2004-04-13

In the U.S., home to at least half of the worldwide online gaming market, supporters of online gaming have been cheered by a surprise ruling from the World Trade Organization (WTO) in favor of a complaint filed against the U.S. by the Caribbean country of Antigua and Barbuda. The country argued that U.S. efforts to ban online gaming had seriously damaged its online gaming industry, in violation of international trade rules.

Meanwhile, the U.S. Department of Justice continues to pursue an aggressive effort to intimidate third parties that do business with online casinos and sports books, such as media outlets. Early in April, two major Web search engines, Google and Yahoo, announced that they would stop taking ads for Internet gaming sites. The policy change appeared to be the result of the government’s campaign.

Antigua’s complaint was based on the General Agreement on Trade in Services. Sir Ronald Sanders, the country’s ambassador to the WTO, told Bloomberg News that Antigua has lost more than $90 million in income and 4,000 jobs because of U.S. actions against Internet gaming. He told the New York Times: “The U.S. says it wants open competition. But it only wants free trade when it suits the U.S.”

The WTO issued an interim ruling in favor of Antigua. Details of the formal ruling are expected to be released in May. Sanders said this is the first time that such a small country, one with fewer than 100,000 people, had brought a dispute before the WTO. U.S. officials denounced the ruling, arguing that gaming is not included among the “services” in the trade agreement.

Practically speaking, the ruling is not expected to have a major impact. The U.S. can appeal, which would drag the case out for a couple of additional years. Ultimately, Antigua would have the right to impose retaliatory trade sanctions against the U.S. But that’s not a threat that’s likely to worry U.S. policy makers, unless larger countries joined Antigua’s fight. The European Union and countries such as Canada and Japan supported some of Antigua’s legal arguments in the case, but did not endorse online gaming, according to Bloomberg News.

In the U.S. Congress, efforts continue by Sen. Jon Kyl and others to enact a law to specifically prohibit Internet gaming. There has been only minimal discussion among legislators about regulation and taxation, as opposed to prohibition.

Advocates for government regulation and licensing of the online gaming industry, such as the Interactive Gaming Council (igcouncil.org), believe that bills such as Kyl’s would exacerbate the problems they seek to address. Casino gaming is legal, and successfully regulated and taxed, in many states. State governments also make millions from their own gambling businesses, the lotteries. Yet, when this otherwise accepted form of entertainment moves to the Internet, gaming opponents attack it as anti-social.

Intelligent debate about the licensing, with regulation, of online gaming has been thwarted by misguided, futile efforts to block citizens from using the Internet for this activity. The IGC believes that concerns about online gaming that are expressed by legislators can be better addressed through strict regulation of the industry, including the provision of player protections that are available in other forms of gaming.

The online gaming industry has faced challenge after challenge in its pursuit of legitimacy: First it was pressure on Internet service providers, then it was pressure on the financial institutions that issue and process credit cards. Now the U.S. government is putting pressure on advertising outlets and marketing companies to prohibit online gaming. Outside of Washington (but definitely influenced by beltway politics), the attack on marketing began when the U.S. Attorney in St. Louis, Missouri, the Justice Department’s top official in the region, issued subpoenas and warning letters to various companies, including major radio broadcasting networks that take advertising dollars from online gaming companies. The Department implied that placing or accepting advertising from online gaming companies could subject the firms to criminal charges, under the dubious theory that they are “aiding and abetting” criminal activity.

While many lawyers view this action as a scare tactic, it has been successful. Two of the U.S.’s largest media companies, Clear Channel Communications and Infinity Broadcasting, were quick to withdraw all advertising of online casinos and sports books. These actions have had a trickle-down effect, creating new marketing challenges for online gaming companies. Even notorious shock-jock Howard Stern was caught up in the controversy. Stern’s syndicated radio show has previously held various contests, including a $100,000 hand of blackjack at the Hard Rock Casino in Las Vegas that was sponsored by Golden Palace, and has had a relationship with online gaming companies dating back at least three years.

According to Joseph Kelly, a gaming law expert and a consultant with the Catania Consulting Group, the action by the Justice Department raises First Amendment issues, including the “quasi fundamental right” of commercial speech. “While commercial speech is not provided as much protection as political speech, it is protected. The Department is clearly taking a chance here, putting many First Amendment issues at the heart of their investigation into the online gaming industry.”

One of the more ominous of the Justice Department’s actions has been a subpoena issued to Sebastian Sinclair, a respected market researcher who analyses the online gaming industry. According to the New York Times, Sinclair has been ordered to produce information on just about any company that has anything to do with overseas Internet casinos.