• by Michael Shields , April 5, 2004

Only weeks after the World Trade Organization (WTO) ruled in favor of protecting the online gambling industry, the industry took a hit via Google and Yahoo!'s decisions to eliminate gambling ads from their networks. Some online gambling providers blame the U.S. Department of Justice (DOJ) for meddling in the matter and putting undue pressure on media companies as part of an anti-gambling effort.

On March 24, the WTO, in a complaint by the island of Antigua and Barbuda against the United States, ruled that any U.S. legislation that criminalizes online wagering is in violation of global trade pacts.

While the WTO's final ruling on the matter will not be issued until May, it seemed that online gambling was receiving some much-needed legitimacy.

However, an April 2 announcement by Google and Yahoo's! Overture that the power brands will remove all gambling advertising by the end of this month may indicate that the DOJ is attempting to exert pressure on Google and Overture to steer clear of accepting the ads.

"The one thing we want to find out is whether this [decision] is coming from government pressure," said Haden Ware, managing director of World Wide Sports Exchange, an online gambling site.

"I can draw no other conclusion than that," said David Carruthers, chief executive officer of BetonSports.com. In fact, according to Michael Kulstad, a spokesperson for the Justice Department, letters were recently issued to all major media companies reminding them that Internet gambling is a violation of federal law. "There is concern that gambling advertising may create the impression among the public that these activities are legal, when in fact they are not," Kulstad said. "It's an 'aiding and abetting' sort of thing," he added.

Not surprisingly, online gambling providers see the matter differently: "They have said it's about 'aiding and abetting,'" said World Wide Sports Exchange's Ware. "We find that to be outrageous."

BetonSports.com's Carruthers puts in even more strongly: "I think this flies in the face of the long tradition of commercial free speech in America. This is a misplaced, misguided tactic."

The Justice Department's Kulstad declined to comment on any pending investigations.

Carruthers maintains that the Justice Department's actions reek of desperation. "It's like a boxer who knows he is going to lose on points," he said. "He has to throw a curve ball."

Yahoo!, while citing a business reason behind its decision, has implied that the current market is too risky to continue to carry gambling advertising. "There are two things going on here," said Jennifer Stephens, senior director of communications, Yahoo!'s Overture Services. "Number one, we're looking for consistency in the Yahoo! product, and there is a lack of clarity in the environment," she said. Yahoo! removed all casino-related banner ads in 2002--however, Overture, which Yahoo! acquired last year, had still accepted such ads.

Google cited a desire to improve user experience by eliminating online gambling ads from its network. "This change was made as a part of Google's ongoing commitment to enhancing our advertising policies to ensure that we provide the best search and advertising experience to our users," said David Krane, director of corporate communications.

Both Google and Yahoo!'s Overture have claimed that their decisions will have minimal effect on ad revenue. Neither company would specify what percentage of its ad revenue was derived from online gambling ads. "As a policy, we never comment on revenue impact," Stephens said. "Gambling represents a very small percentage of our network traffic. There is no significant impact [from this decision]."

"I don't buy that," said World Wide Sports Exchange's Ware. While Ware was unable to provide ad spending or traffic figures via search engines, he's concerned about the impact on his business. "Obviously, we get a lot of traffic through search engines," he said, adding: "This has a huge downside."

BetonSports.com's Carruthers was less concerned. "I don't see any immediate impact," he said. Beton is planning a multimedia campaign which may include spending on search engines other than Yahoo! or Google. "[Yahoo! and Google] may have just written a blank check to a competitor," Carruthers quipped.

While Web publishers downplay online gambling's impact on their bottom line, there is little doubt that online casinos are big business. Market research firm Christianson Capital Advisors estimated that online wagering amounted to $5.7 billion in 2003, an increase of 42 percent over 2002, with half of those wagers coming from the United States. According to comscore Networks, nearly 25 million unique users logged onto gambling Web sites in the United States in February.