TIMES ONLINE: Gambling online faces collapse in US after Senate ban

[Louis Cypher]

The Times October 02, 2006

By Dominic Walsh

AMERICA's $6 billion (£3.2 billion) internet gambling industry is facing meltdown after the US Senate pushed through a Bill at the weekend outlawing the processing of bets by banks and credit companies.

The surprise move, which is expected to spark a massive share sell-off, will prompt London-listed 888 Holdings to announce this morning that it is halting its entire US-facing operation, accounting for half its business.

PartyGaming, the world's biggest internet gambling company, said last night that it was "still evaluating the situation", although industry sources believe it will also announce a cessation of its services to American punters.

However Sportingbet, which was celebrating on Friday after a New York court released its former chairman, who had been facing gambling charges, will tell investors that it is still digesting the implications of the Bill.

Despite the Bill's prescriptive nature, it excludes local online betting on horseracing, fantasy leagues and lotteries. It also has no impact on the hundreds of casinos and gambling emporia that dot America, ranging from the neon palaces of Las Vegas and Atlantic City to the riverboat casinos that ply their trade on the Mississippi.

One senior internet gambling executive said last night: "This is the worst form of protectionism I have ever seen. This will drive internet gambling underground and consumer protection will go out of the window. The religious groups that lobbied for this may live to regret it."

The Unlawful Internet Gambling Enforcement Bill needs only to be signed by President Bush to become law. Legal sources predict that he will do so in the next two weeks, possibly as early as Wednesday.

The passing of the Bill in the early hours of Saturday surprised the industry. Although it had successfully negotiated Congress, its passage through the Senate looked likely to be blocked through lack of parliamentary time.

However, Bill Frist, the Republican leader in the Senate, got the measure through by attaching it to an unrelated Bill that enhances port security.

"Gambling is a serious addiction that undermines the family, dashes dreams and frays the fabric of society," Dr Frist said. "The bottom line is simple: internet gambling is illegal. Although we can't monitor every online gambler or regulate offshore gambling, we can police the financial institutions that disregard our laws."

The ban may drive some small companies out of business, although big operators such as 888 and PartyGaming will highlight the strong prospects of their non-US business.

However, 888 is expected to warn its shareholders in a Stock Exchange statement this morning that its withdrawal from America will force it to pare back its cost base, resulting in a significant hit against this year's profits.

[Louis Cypher]

Monday 2006-10-02, The Independent

Congress stuns online gaming firms
By Julia Kollewe
Published: 02 October 2006

Anti-gambling laws unexpectedly passed by legislators in the United States threaten to cripple online gaming businesses and will send their shares into freefall today.

The bill, which makes it illegal for banks and credit card firms to process payments to internet gambling groups, was unexpectedly approved by Congress late on Friday. It deals a devastating blow to online giants such as PartyGaming, 888 and Sportingbet which rely on the lucrative US market for much of their business. The internet gambling provisions sailed through Congress after being tagged on to an unrelated bill to secure US ports.

The bill now needs only to be signed by President George Bush to become law, ahead of the 7 November congressional elections.

The boards of internet gambling companies held emergency meetings at the weekend to discuss the news. Several firms are expected to issue statements to the stock market today to update investors on the situation, with 888 believed to be preparing to suspend its business from the US.

Sportingbet is expected to say: "We are digesting the information and the facts and will make a future announcement when appropriate, but at the moment it is too early to make any comments."

PartyGaming, headed by chief executive Mitch Garber, said yesterday it was evaluating the situation, but refused to comment any further.

The sector has been rocked this year by several arrests of high-profile internet gambling executives as part of a clampdown by the US authorities. Until now, only betting on sports via phone across state lines is explicitly banned under the 1961 Wire Act, but the US Department of Justice has made clear it views all forms of internet gambling as illegal.

The online gaming companies have been careful to base themselves offshore - in places such as Costa Rica, Antigua and Gibraltar - to escape prosecution while the biggest groups are listed in London. They have also been trying to lessen their reliance on US punters by expanding in Europe and Asia.

