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February 27, 2005. (Updated September 12, 2005, April 25, 2006, August 2, 2006 and August 6, 2006.)

Online casinos and cardrooms continue to mushroom in popularity.  An article, Online Gambling Sites Expect Big Payoffs,  published in USA Today in February, 2005, says:

“Online gambling has hit the jackpot.  After years of escalating growth, it's poised for its biggest year….More than 2,000 gambling Web sites this year will rake in nearly $10 billion in revenue, most from U.S. consumers.  That's up 40% from 2004.  In 1996, when lawmakers first sought to curb Internet gambling, 30 sites collected $30 million, says researcher Christiansen Capital Advisors. That makes gambling one of the Internet's largest moneymakers, even though it is illegal.

“Poker revenue is expected to double to more than $2 billion and attract 1 million players a month. Americans play at 266 Web sites, up from 53 in June 2003, says gaming site CasinoCity.com.”

An even more enthusiastic prediction is reported by eGaming Review:  "Online poker could grow by 149% this year [2005] and take in US$3.5bn in revenues, according to investment bank Dresdner Kleinwort Wasserstein. DKW said the online poker sector could be worth as much as US$8.1bn by 2008 if growth in Europe and Asia match forecasts. The bank, which is advising Party Gaming on its listing plans, said the US market is expected to fall from an 80% market share in 2004 to a 68% market share in 2008.

An important factor in this growth has been the advertising of online gambling sites in U.S. media such as television, radio, print publications and other online sources including search engines, e-zines and affiliates many of which are compensated with reference to the amount of business they pass through to the gambling website.

This article considers recent developments in advertising of online gambling activities.

Online Poker Rooms on World Poker Tour Cable TV Shows.

The World Poker Tour’s first season began in March 2003.  An early show covered an UltimateBet.com live tournament event held in the Caribbean.  Within a few days UltimateBet.com experienced a dramatic increase in downloads of the software necessary to play poker on its online site.  That software allows a user to participate in both the play-money and real-money poker games offered to anyone who wishes to play.

A few weeks later a World Poker Tour episode was shown that involved PartyPoker.com’s first live poker tournament, which was held on board a cruise ship.  Massive downloads of the PartyPoker.com software followed.  Again, this software allowed anyone wishing to play poker online to do so.  PartyPoker.com offers users both play-money and real-money poker games and tournaments.

Discovery Channel, owner of the Travel Channel, on which the World Poker Tour episodes are shown, then began accepting advertisements from PartyPoker.com, and subsequently from some of its competitors, including UltimateBet.com, PokerStars.com and Paradise Poker.  These ads produced wildly successful results.  PartyPoker, the first to advertise quickly became the number one online poker room, and has held that position to date.  PartyPoker, together with its affiliates, now accounts for about 60% of the online poker action.

Advertisements on Internet Search Engines .

Online search engines and portals such as Google, Yahoo, Overture Services, Ask Jeeves, AltaVista and others offered substantial advertising opportunities for online sportsbooks and Internet casinos and cardrooms.  The growth of the online gambling businesses was helped considerably by being able to advertise in these widely accessed engines and portals. 

Advertising and Affiliate Programs.
Many online gambling businesses have elected to advertise in U.S. print media as well as with online websites.  Payment for this advertising takes one of three basic forms: 1) a cash fee up front for the advertisement; 2) payment of a per-head bounty for each new “real-money” subscriber referred to the gambling site as a result of the particular advertisement; or 3) a share of revenue the gambling business earns from players who are referred to the gambling business as a result of the particular advertisement.

Some of the online gambling businesses also offer another kind of affiliate program.  In this form a website appears to be offering its own gambling business, but in reality is a part of the ongoing operation being conducted by the parent casino or cardroom.  A prime example of this was Empire Poker, which actually was a shell that wraped around PartyPoker.com.  Empire received a share of the profit earned by PartyPoker.com as a result of play in the “Empire Poker cardroom.”  PartyPoker has now disbanded this type of affiliate relationship.

These forms of advertising and business promotion have also been instrumental in the logarithmic growth of online gambling over the past ten years.

Department of Justice Letter to National Association of Broadcasters.

