Online Gambling Shares Fall as Congress OKs Bill

Tuesday , October 03, 2006




Online gambling firms faced their biggest-ever crisis on Monday after U.S. Congress passed legislation to end Internet gaming there, threatening jobs and wiping 3.5 billion pounds ($6.5 billion) off company values.

Britain's PartyGaming Plc, operator of leading Internet poker site, and rivals Sportingbet and 888 Plc said they would likely pull out of the United States, their biggest source of revenue.

"This development is a significant setback for our company, our shareholders, our players and our industry," PartyGaming Chief Executive Mitch Garber said.

The House of Representatives and Senate unexpectedly approved a bill early on Saturday that would make it illegal for banks and credit-card companies to make payments to online gambling sites.

The measure was sent to President George W. Bush to sign into law, which most analysts see as a certainty.

"We believe that this will have a very material impact on the long-term prospects of online gambling, and in particular poker," said analyst Julian Easthope at UBS. "This will lead to a rapid decline in the use of online poker sites."

PartyGaming generates about 78 percent of its revenue from the United States, while Sportingbet gets about 62 percent there.


Shares in PartyGaming, which rakes in nearly $4 million a day from its 19 million customers, fell 57 percent by 1155 GMT.

Sportingbet, which owns and, lost 60 percent, 888 was down 33 percent and Austria's fell 24 percent.

Bwin could be pushed to the brink, having paid heavily for Swedish online poker site Ongame earlier this year to gain access to the U.S. market, said Leopold Salcher, an analyst at Austria's RCB. "This could break their neck," he said.

Online gaming exploded in 2005 with a string of high-profile company flotations in London, which has become the industry's corporate center.

The bulk of revenue has always come from U.S. players, but the firms were located in offshore jurisdictions like Costa Rica and Antigua for fear of prosecution in the United States, where the legal status of online gaming and betting was uncertain.

Shares in Sportingbet and BETonSPORTS had already been hammered after recent arrests of senior executives on charges of illegal gambling in individual U.S. states, but investors remained hopeful online betting and gaming would not be completely banned at a federal level.

Meanwhile, big American corporations like Las Vegas-based Harrah's Entertainment Inc. were forced to sit on the sidelines as gaming money streamed out of the country.

PartyGaming said in a statement, "If the President signs the act into law, the company will suspend all real money gaming business with U.S. residents."

"Any such suspension would also result in the group's financial performance falling significantly short of consensus forecasts for 2006 and 2007," it added.


Stephen Whittaker, joint chief investment officer at Britain's New Star Asset Management, said the likely ban could be challenged.

"This represents protectionism, and the WTO have said you can't do that," said Whittaker, whose portfolio includes about 2 percent of online gaming stocks. "Overall, we'll probably remain with most of our holdings."

"We'll probably reduce one, maybe two," he added. "We want to let the dust settle a bit -- it will take a few days."

Sportingbet said a ban would hit trading and it would scrap a planned merger with World Gaming as a result.

888 Plc said the move would hit its results, as did gaming software provider Playtech, whose shares fell 42 percent.

But Paul Leyland at Arbuthnot Securities said Playtech was relatively well positioned. "The only company for which you could categorically say that redeployment is easy is Playtech," he said. "But for the others it's much more difficult."

A ban would also hit payment processors such as Neteller Plc and Optimal Group's FireOne subsidiary.