The Poker Players Alliance, a US grassroots organisation consisting of 50,000 members, said: "This last-minute deal reeks of political gamesmanship. The American people should be outraged that Congress has hijacked a vital security bill with a poker prohibition that nearly threefourths of the country opposes."

The banking sector has voiced strong opposition to the provisions that require banks to block the transfer of electronic funds or e-check payments to online gambling sites. The smaller banks will find it very costly to enforce the bill if it becomes law.

The legislation leaves out an additional provision of the original bill passed by the House of Representatives that would have clarified that the 1961 Wire Act also covers online gambling.

That came as little comfort, though, to a sector reeling from the arrest of the then Betonsports chief executive David Carruthers and the former Sportingbet chairman, Peter Dicks. Mr Dicks was held in New York for three weeks on Louisiana charges of "gambling by computer," but was set free and allowed to return to Britain on Friday. However, Louisiana police have warned online gaming companies to stop accepting bets in the state.

While internet gaming businesses warned investors of the potential legal risks surrounding their US operations in the small print of their listing prospectuses, few took heed last summer when PartyGaming floated amid much fanfare.

The Democrats have criticised the Republican-backed bill as an election-year appeal to the party's conservative base, particularly the religious right. But Democrats accepted the port security legislation, despite opposing the gambling provisions, as they did not want to lose the core of the bill.

[Louis Cypher]

The Canadian Press
Monday, Oct 02, 2006
Shares in online gambling companies fall as U.S. outlaws online wagering

TORONTO (CP) - Canadian Internet gambling companies were rattled Monday as their stocks took a nosedive in the wake of legislation passed by the U.S. Congress that effectively outlaws online wagering in the United States.

Shares in leading software company CryptoLogic Inc. (TSX:CRY) took the biggest hit, retreating more than 19 per cent, or $4.76, to $19.87 on the Toronto Stock Exchange.

The legislation, part of a port securities bill passed by the House and Senate on Saturday, prohibits the use of credit cards, checks and electronic fund transfers for online gaming.

CryptoLogic said it had been preparing for that eventuality for five years and effective immediately licensees of WagerLogic, the company's licensing subsidiary, will stop taking wagers from U.S.-based players.

Last week, the company announced plans to move its head office from Toronto to Dublin, noting that more than 70 per cent of its licensees' revenue now comes from outside the United States.

The company's chief financial officer Stephen Taylor said in a phone interview that the company will remain "strongly committed to Canada."

"We have a technical staff of in excess of 200 people based in Toronto and so that operation will be staying," he said.

"There will be an impact on our financial results ... and it will take some time before things shake out and get back to more normalized earning levels," Taylor added.

Other Canadian companies involved in the industry found their stock similarly stricken by the news.

Dynasty Gaming Inc. (TSXV:NY) dropped three cents to 50 cents Monday as the company, headquartered in Montreal, said it would sell three non-core subsidiaries and focus on rolling out a play-for-points mah-jong game in China.

Vancouver-based Chartwell Technology Inc. (TSX:CWH) was down 35 cents or 16.3 per cent to $1.80, and ESI Entertainment Systems Inc. (TSX:ESY) fell 40 cents, or 15 per cent, to $2.20 on the TSX.

Shares in software firm Las Vegas From Home.com (TSXV:VH) tumbled four cents or 26 per cent to 11.5 cents on the TSX Venture Exchange, while Internet bingo firm Parlay Entertainment Inc. (TSXV:EI) lost 44 cents, or 29 per cent, to $1.06.

Parlay is one of the Canadian companies with the most exposure because it generates 60 per cent of its revenues from the United States, said Paradigm Capital Inc. analyst Gabriel Leung.

"We believe there could also be a wave of consolidation given the financial infeasibility for some of these companies to exist as standalone companies in the event of a complete loss of U.S. player activity," Leung added in a financial report.

