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It was not long ago that analysts were predicting that sports betting would be one of the sure-fire commercial winners of the online economy.

In 1998, Bet Online opened its doors to those who fancied a flutter and shortly after, it was scarcely possible to click a mouse without seeing a banner ad inviting you to a new sports betting site. In 2002, however, Bet Online is Blue Square, one of the few surviving pureplays in a market that traditional big boys such as Ladbrokes and William Hill are happily dominating as comfortably as they do offline.

So now online casinos are being touted as the sure-fire money-maker.

More than 1,700 of them are being run by more than 800 companies worldwide.

Datamonitor predicts that revenue from the UK online casino market will reach £334 million this year, rising to £559m by 2005.

Even if these figures prove optimistic, Nielsen// NetRatings reports that 1.3 million people gambled or played sweepstakes online in September in the UK. And 500,000 of them were taking part in online gaming on casino sites.

Last month saw the launch of PlayMGMMirage.com, the online casino home of MGM Mirage. And the entrance of the Las Vegas gaming giant into the digital market could be the first chiming of the death-knell for the pureplays that have dominated the sector until now.

Oscar Nieboer, vice-president of marketing at MGM Mirage Online, explains that the company is only now joining the fray "because we think the conditions are right. The technology is right and the regulations are right."

MGM Mirage employs more than 40,000 people and operates on three continents, but Nieboer is keen to point out how important the development of online operations is to the organisation. "Although what we're making is a small investment compared with building a hotel in Las Vegas, we're literally putting our reputation on the line," he explains. "The anticipation is that the business online could easily be as big as the casino part of the business in Las Vegas within 10 years."

PlayMGMMirage.com sells itself as the full Las Vegas casino experience.

It offers many of the same games as any bricks-and-mortar casino in Nevada, with the same odds, prizes and jackpots. It also operates the same loyalty scheme as the MGM Mirage casinos, so playing online can earn punters points towards staying in a hotel or taking in a show. "The casino online is just like any other MGM Mirage property," says Nieboer.

Players can deposit money in an account via credit or debit card, cheque, wire transfer or banker's draft. Winnings are paid out in a similar way.

Although there is an initial deposit limit of £1,000, and games have theoretical bet-capping and limits, it is possible to place a bet of any size. "In theory, if there was someone who wanted to place a big bet, we could arrange that, just as we would in a bricks-and-mortar casino," says Nieboer. "We'd talk to the punter and make sure they could place the bet, really wanted to do it, and could afford to lose the money. If that was all OK, we'd take the gamble."

The site is officially aimed at single ABC1 25- to 34-year-old men, but Nieboer is unhappy with such a strict definition. "We're also targeting anyone who has a bit of spare time on their hands and is looking for a bit of a buzz for £1 - the people who used to feel that way about the Lottery but now know that it probably won't be them," he says.

Advertising for the site is currently live online and is backed by an opt-in email campaign inviting people to benefit from the privileges and rewards of being a founding member of the casino. Nieboer believes the site has a unique appeal because it is the only one offering an 'authentic' Las Vegas experience - as the parent firm is based in Las Vegas and the site is branded and styled like the casinos in Vegas. He also feels that although MGM Mirage is a US brand, it will be accepted by UK punters.

"We're a brand that people trust. We did some research and people know us, even in the UK. They don't know us for gaming as much as they know Ladbrokes for gambling, for example, but they know we're a big conglomerate with many dimensions."

As befits a brand that places a premium on trust, registering for the site is no simple typing in of a random email address. "There's a state-of-the-art age and geographical verification matrix at the heart of the system, which seeks to establish with reasonable assurance that the player is who they say they are, and are indeed where they say they are," explains Nieboer.

"Although it is rapid in deployment, the system is not inexpensive - it costs us a number of pounds to establish and verify each player's age and identity. It's also tough. But given what we have at stake, it needs to be. It assumes that you are not a legitimate player unless you can prove otherwise."

This identity verification process raises some important points about the impact of the complex regulations surrounding online casinos. It's currently illegal to run a casino site from the UK, so PlayMGMMirage.com's servers are housed in the Isle of Man, as are HardRockCasino.com's and others.

To abide by Isle of Man regulations, casino sites must verify the age and creditworthiness of players and display clear information about who can and can't bet in an online casino. To add to the complexities, the US, along with Australia, Canada, China and Japan, does not allow its citizens to gamble online.

