BETTING ON VIRTUAL VEGAS

Incongruously dapper in a white linen suit, Warren B. Eugene stands before a roomful of computer experts and Internet entrepreneurs in New York City and explains the virtues of bringing to cyberspace the one vice that is always sure to pay: gambling. His audience is a little hostile at first. (Isn’t it illegal? Immoral? A flagrant violation of-of something?) But the crowd seems to know more about computers than it does about bookmaking. And as Eugene deals out the charm-and the facts of the betting life-it warms to the idea.

“If it’s really gambling,” someone asks, “aren’t the odds fifty-fifty that you’re going to lose as much as you make?” “At your casino maybe,” Eugene, 34, answers with a grin. At the Caribbean Casino — one of Eugene’s Internet gambling dens now operating in beta (for fun) mode and set to begin in earnest (for real money) within two weeks-the odds are 70 to 30 in favor of the house. Whether you are playing blackjack, poker, roulette or the slots, he says, “you are absolutely guaranteed to lose your money most of the time.”

Online gambling may be the Internet’s first true “killer app”-a reason to log on that could also make somebody rich, very rich. The Internet reaches tens of millions of people around the world, and it’s growing faster than a Las Vegas bar tab. Many of the folks who roam the networks may like to place a wager from time to time, especially from the comfort of home or an office computer. The smell of all those suckers with money to burn has attracted dozens of would-be Bugsy Siegels, all of them racing to set up Internet sites. Analysts say legalized online gambling could be a $10 billion-a-year industry.

There’s just one problem: it’s not legal in most countries. In the U.S., for instance, it is against the law to transmit bets across state lines. And some states, like California, have laws prohibiting gamblers from placing wagers by wire — in other words, by phone, telex or computer.

The beauty of the Internet, of course, is that it flies right over those state and national borders. To get around nettlesome gambling laws, all you have to do is put your computer operations offshore, in a country where the laws are more tolerant or nonexistent. Most of the virtual casinos are setting up shop in the Caribbean, in tropical getaways like St. Martin, Antigua, and the Turks and Caicos Islands. Belize is considering legislation that would make it the Monte Carlo of cybergambling. “Everyone says it’s a banana republic over there, and no one will regulate,” says Kerry Rogers, who runs an offshore operation called WagerNet. Rogers maintains, however, that if the Belize National Assembly ratifies the Computer Wager Licensing Act later this month, online betting parlors will be monitored by local officials who would guarantee that the casino hard drives aren’t loaded.

Which raises an interesting question. When you’re playing poker over the computer networks, how do you know your opponent isn’t pocketing your winnings? Rogers, a computer expert from Las Vegas, is putting the finishing touches on a device he hopes will put those fears to rest. The hardware, which plugs into the back of a PC, is a kind of gambling “smart card” that is supposed to use powerful encryption to record all transactions between the house and the player.

Other companies, such as Antigua-based Sports International, are staking their corporate reputations on their ability to run a straight operation. “We’re the only [Internet gambling] company that’s publicly traded” and thus more accountable, says spokesman Michael Brown. Sports International has signed an agreement with IntraCorp, a well-known computer-gamemaker, to write software that would allow players to “take a virtual walk through the casino, even stop at the bar and have a drink.” A virtual drink, of course.

Which sounds a lot like some of Warren Eugene’s more grandiose plans. Eugene commissioned a team of programmers to design a full-service casino-software package that he wants to license to interested parties. His price: $250,000, plus a 15% cut of the take. He says half a dozen countries, including Cuba and Costa Rica, are interested. The plan is to link the offshore computers together to form a “virtual strip” in cyberspace. Don’t like the odds offered in Casino Cuba? Click a button, and you’re in virtual St. Martin. Eugene is also mocking up theme-oriented casino worlds, such as Space World, Water World and, of course, Sex World, where bettors can go and soak up “specialized atmosphere” while gambling.

Is this guy for real? “He’s as real as a heart attack,” says Jonas Heller, a multimedia producer and agent for International Creative Management, the high-powered talent agency. Heller has been working with Eugene for months, helping him devise a licensing strategy and even lining up lounge acts for the virtual strip. “He’d obviously like a celebrity like Mel Torme to be a dealer and host,” says Heller, “but Mel Torme might have different ideas.”

“Then how about Arnold Schwarzenegger?” asks the unflappable Eugene. The Toronto-born businessman is something of an eccentric. He dabbled in the video-game business (his biggest hit: an arcade game called Ooze) but left the industry deciding it had “too much gratuitous violence.” The idea of gambling over the Internet came to him last year in a moment he describes as an epiphany. According to Eugene, he was “chosen” to open the first gambling den on the electronic frontier. He is convinced that in another life he was the founder of New York City’s famous Stork Club.

None of this matters so much as the fact that as a Canadian citizen doing business in a Caribbean country, he may have effectively skirted all U.S. gambling laws-even if most of his customers turn out to be Americans. He has plenty of backers, thanks to a glowing write-up in the Wall Street Journal last month. According to Eugene, he has just about raised the $10 million he needs to open his electronic honky-tonk on June 22. “I’m at the door,” he says. “I plan to make billions and billions upon billions of dollars.”

Not all online casinos will be so elaborate, of course. With a modem and a computer and some way to exchange the money (see box), anybody can put up a neon sign on the World Wide Web-the multimedia portion of the Internet. One popular Website, called the Cozino, offers blackjack and poker games to patrons and has ambitious plans to add more entertainments. “If you are addicted to a particular casino game and would like to see (and play) it in the Cozino, please E-mail to the address below,” says an onscreen message. The address, curiously enough, belongs to a computer at the University of Newcastle in New South Wales, Australia. But who’s really running this gaming house Down Under? The university’s system administrator hasn’t a clue. He’s never heard of it.