Safe Bet?

Global revenue from online gambling will reach $15 billion in 2006, according to forecasters, with the U.S. accounting for almost 25%, or $3.75 billion, of that revenue. Eager to grab an even greater share of the U.S. market, and flush with cash, offshore casino Web site operators have chased domestic promotions, ad and p.r. firms. Earlier this year, for example, the online casino 888.com shopped its $30 million account among U.S. agencies.

If you’re an agency, hold off prepping your bid. And if you’re a brand manager, think before tying into such partners. Because as far as the U.S. Department of Justice is concerned, Internet gambling is illegal — and so is providing support services to any company engaged in it.

The federal Wire Wager Act makes it a crime for anyone engaged in the business of betting or wagering to use a wire communication facility for the interstate transmission of wagers or information assisting in the placing of bets or wagers on any sporting event or contest.

In a June 2003 letter to the National Association of Broadcasters and other media trade groups, the DOJ warned that an entity not directly involved in gambling activity is at risk of violating the law, since federal law punishes anyone who aids, abets, counsels, commands, induces, or procures the commission of a crime. The letter was framed as a public service to the marketing community.

Shortly after the letter was issued, the U.S. Attorney in St. Louis convened a grand jury to investigate U.S. companies doing business with offshore casinos and mailed dozens of subpoenas to media companies and agencies that conducted business with Internet gambling sites.

The fallout from the DOJ’s actions has not been good for those in marketing and promotion. In April 2004, the DOJ seized $3.2 million from Discovery Communications. The money had been paid to Discovery Networks by Tropical Paradise, an Internet casino company based in Costa Rica, for TV spots advertising an Internet poker room. DOJ told Discovery that by broadcasting the ads, it was a potential party in illegal activity. Following the seizure, Discovery stopped accepting ads for online casinos and sportsbooks.

More recently, Esquire magazine was targeted by the DOJ for an eight-page insert in the March 2005 issue sponsored by BoDog Poker, titled a Gentleman’s Guide to Poker, which included Bo Dog tips for playing poker as well as several references to the BoDog Poker URL and images from its site. The subpoena was enough to cause Esquire to terminate a (reportedly) multi-million dollar contract.

Of course, those who operate offshore casinos believe that the DOJ is wrong. In their view, the Wire Wager Act only applies to sports betting, and that prohibiting ads for online gaming violates the First Amendment. Indeed, the Internet gambling portal Casino City sued the DOJ in an effort to obtain a ruling on the legality of Internet casino ads. The case was dismissed in February 2005 because Casino City had not been subpoenaed or threatened with action by the DOJ. Casino City has filed an appeal.

While no formal lawsuits have been filed by the DOJ, its strong-arm tactics seemed to work — for a while. Time has clouded the collective memory of marketing and promotion companies, and lately there is a resurgence of online gambling ads in out-of-home, late-night cable TV and some magazines.

Then there are the “dot-net workarounds”: Online casinos promote their non-gambling activities, i.e., tutorials on how to play — typically through a dot-net “sister” site, like partypoker.net. In this context, the DOJ may be hard-pressed to stop advertising of a perfectly legal activity, fully protected by the First Amendment. However, given its stance on online gambling overall, the DOJ may argue that this tactic is nothing more than subterfuge.

So, should you play the odds and do business with offshore casinos? Think twice about it. The risk from the DOJ isn’t going away, and there may soon come a time when it decides to put its theories on aiding and abetting to a legal litmus test — in court.

In addition, while few state regulators have chimed in, some are starting to take a close look at gambling activities. In a shock to the promotions industry, the Ohio Investigative Unit raided a bar in March 2005 to shut down a Texas Hold ‘Em tournament — even though the players did not use real money or pay an entry fee. The OIU maintained “gambling” was taking place according to Ohio’s Public Gaming law because: (1) poker is a game of chance and (2) a game of chance may not be conducted in a hotel, restaurant, tavern store, arena, hall or public place.

This creates a real issue for college poker tours, including the College Poker Championship and the Collegiate Poker Tour that, while free, still involve “gambling.” Other marketers have also used poker tours to promote their products, and those promotions may be similarly at risk. Some states have an outright ban on Internet gambling, and all states have a criminal aiding and abetting statute similar to the federal statute, so it is likely we will see the states taking the same stance as the DOJ in the very near future.

Does the promise of profit justify getting in on the action when there is an ever-present threat of attack by federal or state regulators? The risk far outweighs the reward.

The U.S. government may wake up to the fact that it cannot stop its citizens from gambling online, and look to cash in on the revenue being generated by this extremely lucrative business. Until then, expect continued pressure from the DOJ, and enforcement actions by the states, making participating in the online gambling industry anything but a safe bet.

Joseph Lewczak is a partner in the Advertising, Marketing and Promotions Department at Davis & Gilbert LLP, New York, NY. He can be reached at 212-468-4909.

So, you’re feeling lucky…here’s some advice

S Only do work promoting a site’s non-gambling activities. This will make it harder for the government to argue you are violating the law.

H Make sure you have a written agreement in place with the casino, with a strong indemnification provision that covers any costs or damages you may incur as a result of the nature of your client’s product.

C If the DOJ can’t take legal action against offshore casinos, don’t think that you can either. If there is an issue in the relationship, don’t assume you can sue them in the U.S. Get payment up front before doing any work, and ask for a bond to be put in place to protect against future liabilities.

D As the complexities of this issue vary from situation to situation, work with legal counsel experienced in this area to help you determine whether a particular client may be too much risk.