For MGM Mirage, which is regulated by a number of state commissions in the US, the consequences of allowing players from the US to access PlayMGMMirage.com in the UK would be devastating. But for any site hoping to benefit from potential changes in UK law, and perhaps gain long-term access to future international markets should the law change elsewhere, playing by the current strict rules is essential.

UK regulation of casino sites is likely to change in the next two years, according to Joanne Brook, partner at commercial law firm Sprecher Grier Halberstam LLP & Weblaw. "Following the publishing of The Budd Report (an independent review of the controls on gambling in Great Britain) last year, the Government has produced proposals which could potentially make the UK one of the best and most responsible places to locate an online casino operation," she explains.

If these proposals are implemented - and it is expected that they will be - licences for online casinos in the UK will be granted to companies that are incorporated here, locate their server in Britain and use a UK country code as their domain name. Unlicensed sites will not be allowed to advertise in the UK.

"The Budd Report also recommended that all gambling should be regulated by a single body, called the Gaming Commission," Brook adds. "This would establish standards for obtaining a licence and oversee all gambling operations."

Licensed operators will be obliged to have their software checked by the commission to ensure that it is fair and to make sure the site cannot be accessed by children; it would then be able to display a kite-mark to assure punters that it had met certain standards. e

Since it is likely that the offshore sites that have been following such guidelines voluntarily will be among the first to be granted licences, it is not surprising that sites such as PlayMGMMirage.com are going to such lengths to ensure they are beyond reproach from a regulatory point of view.

Damian Cope, managing director of Rank Interactive, is at pains to point out the high standards its two gaming sites adhere to - Rank.com, launched in November 2001 and focuses on bingo-style games, and HardRockCasino.com, launched in June and offers traditional casino games. "Rank.com operates under a UK bookmakers permit; the servers are located in the UK. HardRockCasino.com's servers are located in the Isle of Man. There is no interconnection at all. Under Isle of Man legislation, they can't have any connection."

Like PlayMGMMirage.com, HardRockCasino.com offers the full range of casino games and has similar identity verification, account management and payment systems. In fact, beyond the design of the site, there is little to distinguish it from its Las Vegas-styled rival. But Rank Interactive has a very different attitude to its business model.

While MGM Mirage Online aims to attract an audience new to gambling, Rank Interactive is primarily targeting existing offline customers. "We have a relationship with three or four million people who have come into Mecca Bingo, become a member and played within the past 12 months," explains Cope. "It's the same with our Grosvenor Casinos. So rather than fight on the internet with every other casino site, we are talking to our existing customers and telling them about our online offerings."

Rank has contacted Mecca Bingo members about Rank.com, while Grosvenor Casino members have been made aware of HardRockCasino.com and offered a free £100 bet online if they sign up. " We're starting with our existing customers as they are easy wins," says Cope. "We already know these people; we know they like gambling, we know their name and address."

According to Cope, giving these existing customers a new gambling channel will increase their overall spend. They will still go to bricks-and-mortar establishments, but when they have a spare moment they will also log on and have a flutter online.

But Nieboer is sceptical of this approach, as he does not believe that people who visit casino venues are the same as those who will go to casinos online. "Online casino players are much more focused on what they are looking for than offline players," he says. "We think there are about 400,000 of them in the UK. They talk to each other about what's good and bad. If you get off to a bad start, it'll be out there quickly."

Unlike MGM Mirage Online, Rank Interactive is also developing online partnerships with non-gaming sites. For Rank Interactive, this is the logical way to access new customers; for the partners, it's a way to tap into what is likely to be a lucrative revenue source - thus the casino sections set up by sites such as iVillage.co.uk and lastminute.com. As Angus Glover Wilson, senior business development manager at iVillage.co.uk, says: "We aim to offer visitors every online facility they could want, and entertaining applications such as casino games add to our offering. It also represents a healthy new source of revenue."

But while Wilson describes the casino as "one of our top non-advertising revenue streams", the reality is that most non-gaming sites with a 'bolted-on' casino via a partner such as Rank Interactive are not getting a revenue share. Rather, they are receiving a flat fee from their partner. "We see iVillage as the leading women's portal in the UK, which is why we want to be a partner with them," explains Cope.

"There are benefits for both parties. We need to learn about these people, and iVillage is getting paid and has a new area for the site."

