," he
says. That helps explain why, on a recent blustery afternoon,
he came to be chain-smoking Marlboro Lights in temporary offices
at the base of the Rock of Gibraltar.
By this summer, Casino-on-Net will
have relocated its nerve center to the British territory of
Gibraltar. Gibraltar is an offshore haven too, but it's far
more reputable than most. It also provides Anderson with several
practical business advantages, including modern communications
systems. Its online licensees include Ladbrokes. "Gibraltar
is clean as a whistle," Anderson says.
Anderson is building a 20,000-square-foot headquarters in
Gibraltar with sweeping views of the Mediterranean. There'll
be 350 employees staffing a 24-hour customer service center
and maintaining a server farm with 200 computers. No other
online casino has ever had that kind of technological muscle,
according to people in the industry.
Though the facility is only half-finished, Anderson has a
fully formed vision of the business model it will house. Online
gaming, he believes, is as close as anyone has come to the
much-hyped ideal of the virtual corporation. It scales like
crazy -- overhead hardly changes whether you have 300,000 customers
or 300 million. Adding to the product line usually requires
no more than tweaking some software code. And Anderson has
the ultimate edge shared by gaming operators everywhere: The
house always wins in the end.
Yet Anderson's greatest asset, people who know him say, is
a mastery of the most crucial skill in gaming: making each
player feel like an esteemed member of some exclusive club.
In Las Vegas it's called "stroking" the customer, and it's
done with a stream of freebies, from poker chips to cocktails.
Anderson can't pass out cocktails over the Web, but with his
background in gaming and hotels, he has a natural instinct
for how to relate to his "punters" and keep them coming back,
even if they're losing. And he's figured out how to use the
power of the Web to forge bonds with players that an offline
casino can only dream of.
First he has to find them, which is why Casino-on-Net spends
$40 million annually on rich-media Web advertising, more than
any company except Hewlett-Packard (HPQ), SBC Communications
(SBC), and Microsoft (MSFT), according to Nielsen/NetRatings.
It's also why its key software, which checks response rates
to ads on thousands of sites daily so Casino-on-Net can
target its spending, is such a critical competitive edge.
Even so, analysts estimate that it costs about $350 to corral
a single new player. Holding onto the ones you find is the
real name of the game. That's where Anderson's customer reps
play a pivotal role, monitoring players electronically and
interacting with them by e-mail and sometimes by phone, stroking
assiduously.
Casino-on-Net reps
go through six weeks of intensive schooling. On a recent training
day, recruits from Brazil, Japan, and the Netherlands listen
intently as instructor Vahe Baloulian, a former air traffic
controller in the Soviet army and a gambling-psychology expert,
explains that gamblers spend (that is, lose) an average of
$10 an hour online and consider it a fair price. But novice
gamblers often lose $100 in minutes and instantly conclude
that the game is rigged. That's a problem for Casino-on-Net,
because bad experiences travel fast on the Web. The solution,
Baloulian tells the class: Give sore losers a one-time $100
bonus and tell them to bet $1 to $3 per hand; they'll spend
the next several hours having fun.
"Prolong their pleasure and you create a relationship," Baloulian
says.
For clues about how to show customers a better time, company
marketers comb a database with detailed betting histories and
biographical information for all 7 million people who've visited
the site. If a player logs in on his birthday, Casino-on-Net is
likely to send out an instant "Happy Birthday" e-mail or a
gift of bonus money to gamble with. A player on a losing streak
may receive e-mail tips on how to win. The technology also
allows Anderson to continuously poll his players for their
opinions, and statisticians scour the data to detect any subtle
shift in player behavior or tastes. "You can't fly on gut," he
says.
The level of personal care Casino-on-Net's
technology allows it to lavish on players goes far beyond what
offline casinos can provide. Recently, Baloulian had to intervene
with a gambler who had dropped more than $20,000 and complained
about rigged games. Baloulian's e-mailed response reads in
part: "You may disagree with me, but allow me to question your
definition of 'misery.'" After giving a minutely detailed breakdown
of the gambler's playing history, Baloulian noted that he had
spent an average of $10.20 an hour in the casino. "If you treat
gambling as entertainment, which it is, I think $10.20 an hour
is a fair deal," the message continues. "If you treat it as
a source of income, which it can be but most often is not,
it is certainly no fun at all."
"People are predisposed to lose," Baloulian later says. "The
problem is to convince them they lost fairly." In this gambler's
case, it must have worked. He's been logging on again lately.
The very power of the Net to find and keep gamblers is one
of the reasons that opponents of online casinos want to ban
them. "Internet gambling is a danger to family and society
at large," Leach says. "It should be ended." To blunt that
threat, Anderson says, Casino-on-Net spends
more than $500,000 a year on lobbying. He's hired one of Washington's
top power brokers, law firm Akin Gump Strauss Hauer & Feld,
to press Congress and state legislatures. Dan Spiegel, the
point man on the campaign, stresses the benefits of a regulated
online gaming industry, including the fact that it would mean
protection for consumers and tax revenues for badly strapped
state treasuries. Still, Spiegel foresees an uphill battle. "This
is one of the hardest assignments we've ever faced at the firm," he
says.
Meanwhile, Anderson continues to try to prove his point through
his own business actions. When Rep. Michael Oxley, R-Ohio,
accused online casinos of laundering money for terrorists,
Anderson responded by hiring a former FBI computer crime expert
to devise internal safeguards and train his staff in detection.
(No online casino has ever been charged with money laundering,
although the FBI says it is investigating the industry.) He
has invited a fact-finding mission of regulators and government
critics to Gibraltar to examine everything from his Ernst & Young-audited
financial statements to his PricewaterhouseCoopers-certified
payout ratio. He has joined a fledgling industry body called
eCommerce Online Gaming Regulation Assurance -- modeled on
the National Association of Securities Dealers, the stock-market
watchdog -- which will give its seal of approval only to operators
who meet a long list of tough standards. Casino-on-Net is the
first and, so far, only casino to join.
It would seem a lonely crusade with bleak prospects -- except
that Anderson is already closing in on one coup. Britain is
expected to begin licensing online casinos within a year or
two, finally creating an environment for squeaky-clean operators
under a regulatory regime that's beyond reproach. Anderson
has quietly lobbied for that in Parliament for years, and he
has been an adviser to the government on the regulatory structure. "You
have to learn about the opposition's concerns and prove to
them that they don't exist," Anderson says. "You have to gradually
build trust."
The British generally get far less worked up about betting
than Americans do, but Anderson is convinced that, in his logical,
meticulous way, he can eventually chip away at the mistrust,
even among powerful U.S. politicians who see gambling as a
sin. He knows gambling isn't for everyone. He himself never
bets. But banning it is far more morally troubling, he believes. "It's
a freedom of choice issue, like drinking or smoking," he says. "A
society where a customer has no choice but to show up and sing
the company song, that's communism." And even if Anderson doesn't
win, other players will likely take his place at the table. "You
cannot buck a market," Anderson says. "A Luddite attitude will
always fail." That, at least, seems a pretty safe bet.
By Ralph King, business2.com April 2003 Issue |
|