Spencer Churchill, an analyst for Clarus Securities, said he expects to see an impact on Canadian companies, though he doesn't anticipate any major domicile shifts outside of the country.

"Canadian institutional investors are basically going to take a big pass on this base for some time until we see a major shakeout of the revenues (generated from the U.S.) that are basically going to zero for most of these companies that have U.S.-facing operations."

British online gambling companies, including Sportingbet PLC and PartyGaming PLC, also saw their stocks dive on Monday. PartyGaming, the world's biggest online gambling company, said it would pull out of the U.S. if President George W. Bush signs the legislation into law.

The companies hit hardest by the ruling offer betting markets denominated in U.S. dollars, and usually operate from bases in the Caribbean or Central America. Most of the big British and Irish sites, by contrast, keep their operations in Europe and take deposits only off credit cards denominated in pounds and euros.

Sportingbet, which does more than 60 per cent of its business in the U.S., said the impact of the legislation was unclear. However, the company called off talks about a potential bid for World Gaming.

Shares in PartyGaming plunged 60 per cent to 43 pence (81 cents US), and shares in 888 sank 48 per cent to 76 pence ($1.42). Sportingbet shares dropped 67 per cent to 60 pence ($1.12).

The U.S. decision comes as some countries are focusing on legalization and regulation of online gaming.

In the United Kingdom the government has moved to regulate online gambling sites. Italy backed away from its original position against Internet gambling and now plans to make the websites legal as early as 2007.

Australia outlawed most forms of gambling in 2000.

[Louis Cypher]

Online gambling set for takeover wave
By Roger Blitz, Leisure Industries Correspondent
Financial Times

Updated: 3:10 p.m. PT Oct 2, 2006

Internet gambling companies face a wave of consolidation in the wake of the US clampdown on online gaming, which could see American casinos and gambling businesses swooping for bargains in the sector, the heads of two of the biggest online gambling sites said on Monday.

Mitch Garber, chief executive of PartyGaming, and Gigi Levy, who takes over as chief of 888 Holdings this year, made their predictions as the sector felt the impact of the bill passed in the Senate on Friday making it illegal for banks and credit card companies to process online gaming payments from the US.

Investors wiped $7bn (£3.7bn) off the market value of what at the start of trading was an industry worth $12bn, as heavyweight internet gambling companies said they would suspend indefinitely their US operations.

PartyGaming, the biggest company in the sector, lost 57.94 per cent after announcing it would suspend all money gaming business with the US indefinitely when President George W. Bush signs the bill into law.

Across the sector, internet gambling stocks went into freefall. Sportingbet lost 64 per cent of its value, falling to 66p.

888 Holdings, which has also indefinitely suspended US operations and expects to take a charge, dropped 26 per cent.

Mr Garber told the Financial Times that he expected the pace of consolidation to quicken, with MGM and Harrah's, which built their gaming empires around the fully regulated Las Vegas casino industry, likely to step in. However, Harrah's had other matters on its mind yesterday with news that it had received a $15bn takeover offer from private equity companies Apollo Management and Texas Pacific.

Now that listed internet gambling companies are expected to quit the US en masse, the remains of their businesses will be free from the spectre of illegality that in the past might have put off investors and prospective buyers.

Mr Garber said: "I wouldn't be surprised if they [MGM and Harrah's] didn't have an interest in winning non US-facing companies as a means of tipping their toes in the internet world."

Mr Garber said he expected PartyGaming to be involved in buying up companies likely to suffer heavily from the impact of the new US legislation. "We are very focused on mergers and acquisitions. I see our liquidity as being very attractive to smaller players who may not be able to survive on their own."

A banking adviser in the sector said: "This is going to create a round of consolidation but what format and nature and how broad is a different matter."

Mr Levy said consolidation would happen first between online operators in order to restore the high margins lost by the US debacle followed by takeovers by big onshore operators coming from both the US and the UK.