Online casino 32Red has a similarly structured deal with Rivals Digital Media (RDM). Elizabeth Ryan, marketing manager at RDM, explains: "There is no revenue share. 32Red has paid a set amount for what is effectively an ad campaign across our sites."

It would appear, then, that most of the current white-labelling is a short-term way for pureplays to earn some revenue from the bigger gaming companies. Given the complex regulations and high costs of setting up a casino site, it's not surprising that this short-term route to income is so appealing.

For the major players such as Rank Interactive and MGM Mirage, though, the real revenue will only begin to appear two or three years down the line. Nieboer confirms that for the time being, his aim is purely to establish MGM Mirage Online in the UK in a responsible way. "The definition of success for us at the moment is to be in a position of growth in two or three years' time," he says. Cope is similarly pragmatic in his assessment of the development of Rank Interactive's online activity. "We don't need to rush; we can do things logically," he explains. "In the meantime, if the web business loses money, that's fine. If we bought a bingo club, we'd pay up-front and make the money back over a few years; we're doing the same thing online."

Of course, both companies have the backing of a stable and profitable offline businesses to offset their initial losses and buy them time. But such financial backing and time are luxuries not enjoyed by the majority of pureplays, and consolidation of the market in the next couple of years seems to be inevitable.

As was the case with the sports betting market, the off-line big fish are confident that they will soon be gobbling up the dotcom small-fry.

So it looks as though history could be set to repeat itself.

LADBROKES CASINO ATTRACTS PLAYERS WITH A STRONG BRAND

The Ladbrokes Casino was an early entrant to the market, launching in October 2000. The site's servers are based in Gibraltar.

David Briggs, development director at Ladbrokes, describes Ladbrokes Casino (www.ladbrokescasino.com) as the biggest online casino site, if any that break US regulations and service the US market are excluded.

He says the success of the site is based on three pillars: innovation, customer service and security. "Innovation is the key - we are constantly introducing new games and formats," he explains. "Our multi-player poker has dealt more than two million hands within weeks of launching.

"With Ladbrokes, players know they'll be paid swiftly and that we invest heavily in security," he adds. "Also, we don't charge commission for currency conversions or have buy and sell rates as other casinos do."

The site offers a full range of games, from roulette and blackjack to poker. It also offers a range of slot machine games and a lottery-style numbers game.

Players can pay by credit or debit card or make a deposit by cheque. They can choose to receive winnings by payment to their card or by cheque or bank transfer.

According to Briggs, site users are mainly from the UK, but there is increasing international growth.

He adds that the audience is made up of both existing offline and new online customers. "There will be some crossover, but a lot of our customers will rarely enter an offline casino." He believes the market will consolidate in the coming year. "Operators that think it's easy to set up a casino are in for a shock," he says.

"It is a crowded market and we believe that the importance of a respectable brand will be key.

But the brand needs to be relevant to the sector. A strong brand on its own is not enough."

32Red operates a casino through Rivals Digital Media

Rivals Digital Media (RDM) has hosted an online casino from 32Red since August. Iain Linkleter, commercial director of RDM, is confident that the network of sports sites is the perfect place to host an online casino.

"It fits perfectly with our overall gaming offering, which includes fixed odds and sportsbook betting, spread betting, pools and a casino," he says.

"Every one of our two million users who is over 18 is a potential user of the casino. In its simplest form, everyone knows how to play pontoon."

RDM chose 32Red as a partner because of its credentials. "32Red has an innovative mindset, its managing director was formerly the managing director of Ladbrokes, the design and appearance of the site is great and it has a different overall demeanour from the brassy Vegas-style casinos," says Linkleter.

It is only possible to play in pounds sterling on the site, but it offers all the usual casino games, including blackjack, craps, pools, slots and roulette. The site is being advertised offline as well as being integrated into all of RDM's sites and pushed through email promotions and viral marketing.

According to Linkleter, the deal will bring in two per cent of Rivals' revenue. "We're talking about thousands of pounds, rather than tens of thousands," he says. "It is still very niche." However, he is positive about potential revenue and is not surprised that there have been so many recent entrants into the market.

"It's a great deal easier to get someone into an online casino regularly than a casino in Las Vegas, Atlantic City or even London," he says. "And once consumers' trust is won, online casinos will be very profitable."