Bingo!

Almost below the radar, gaming and lotto sites have become among the most popular destinations on the Web.

Such sites let players play free games with the chance to win millions of dollars in cash and prizes, and the companies that run them say their games are nothing more than harmless entertainment. However, experts say these increasingly popular Web sites could be leading some people into compulsive online gambling where real money is won and lost.

Among the 50 most popular sites on the Internet in December 2000, sweepstakes sites Grab.com and Iwon.com ranked 17th and 26th respectively, and gaming network Uproar ranked No. 20, according to Jupiter Media Metrix. Thats substantial, considering that most of the other sites listed are either multibillion-dollar Internet properties such as America Online and Yahoo! or popular e-commerce sites such as Amazon.com. In fact, Grab, which promises $1 million jackpots, was ranked the top new Internet site of 2000 by Jupiter Media Metrix, tallying up 13.5 million unique visitors for December.

Its difficult to gauge the exact size of the industry, since there are so many sites operated around the globe and many of them are privately held. Bingo.com, one of the few publicly traded sweepstakes sites, had $544,416 in revenue for the third quarter of 2000, and a net loss of $1.1 million.

But its clearly a fast-growing business, as evidenced by Uproars acquisition this month by Vivendi Universal Publishings gaming unit Flipside for $140 million, creating the biggest online gaming site in the world. The combined entities would have ranked as the ninth most popular Internet site for December, with more than 16 million combined unique users, according to research firm PC Data.

Considering the large number of competitors in the space — which include Bingo.com, Freelotto, Pogo.com and scores of others — these sites are big business, offering prize winnings that amount to billions of dollars.

Thats not bad for online companies that dont require large warehouses of products or need to spend millions of dollars in offline advertising to get the word out. The business model is based on relatively low overhead: These sites attract users largely by word of mouth and traffic-sharing arrangements; their inventory is a room of servers calculating each move.

"I would agree, generally, that its not that expensive to run our site," says Scott Kaufman, executive vice president of product development at New York-based Uproar, which has about 100 employees.

Since visitors to Uproar and other gaming and sweepstakes sites are playing for free, the revenue comes almost exclusively from advertising. But its advertising like no other, says Kevin Aronin, chief executive of Freelotto. While users dont have to give $1 per entry like a typical offline lottery, they do provide extensive information about themselves, which Aronin says makes for attractive advertising demographics to prospective marketers. "We have over 16 million members and over 40 billion pieces of information on these members," he says.

When he saw there was $140 billion spent worldwide on lottery tickets, Aronin says, his choice of creating a business was a no-brainer. "The lottery [industry] tells you that you need a dollar and a dream," he says. "We tell you, Just bring the dream and keep the buck."

Freelotto is simpler than most other sites: It just asks people to register and pick six numbers, with the same odds as a typical lottery. Since it opened in June 1999, Freelotto has given away almost $30 million. That includes several $1 million payouts, one $10 million jackpot recently won by a man in India and 150 people riding around the world today in cars they won from Freelotto.

Aronin, who spent 27 years in the direct marketing business before starting Freelotto, says hes applying those simple polling techniques to Internet advertising. How accurate is it? Five days before the presidential election, Freelotto took a voter poll. Based on those results, Freelotto not only predicted George W. Bush as the winner of the Electoral College, but also that Al Gore would win the popular vote and that Florida would be a toss-up state.

Just Fun and Games?

The overriding posture of the gaming sites is: Theres no harm done. These are free gaming sites, after all, and the only people giving anything away are the sites themselves.

But that is a dangerous assumption, experts on gambling addiction say. Such free lottery and gaming sites are just one step removed from hard-core gambling sites. "The basic definition of gambling is risking something of value to gain something of value when the outcome is unknown,"says Kevin ONeill, deputy director at the Council on Compulsive Gambling of New Jersey.

While playing the games on the sites is technically free of charge, every user must register, giving away valuable personal information that can be used to directly market products and services to them. Those ad pitches vary, but the top advertisers for both Bingo.com and Uproar are casino and gambling sites — many of which are based outside the U.S. to avoid the prohibition on online gambling — that are looking for users willing to shell out some cash for the privilege.

A major advertiser on Bingo.com is The Gaming Club, an offshore casino that would not be able to operate legally in the U.S. One of Uproars biggest advertisers is Casino on Net, a site operated by Casava Enterprises on the Caribbean island of Antigua, a location notorious for offshore gambling.

Representatives from each of these U.S. companies express no qualms with their marketing affiliates. Lisa Gephart, an Uproar spokeswoman, says she sees no danger in marketing online casinos to Uproars users. She says the question has "never been raised with us."

But ONeill says the link between the free gaming sites and the pay gambling sites is precisely the issue. "Starting off with free sites, thats about getting a market, about getting people hooked," he says. "But theres no difference to me. Gambling is gambling. Everyone will choose their poison, their own recreation."

In particular, ONeill says, bingo as an offline game has been a dangerous addiction for people who enter the bingo hall and spend more and more money playing, while spending less and less time interacting with those outside of it — especially their families. This lack of interaction is magnified when the only thing the gambler has to interact with now is a computer.

And dont think the online sites dont charge to play because they dont want to, ONeill says. To get a license to charge for playing bingo is an arduous process that includes background checks, and the organizations applying for it must be not-for-profit ventures — which these online lottery and sweepstakes companies certainly are not.

Theres also the issue of letting users gamble on credit. While most states dont allow bingo players to use their credit cards in brick-and-mortar bingo halls, the offshore Internet casinos do. ONeill believes credit-card companies may begin cracking down on that use.

But the Net is a global audience, argues Beau Buck, executive producer at Bingo.com. He says that while its illegal to operate online gambling businesses in the U.S., people of other nations have no problem.

"I literally could not tell you, and I dont know how I would know, which of the global audience goes to the [offshore casino] sites which youre referring to," Buck says. "For the rest of the world, its not illegal, and we [accept] the advertising."

While most of the sites demand users be at least 18 years of age, it seems no one is in doubt who the real target for these sites is: middle-aged women. Women arent likely to be playing Quake online, says Sean Wargo, senior analyst at PC Data. "Theyre more likely to play poker or trivia games, and online gambling is very popular among the older female set," he says.

Shane Murphy, CEO of Bingo.com, says the segment of the population his site caters to isnt exactly a home run for advertisers. "Its a middle- to lower-class economic segment, and thats a challenge for the advertising community," he says.

But Murphy says that, while you wont see Lexus advertisements on his site, the demographic of the people who play at Bingo.com is underserved on the Internet, and he says they do purchase products.

The hope of gambling addiction activists such as ONeill, however, is that the people playing Internet bingo will steer clear of the online casinos that provide much of the advertising revenue for Bingo.com and other gaming sites.