They're Baaack - Next Round of Subpoenas Targets Esquire

Any thoughts that the interactive gambling industry's advertising dilemma was nearing an end were debunked this week by news of subpoenas handed out on April 12 to Esquire magazine publisher Kevin O'Malley and nearly a dozen members of the magazine's staff.

'Free' Advertising in the USA

Online gambling operators seem to have two choices when deciding how to advertise their sites in the United States: They can either go about promoting their business with blatant disregard for the Department of Justice or they can pitch free-play sites.

Some operators have continued to advertise their real-money sites via the few media outlets willing to run the ads in the face of DOJ pressure, while others are developing free-play promotional strategies. The latter approach at the moment seems to present more opportunities.

More. . .

The recent action, brought to light Wednesday by a New York Post article, is related to the magazine's April issue, which features an eight-page insert billed as the "Gentleman's Guide to Poker" and sponsored by BoDog Poker. The insert includes BoDog CEO Calvin Ayre's photo and his tips for playing Texas Hold 'Em online, along with several references to the BoDog Poker URL and images from the site. It also includes a greeting from Ayre, who invites readers to "join me online at the tables and see why the world is playing poker at Bodog.com," and the disclaimer: "Void where prohibited by law. Fully licensed in Costa Rica."

A similar insert appears in the May issue and another was planned for the June issue, which started printing on Saturday, but the Post reports that Hearst Publishing, which publishes the magazine, is considering pulling the ads.

The subpoenas are the first reported legal action of this nature since the U.S. Attorney's office in the Eastern District of Missouri carried out a grand jury investigation into the advertising practices of the online gambling industry starting in mid 2003 and lasting well into 2004. The original investigation resulted in hundreds of media outlets, broadcasters, portal site owners and even ancillary providers to the industry receiving subpoenas.

Clear Channel, Infinity Broadcasting, Discovery Networks and a host of other media outlets subsequently ended longstanding relationships with I-gaming advertisers.

Ayre wasn't immediately available for comment on the Esquire story and calls to Esquire went unreturned, but the Post quotes one insider as saying that the magazine would stand to lose nearly $1 million in revenue over the next three issues if the ads are pulled.

Prior to the DOJ crackdown, online gambling operators had been a breath of fresh air for many media outlets that were struggling to keep up with advertising revenue from years past.

Like many publications that forged relationships with I-gaming operators, Esquire has been mired in an advertising slump. Its number of ad pages dropped 12.2 percent in the first quarter of 2005 to 187.35, down from 213.5 in Q1 2004, marking the third consecutive year of decline.

Now the publication is in the same position as other men's magazines, including Maxim and Men's Journal, that opened their arms to I-gaming advertisers only to have the DOJ come knocking on their doors.

Since the beginning the of investigation, the Department of Justice has contended that any company accepting advertisements from online casino operators could be charged with aiding and abetting. The department has stated that such advertisements are in violation of the Interstate Telephone Act of 1964 and that online gambling operators are violating the Federal Wire Act of 1961.

A DOJ spokesman in Washington, DC told IGN on Tuesday that little has changed in the eyes of the federal government since the launch of investigation.

"Our position still stands that the advertisements are illegal and that anyone carrying them could be charged with aiding and abetting," the spokesman said.

The spokesman, who didn't want his name to be published, said the DOJ has a policy of not commenting on what is and isn't legal, but in light of the subpoenas that were issued in the fall of 2003 (which included a letter from the department to the American Broadcasting Association informing the ABA that its members could be charged with aiding and abetting for accepting the ads), the DOJ felt compelled to take a stance.

"We have to handle the situation in a delicate manner," he said. "If we start telling people what they can't do, they interpret it to mean that they can do other things, and that may or may not be the case. We could have handed down indictments but decided to just issue a stern warning."

The Post did not report which DOJ office issued the April 12 subpoenas. The U.S. Attorney's office for the Eastern District of Missouri would neither confirm nor deny issuing the subpoenas and did not want to comment on them.