PartyGaming Sales Stagnate on Dollar, Poker Slowdown

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PartyGaming Sales Stagnate on Dollar, Poker Slowdown

By Louisa Nesbitt

Nov. 19 (Bloomberg) -- PartyGaming Plc, the owner of the PartyPoker online-gaming brand, reported stagnant third-quarter sales after the dollar strengthened and competitors that still take bets from the U.S. lured poker players away.

PartyGaming slid as much as 10 percent in London trading. Sales were $117.7 million, the Gibraltar-based company said today in a statement, little changed from $118 million a year earlier and below Deutsche Bank AG's $119 million estimate. The company is ``confident'' of meeting the consensus of analysts for increasing annual profit, the statement shows.

Gains by the dollar, PartyGaming's reporting currency, pinch its growth by eroding the value of the sales it generates in other monies. The dollar climbed in the quarter as market turmoil sparked a rush for the safety of Treasury debt. Web gamblers tend to favor sites with the most activity, putting PartyGaming at a disadvantage against competitors that still deal with Americans.

``We are seeing a trend across the online industry of poker being weak, but sports betting, bingo and casino strengthening,'' Mark Brumby, an analyst at Blue Oar Securities in London, said in a research note.

Poker Customers

Revenue from poker, the main sales generator, fell 15 percent overall in the quarter and dropped 6.6 percent in the six weeks after the period ended on a gross daily basis, the statement shows. The number of new poker customers slid 12 percent in the quarter from the prior three months, partly because of deferred marketing spending.

PartyGaming fell 3.25 pence, or 3.3 percent, to 94.75 pence at 10:28 a.m. local time. The shares cost 116 pence each when the company went public in June 2005 and would trade below 10 pence now if not for a 1 - for -10 reverse split in May of this year.

Web-gaming companies also face a spending slowdown as higher food and energy bills sap incomes and plunging stock prices erase wealth and hurt confidence. World economic conditions contributed to a slowdown in sales growth unveiled this week by 888 Holdings Plc, whose Pacific Poker competes with PartyPoker.

``The macroeconomic challenge we face is certainly more marked than everyone predicted in the summer,'' Jim Ryan, PartyGaming's chief executive officer, told journalists on a conference call. ``Online gaming is likely to be resilient, but not immune to the economic downturn.''

U.S. Discussions

He also said the company is still in talks with the U.S. Justice Department on past activities in the country, which barred offshore Web gaming in 2006. Discussions began last year as industry concern spread about possible legal action against companies that took bets from Americans before the crackdown.

PartyGaming expects to be one of the first companies to take part in industry consolidation once the talks with U.S. authorities are resolved, Ryan said on the call. That may involve a ``transformational acquisition,'' he said, without going into detail.

Third-quarter revenue at PartyGaming's casino division increased by 25 percent to $45.9 million, while sales from sports betting rose 19 percent to $5.1 million.

Bingo revenue more than doubled to $1.7 million on growth in the U.K. The company runs local Web sites carrying the brand of television broadcaster ITV Plc, which concluded its ``Bingo Night Live'' interactive show this month by giving away a jackpot worth 25,000 pounds ($37,500).

PartyGaming gets almost half its sales from Germany, Canada and the U.K. The U.S. Dollar Index, which measures the currency's value against a basket of six other monies, gained almost 10 percent in the third quarter.

The dollar added 12 percent against the euro and sterling in the period and increased 4.1 percent against its Canadian counterpart, data compiled by Bloomberg shows.

Analysts expect PartyGaming to raise so-called clean earnings before interest, tax, depreciation and amortization by 26 percent for the year.

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From The Times UK
November 20, 2008

Chips are down for PartyGaming as it looks to beef up dwindling player pool

Dominic Walsh

In its heyday PartyGaming was the world’s biggest online poker company, had a stock market value of £7 billion and was a member of the blue-chip FTSE 100.

Today it has slipped to fourth in the internet poker league table, is worth less than £400 million and is seeking merger partners to beef up its dwindling player pool.

Yet as the still-fledgling internet gaming industry prepares to enter its first recession, Jim Ryan, the recently appointed PartyGaming chief executive, insisted yesterday that the company could regain its crown as “the most valuable online gaming company in the world”.

His ambition may be realised if, as he expects, the US Government eventually relaxes the ban on internet gambling imposed two years ago.

“We’re hopeful that, in the fullness of time, the new [Obama] administration will take steps to regulate it,” he said. Although the company has worked hard to refocus itself on other markets, primarily in Europe and Canada, one of the main problems that it faces is competing on the poker stage with rivals that still accept American players. Internet poker players seek out the poker rooms with the greatest liquidity – and the more players an operator has, the greater is its liquidity.

In its third-quarter trading update, PartyGaming reported a 15 per cent fall in poker revenues to $65 million (£43.2 million). While dissastisfaction with a new loyalty programme did not help, its biggest issue was vying with rivals, including PokerStars and Full Tilt, which still take bets from American punters.

In order to improve its liquidity, the company recently struck a so-called white-label deal with ITV that Mr Ryan said would be the first of many such deals. Mr Ryan said that he was also looking at more substantive tie-ups and believed that consolidation of the sector was inevitable. “I believe that there will be market consolidation and that PartyGaming will play a leading role,” he said.

The chances of such a deal being consumated may depend on protracted discussions with the US Department of Justice (DoJ) over a settlement after the banning of internet gambling. Analysts have specu

lated that the group’s cash pile of $200 million should be enough to cover such a settlement. Mr Ryan said: “We’re pleased with the progress we are making on the talks with the DoJ but we can’t be definitive on timing.”

The group’s poker travails were offset largely by strong revenue growth from its casino, bingo and sports-bet-ting divisions, with total revenues for the quarter flat at $118 million. However, there was a $5 million hit from the appreciation of the dollar against sterling and the euro.

Mr Ryan admitted that the fall in customer deposits and spend per player had also been hit by the economic downturn, adding: “This is a tough trading environment. The online gaming industry is having to navigate its way through its first-ever economic slowdown. What the full effects will be for the industry as a whole remain to be seen. However, we concur with the view of one recent analyst report that online gaming will be resilient but probably not immune to the economic downturn.”

Martin Weigold, the finance director, said: “What we are seeing – and we think the impact of this relates both to the strength of the dollar and the macroeconomic environment – is that the consumers are actually visiting less and the amount of revenue we are generating from a consumer over the quarterly period has declined.”