The Department of Justice sent a warning letter to the National Association of Broadcasters on June 11, 2003, setting forth the Department’s view that Internet gambling and offshore sportsbooks operations are illegal.  Here is the text of that letter:

“As you are no doubt aware. advertisements for Internet gambling and offshore sportsbook operations are ubiquitous on the Internet, in print ads. and over the radio and television. The sheer volume of advertisements for offshore sports books and online casinos is troubling because it misleads the public in the United States into believing that such gambling is legal. when in fact, it is not. Because of the possibility that some of your organization's members may be accepting money to place such advertisements, the Department of Justice, as a public service, would like you to be aware that the entities and individuals placing these advertisements may be violating various state and federal laws and that entities and individuals that accept and run such advertisements may be aiding and abetting these illegal activities.

“With very few exceptions limited to licensed sportsbook operations in Nevada, state and federal laws prohibit the operation of sportsbooks and Internet gambling within the United States, whether or not such operations are based offshore. United States Attorneys' Offices in several districts have successfully prosecuted offshore sportsbookmaking and Internet gambling operations, and the Department of Justice win [sic.] continue to pursue such cases.

“Notwithstanding their frequent claims of legitimacy, Internet gambling and offshore sportsbook operations that accept bets from customers in the United States violate Sections 1084, 1952, and 1955 of Title 18 of the United States Code, each of which is a Class E felony. Additionally, pursuant to Title 18, United States Code, Section 2, any person or entity who aids or abets in the commission of any of the above-listed offenses is punishable as a principal violator of those statutes. The Department of Justice is responsible for enforcing these statutes. and we reserve the right to prosecute violators of the law.

“Broadcasters and other media outlets should know of the illegality of offshore sportsbook and Internet gambling operations since, presumably, they would not run advertisements for illegal narcotics sales, prostitution, child pornography or other prohibited activities. We'd appreciate it if you would forward this public service message to all of your member organizations which may be running such advertisements, so that they may consult with their counsel or take whatever actions they deem appropriate.”

Grand Jury Investigation

In the same time frame as the DOJ letter, the United States Attorney for the Eastern District of  Missouri (St. Louis) was given the task to investigate criminal violations like those mentioned in the DOJ letter.  See US Court Subpoenas Gambling PortalsCompanies Aiding Internet Gambling Feel U.S. Pressure and US govt puts the squeeze on online gambling.  Subpoenas were issued to a number of media outlets in connection with the investigations made by a grand jury impaneled by that U.S. Attorney.  As an apparent result, in the first half of 2004 several media outlets stopped accepting online gambling ads.  These included Infinity Broadcasting, Clear Channel Communications and Discovery Networks, the parent of the Travel Channel.   

Search Engine Reactions.

Beginning in April 2004 the major search engines and portals, in a further apparent reaction to the DOJ letter and the grand jury activities, announced they would discontinue accepting advertising for online gambling sites.  One news article about this said:

“The move is significant because online casinos are one of the most effective users of online advertising.

“In fact, Forrester Research analyst Chris Charron told the E-Commerce Times that online gamblers as a group are more likely than non-gamblers to click on Web advertising -- and to make purchases as a result of those clicks.

"These sites rely upon their paid search listings and their banner ads to generate the traffic that is their lifeblood…"

California Class Action Suit Against Search Engines .

Despite the fact that the search engines stopped accepting advertisements for online gambling, or perhaps because they did, a class action lawsuit has been filed against them.  An article previously posted on noted that in August 2004:

"Lerach Coughlin Stoia & Robbins ...filed a class action against Yahoo Inc., Google Inc. and 10 other Internet search engines that claims they have been promoting illegal gambling on their Web sites and requests that they fork over the ad revenue. The complaint, filed…in San Francisco Superior Court, requests that the search engines put revenue from advertising Internet gambling into a fund that would provide restitution to California Indian Tribes or other licensed gambling businesses in California. The complaint says money in the fund would also go to the spouses of gamblers who have had community property taken away as a result of illegal gambling and to the state treasury." (Brenda Sandburg, "Casino Come-Ons Return Bad Result for Search Sites", The Recorder, Aug. 5; David Legard, "Gambling lawsuit filed against top Web content sites", IDG/Computerworld, Aug. 4). “

Legal representation of the named plaintiffs and potential class members is being provided by one the most prominent class action lawyers in the United States, San Diego-based William Lerach.  The suit seeks to recover for the State of California and the class members:

“(a)  All revenues and profits acquired by Internet gambling websites, who purchased sponsored links and advertisements with defendants, from persons using computers in California who gambled on their websites; and

“(b) All revenues and profits acquired by defendants from providing sponsored links of gambling websites advertising online Internet gambling in California.

Paradise Poker Suit Against Discovery Channel.

