US DOJ I-gaming Ads Investigation Continues; Sporting News Settles for $7.2 million

St. Louis-headquartered weekly sports magazine, Sporting News, agreed to a $7.2 million settlement with the U.S. government Jan. 13 to absolve itself of charges that it promoted illegal Internet and telephone advertising on its Web site, in its magazine and on the radio.

The U.S. Department of Justice (DOJ) sent letters in June of 2003 to members of various media associations, including the Magazine Publishers of America, threatening them with aiding and abetting charges if they continued to accept ads for online gambling services, reasoning the ads would confuse the American public into thinking this form of gambling was legal when, according to the DOJ, it is not.

Catherine Hanaway, U.S. attorney for eastern Missouri, said in a statement Friday, "The operation of a commercial gambling business where bets or wagers are transmitted in interstate or foreign commerce is illegal under federal law, and that includes Internet communications."

Hanaway, contends that Sporting News continued to run the ads six months after receiving a warning from the DOJ, but the Sporting News claims it pulled the ads immediately.

The Sporting News, owned by Vulcan Sports Media Inc., a company owned by Microsoft co-founder Paul G. Allen, is neither denying nor accepting liability for the charge, but they settled nonetheless.

Larry Walters, a First Amendment lawyer who specializes in the online entertainment industry, has noticed inconsistencies with the DOJ's stance in this case versus the Casino City case, in which Casino City, an online casino directory, filed a complaint against the DOJ on behalf of online casinos and media outlets that received the DOJ letter, citing a First Amendment violation.

"The government is claiming that the Sporting News kept carrying the ads for 6 months after the DOJ sent the 'warning letter' to the National Association of Broadcasters, and others, claiming that online gambling advertising is illegal," Walters said. "That apparently set up some kind of legal liability, insinuating that Sporting News was warned by that letter. Conversely, the DOJ is arguing in the Casino City case that just because it sent out this warning letter doesn't mean anything and shouldn't be interpreted as any credible threat of prosecution against Casino City, since they didn't actually receive a letter directly. It seems like they're arguing out of both sides of their mouth. Either the letter constitutes warning to the industry, or it doesn't."

Hanaway said the Sporting News is one of many media companies that have settled since the DOJ first delivered its warning.

However, this settlement is the largest to date.

Walters feels that this case ending in such a significant settlement sets a tremendous precedent for the I-gaming industry to have to live with. His concern is that the government may use the $7.2 million as the standard for future similar cases.

"This is a significant amount of money, and the DOJ didn't have to do much in terms of prosecution to get it," he said. "By all accounts, it does not appear that criminal charges were even filed, although I'm sure they were threatened. Others may be the focus of DOJ's attention soon, now that this case has been resolved. In fact, the Settlement Agreement indicates that the Sporting News has agreed to cooperate with the DOJ in further criminal investigations, and to turn over additional documents and other data relating to possible violations of the law. In this regard, this case could represent more of a beginning, than an end, to the investigation into allegedly unlawful online gambling advertising."

The $7.2 million includes $4.2 million in fines, which was paid Jan. 19, and the remainder comes in the form of a three-year, $3 million agreement to produce public service advertisements for its print, online and radio outlets, discouraging the public from gambling on the Internet.

The Settlement Agreement also provides that if the Sporting News upholds its obligations, the U.S. will not bring further civil or criminal charges upon Vulcan Sports Media, Inc.

Finding the specific federal laws that support the government's position is like finding a needle in a haystack. The FBI even conceded in media reports that, except for very rare cases, there are too many consumers gambling online to prosecute individuals.

"Conventional wisdom indicates that current federal law does not prohibit that simple act of betting online, so long as the activity does not constitute a 'business,'" Walters said. "Federal law has traditionally focused on those who are in the business of accepting bets, not placing them.

"State law is another matter. There are 50 different state's laws, and they're constantly changing. There are about 6 states that prohibit certain activities in regards to Internet gambling, and some of those may address player activity. Thus far, there has been no widespread prosecution of players, although a few professional bettors have been charged in certain states."

Vulcan Sports Media Inc. could not be reached for comment.

Click here to view the Sporting News Settlement Agreement.