Friday, August 19, 2005
Regulators fight to control online gaming
By Amy Yee in New York
Published: August 20 2005 03:00 | Last updated: August 20 2005 03:00
"About to bluff. About to raise," read the tagline for a series of advertisements from the gambling website Bodog.com that recently ran in Esquire, the US men's magazine. The same could be said of the hesitant dance between the booming online gambling industry and US authorities bent on keeping it in check.
Until recently, mainstream US media have largely avoided taking ads from online gaming companies. But it is becoming harder to do as publishers with sluggish ad sales are wooed by gambling websites flush with cash.
The popularity of televised poker has fuelled a boom in online gambling. And this summer's flotation of PartyGaming.com in London, which valued the Gibraltar-based site at about £5.6bn reflects keen investor and consumer interest in the booming industry. Revenue is expected to grow to $18bn by 2008 according to Dresdner Klein and Wasserstein, the investment bank.
US authorities consider online gaming illegal, but companies running it are based overseas, where US law does not apply. Most gambling websites accept bets from US punters.
In 2003 the US Department of Justice warned media outlets that accepting ads from online gaming groups constituted "aiding and abetting" illegal activities. The US has not prosecuted any companies, but the threat has been enough to frighten media outlets. Websites such as Google and Yahoo stopped accepting ads from internet casinos and sports books.
But as online gaming continues to grow, media outlets are being tempted and gambling companies are finding ways around the law.
Bodog's advertised this spring in Esquire and Fast Company, the US business magazine. But Esquire staffers later received subpoenas from the DoJ, prompting the magazine to sever a multi-million-dollar contract for more ads later in the year.
Calvin Ayre, chief executive of Bodog.com, considers the DoJ crackdown unfair. "They're only going after high-profile people they think they can embarrass," he says, adding that many smaller gambling magazines in the US take ads from online gaming companies.
Other marketing efforts have been scuppered. UK-based Sportingbet.com co-sponsored a race car with Mazda in the American Le Mans race this spring. But CBS avoided filming the winning car plastered with Sportingbet's logo. Big networks are especially risk-averse for fear of jeopardising their federal licences.
Yet companies are still skirting restrictions. Sportingbet is launching a TV programme this autumn that stars "four guys in a basement talking about chances on sports bets. It will be like Wayne's World", says Alex Czajkowski of Sportingbet.
In other evasive tactics, online gambling companies have created television commercials for their play-for-free "educational" gambling websites. These sites, technically legal because they do not involve money, look remarkably similar to their play-for-money websites.
And in another paradox, Yahoo this year launched a real-money betting exchange in the UK and Ireland, where the business is permitted, even though it bans ads from its US site.
This proliferation of online gambling makes curbing the industry like "emptying the ocean with a teaspoon", said one government insider.
Yet another grey area is whether ads are protected under free speech rights. Casino City, an online publisher of gaming now based near Boston, filed a lawsuit against the DoJ claiming authorities violated this right. Casino City says more than half of revenues from its website comes from online gambling advertising.
Some lawyers say ads for online gambling should not be prohibited if the industry is legal in their home jurisdictions. Yet the DoJ insists accepting them still counts as aiding and abetting.
A federal court in Louisiana dismissed Casino City's case, but the company says it will continue to push for a ruling that will clarify the legality of online gambling.
Matters will be further complicated by the eventual regulation of internet gambling in the UK.
"Internet gambling keeps growing and growing," says Joseph Kelly, co-editor of Gaming Law Review. Of the DoJ's stance he adds, "At some time, someone will have to call their bluff."