Beginning in October 2003 the parent of online cardroom Paradise Poker paid Discovery Communication, operator of the Discovery Channel and the Travel Channel, $3.85 million to run 30-second ads for ParadisePoker.com, primarily on the Travel Channel showings of the World Poker Tour episodes.  After $600,000 of those ads were run, Discovery cancelled the contract, but did not refund the unearned $3.25 million.  Paradise Poker, represented by the national law firm of Greenberg Traurig , filed suit in the Federal District Court in Maryland to recover the balance under the contract.  In April, 2004 United States Marshals seized the $3.25 million from Discovery, telling it that it could be a party to an illegal activity by broadcasting the ads.  In U.S. Steps Up Push Against Online Casinos by Seizing Cash, the New York Times reported:

“The possible message being sent, legal experts said, is that any American company that does business with an offshore casino - including software makers and consultants - could be in danger of having proceeds from that business seized.

”This is a strategy of intimidating anybody who is in the chain of commerce,’ said Lawrence Walters, a lawyer who works with offshore Internet casinos, as well as software companies that do business with the casinos.”

In June 2004 the Greenberg Traurig law firm filed a voluntary dismissal without prejudice of the lawsuit.  I am not aware of any reports that Paradise Poker recovered any of the money that was seized.

The U.S. Marshals also seized money that had been paid into the Discovery Channel by PartyPoker.com.  PartyGaming, the parent of PartyPoker, says in its prospectus for its initial public offering: "In April 2004, the Group was informed by Discovery Communications, the television and media company that owns the Travel Channel, that US marshals had seized over $2 million of the Group's funds from Discovery Communications. The amount involved was originally paid to Discovery Communications for television advertisements to promote PartyPoker.com. Court documents state that Discovery Communications was told that it could be party to illegal activity (effectively 'aiding and abetting' a crime) by broadcasting such advertisements. In October 2003, Discovery Communications told the Group that it would cease broadcasting commercials which had been pre-paid."  PartyGaming Prospectus, p. 50.

On January 21, 2006, The New York Times reported:

"The Sporting News, one of the nation's oldest sports-centered media companies, has entered into a $7.2 million settlement to resolve accusations that it promoted Internet gambling by publishing and broadcasting advertisements for online casinos overseas, the Department of Justice said yesterday.

Under the settlement, The Sporting News, which is operated by Vulcan Sports Media, a company owned by the Microsoft co-founder Paul G. Allen, has agreed to pay a $4.2 million fine. It will also complete a three-year public service campaign, valued at $3 million, to educate people about illegal Internet and telephone gambling."

DOJ Recovery from St. Louis Radio Stations

The United States Attorney for the St. Louis area issued a news release announcing a civil settlement in the amount of $158,000 with three St. Louis sports-oriented radio stations in response to an action seeking forfeiture of the revenues earned by the stations from advertising messages run on behalf of offshore gambling operations.  The press release notes:

“… on or about mid-2000 through approximately September 2003, the three stations knew, and had reasonable cause to know, they received transmitted monies that derived from violations of the federal Wire Wager Act and of excise tax laws, as well as various states’ statutes and municipal laws prohibiting online gambling.

“The settlement represents an agreed-upon amount of forfeitable proceeds derived by the three stations from the promotions of the illegal gambling transactions. The settlement agreement also provides that the three companies will provide evidence in on-going related investigations….

“U.S Attorney James G. Martin said, ‘Offshore sportsbooks and on-line casino gambling operations which do business in the United States generally do so in violation of federal criminal laws. Therefore, we will continue to investigate and pursue such activity, as well as the promoters, aiders and abettors of such criminal enterprises…’”

 “This settlement is part of over $30 million in forfeitures and back taxes and penalties the U.S. Attorney’s Office for the Eastern District of Missouri has recovered over the past few years in similar investigations of criminal online gambling  The statutory basis for the forfeiture rests upon allegations of repeated promotion of violations by online gambling entities of Title 18, United States Code, Section 1084 (the Wire Wager Act), Section 1956 (prohibiting money laundering), Section 1960, which makes it unlawful for a money transmitting business in interstate or foreign commerce to transmit (a) funds derived from criminal offenses or (b) funds intended to promote or support unlawful activity, and Section 1962 (prohibiting association with racketeer-influenced corrupt organizations).”

Casino City Suit Against DOJ.

