July 26th, 2011

TV Promotions Irked Justice Department

The Wall Street Journal

In 2003 after PartyPoker.com advertized on one episode of “World Poker Tour,” then on Travel Channel, the website saw a surge in traffic, making it one of the most popular poker-gambling websites in the U.S.

“It showed the power of the television medium and what it was able to provide for the online business,” says Steve Lipscomb, founder of World Poker Tour.

That power quickly attracted the U.S. Justice Department, which in June 2003 warned in a letter to media companies and the National Association of Broadcasters, that they should “know the illegality of offshore sportsbook and Internet gambling operations since, presumably, they would not run advertisements for illegal narcotics sales, prostitution, child pornography or other prohibited activities,” according to a copy of the letter viewed by The Wall Street Journal.

Soon, the Federal Bureau of Investigation in St. Louis started targeting media companies that were accepting advertising from online gambling sites and in 2004 it seized $6 million from Discovery Communications Inc. for “World Poker Tour” ads, according to court documents and Rebecca Wu, a spokeswoman for the FBI in St. Louis.

A spokesman for Discovery, now a public company that no longer owns Travel Channel, declined to comment.

In response, media and poker companies set up free-to-play “tutorial” poker websites and bought ads for those sites on the shows instead of the cash-gambling sites.

Brian Balsbaugh, an agent who arranges sponsorship deals for poker players, said that when he first heard about the plan from a poker executive, “I said, ‘You’re crazy. You’re going to do this with a straight face? This will never work.’”

The .net model soon spread across major TV networks airing poker shows even as companies in other industries—such as Google Inc. and Microsoft Corp.—stopped accepting advertising from free-to-play gambling websites.

Justice Department officials decided that it wouldn’t be worth the effort to take on the media companies for the .net practices because it might be difficult to prove guilt in court, according to Catherine Hanaway, the former U.S. Attorney for the Eastern District of Missouri, who said she was involved in a series of discussions.

By 2005, the poker companies started creating poker programs themselves and buying airtime for them on major networks though arrangements known as “time buys,” reducing the need for networks to pay for poker programming since they could get it for free. Licensing fees paid to the World Poker Tour, for instance, steadily declined in recent years, according to Securities and Exchange Commission filings.

In 2009 WPT moved to Fox Sports Net in a deal that gave it no licensing fee but allowed the rights to sell some ads and other sponsorship opportunities, including $3.25 million from Full Tilt Poker, according to filings. Since then WPT was taken over by bwin.party Digital Entertainment PLC., a U.K.-based online gambling company.

A spokesman for Fox Sports Net, which like The Wall Street Journal is owned by News Corp., declined to comment on details of its deal with World Poker Tour.

Read more: http://online.wsj.com/article/SB10001424053111904772304576468413705412974.html?mod=WSJ_Tech_LEFTTopNews

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