An online gambling portal operator, CasinoCity.com, which runs advertising from numerous online gambling websites, sued the Department of Justice in August, 2004.  (File No. 04-557-B-3, Federal District for the Middle District of Louisiana.)  Casino City was represented by the Greenberg Traurig law firm.  Business Week reports that CasinoCity "... isn't taking on Justice single-handed.  [It] has solicited donations from online gambling companies and trade associations to help pay for the lawsuit. One ...financial supporter... is Britain's Sportingbet PLC, BusinessWeek has learned. Sportingbet Chief Exec Nigel Payne confirms that his company has helped fund the case, but he says it has done so through a third party, which he declines to identify. [CasinoCity]... won't specify how much money has been contributed, [but] says ...[it] can't afford the lawsuit on ...[its] own, since Casino City makes a small profit on revenues of several million dollars."

The complaint sought a judicial determination confirming Casino City’s “constitutional [sic] rights [sic] to engage in lawful commercial free speech” in view of the statements in the DOJ’s NAB letter, which Casino City contended threatened it with prosecution for aiding and abetting violations of the various federal statutes mentioned in that letter.  For a discussion of the various statutes mentioned in the DOJ letter see my article Application of Federal Anti-Gambling laws to Internet Cardrooms.

The plaintiff’s contention was that the advertisements it runs are protected by the First Amendment right to free speech.  Complaint, para. 6.  In an online forum, an apparent spokesman for Casino City said that, based on advice of the firm’s lawyers “[It] is not necessary for something to be legal for commercial free speech related to it to be constitutionally protected.” 

DOJ filed a motion to dismiss the Complaint on several different grounds:

        lack of standing,

        failure to establish a credible threat of prosecution,

        lack of subject matter jurisdiction and

        failure to state a claim because the challenged application of the aiding and abetting law does not violate the First Amendment guarantee to the exercise of free speech

The motion to dismiss was opposed by the plaintiff’s lawyers.  

On February 15, 2005, the suit was dismissed with prejudice.  The judge upheld each of the grounds to dismiss argued by DOJ.  The judge wrote a sweeping ruling.  Not content with dismissing the suit based on the several procedural grounds argued by the DOJ, the judge made what many will consider to be a substantive ruling that the advertisements in question are not protected by the First Amendment guarantee of the right to commercial free speech.  The court said:

“The Central Hudson test, when applied to the facts of the case clearly shows that plaintiff has failed to establish a First Amendment right.  It is well-established [sic.] that the First Amendment does not protect the right to advertise illegal activity….

“[T]he speech in which plaintiff wishes to engage is misleading because it falsely portrays the image that Internet gambling is legal….

“Because plaintiff’s speech concerns misleading information and illegal activities, it does not fall within speech that is protected by the First Amendment….

“By targeting and punishing advertisers who utilize this type of information, the government reaches its goal of deterring this illegal activity.  Thus, the Court finds that the Central Hudson test… has been satisfied.  Therefore, the Court finds that, even if the plaintiff has standing to bring this action, the plaintiff has no claim for a First Amendment violation.”

For a discussion of the Central Hudson test devised by the United States Supreme Court, see my article Application of Federal Anti-Gambling laws to Internet Cardrooms.

One industry-oriented publication has said of the Casino City decision:

“Ironically, the ruling is practically a green light for Casino City to continue doing the advertising that it does, but it does nothing to clarify the ability of larger media advertisers--such as members of the NAB--to advertise for offshore gambling providers.”

That statement is a complete non sequitur.  Casino City alleged that it did not run advertising about illegal online gambling because the gambling was legal in the [third-world] nations that granted a license to the Internet gambling business.  The Court noted that Casino City never said its advertisers did not accept bets from those in the United States, but if they did, then the advertising would be illegal and thus not protected by the First Amendment guarantee of free speech. 

The ruling gives no comfort to Casino City; it fires a silver bullet into the heart of the modern-day Draculas who continue to present the intellectual scam that offshore online gambling websites are legally OK.  Simply put, the acceptance of sports, casino and poker bets by online websites violates numerous federal laws and the anti-gambling statutes of all 50 states.

The same industry-oriented publication reports: "Casino City believes the court has erred and intends to appeal the ruling. 'We have every intention of filing an appeal,' Patrick O'Brien, a lawyer for Casino City said. 'We think the case was wrongly decided on the law and we expect to win on the appeal.'"  On April 12, 2005, Casino City filed notice of its appeal to the 5th Circuit Court of Appeals.  Here are links to the several briefs filed in the appeal to the 5th Circuit:  Casino City Appeal - June 10, 2005 -- DOJ Response to Casino City Appeal - June 15, 2005 -- Casino City's Reply Brief to DOJ Response- July 27, 2005 My guess is that, in poker lingo, Mr. O’Brien on behalf of his client and his law firm is drawing dead on securing a reversal on appeal.

On January 26, 2006, following what I am told was a particularly lackluster, inarticulate and ill-informed appellate argument by Casino City's attorney, the 5th Circuit granted the unopposed motion to dismiss the appeal filed by those attorneys on behalf of their client.

Bodog.com Ads in Esquire

eGaming Review reports

"Press reports have claimed the FBI visited the offices of Esquire magazine regarding a series of ads for Bodog poker the magazine has been running.

The New York Post’s media gossip column reported Esquire’s publisher was planning on dropping the ads over fears it may be prosecuted for breaking the Wire Act.

It remains unclear if the Wire Act applies to online poker, and Bodog’s chief executive, Calvin Ayre, said the ads were allowed to run because they were focused solely on poker.

“Esquire took our ads because the quality of the ads was up to the standards of the magazine and we restricted them to poker only.”

It is curious as to how the Bodog executive can reach that conclusion.  Bodog.com prominently displays text links to its all of the gambling activities it offers: sportsbook, casino, and poker.  The poker software client that a user must download and install in order to play online poker on Bodog's site contains a links tab with text links to the Bodog sportsbook and its casino.  Thus, it seems that any ad featuring bodog.com is of necessity an ad for the various activities offered by that dotcom.

Advertising for "Dot.net" Websites

A recent development has been the "dot.net" advertising phenomenon.  A number of the online poker cardrooms have established websites with virtually the same name as their real money cardroom, except that the website address ends with "dot.net" rather than "dotcom."  Most media outlets have begun accepting ads for these dot.net sites.  A recent article in eGaming Review refers to the "Trojan Horse dot.net strategy."  (Meir Moses, Serious Contender, eGaming Review, Issue 25, April, 2006, page 66.) Lou Krieger, commenting on the trade show held in conjunction with the 2006 World Series of Poker says that the online cardrooms "are represented in their dot.net (rather than their dot.com) camouflage."  A recent article in Forbes magazine notes that "...PartyPoker.net, the so-called 'World's Largest Poker School,' has become an official sponsor of the World Series of Poker, its logo visible every time a flop hits the felt. PartyPoker.com, the moneymaking reason for its existence, lurks in the shadows."  (Emphasis supplied.)  The Wikipedia entry for "Online gambling" refers says: "Televised ads still feature the dot-net conceit ..." (Emphasis supplied.)

The ads stress the "educational" nature of the site and specifically state that the dot.net site is not a "gambling" website.  A friend of mine compared these ads to offering free piano lessons in a whorehouse.  The analogy does suggest the legal and moral issues raised by the "dot.net" ads.  I have downloaded several of the client software programs a dot.net user must have in order to participate on the play-money site.  They make no mention of the availability of a real-money dot.com affiliated site.  I suspect the running of the dot.com ads is more of a moral issue for the media than a legal one.  

Harrah's Rio Suites property has recently received advice from DOJ that implies the Department's approval of dot.net advertising under certain circumstances.  In connection with its annual World Series of Poker, Harrah's stages an exposition where vendors of poker-related goods and services offer their wares and demonstrate their capabilities.  Referring to that advice as it concerns vendors with dot.net websites, the Rio property has recently notified vendors:

"Online free to play poker websites (i.e. “poker.nets”) need to be in compliance with the standards articulated by the Department of Justice listed below. Please review your website and make changes accordingly. These requirements must be adhered to in order to have a presence within the Rio All-Suite Hotel & Casino during the 2006 World Series of Poker.

"1. There can be no web links from an online free-to-play poker website (i.e. “poker.nets”) to a online pay-to-play poker website (i.e. “poker.com”) website

"2. There must be an on-screen disclaimer on the home page of the online free-to-play poker website (i.e. “poker.nets”) that states that this site is purely educational."

Conclusion.

In the past few years the Department of Justice and class action lawyers opposed to online gambling interests have an as-yet nearly perfect batting record against the pitching thrown by the online gambling industry and its lawyers.  I suggest that those who are aiding and abetting the operation of these illegal online gambling businesses should be very concerned if they are amenable to domestic service of process in the United States.  The heat is being turned up!