NFL Bettors: Online Gambling Given Death Sentence By US Government

PartyGaming, Sportingbet Plunge on U.S. Gambling Law (Update8)
By Neil Craven - BLOOMBERG

Oct. 2 (Bloomberg) -- Shares of PartyGaming Plc, Sportingbet Plc and 888 Holdings Plc plummeted, wiping out $7 billion of market value, after Congress passed laws to shut down Internet gambling in the U.S.

Legislation to prevent credit-card companies from collecting payments for bets was approved Sept. 30 in the closing hours of the congressional session, the culmination of a U.S. clampdown on online gaming. PartyGaming, the world's biggest Internet poker company, will stop taking wagers from its 900,000 American players. Its stock lost 58 percent of its value.

``The U.S. government has found a way to make life almost impossible'' for gambling Web sites, said Philippe Gijsels, senior equity strategist at Fortis Bank SA's private investment unit in Brussels, which manages $62 billion. The companies ``will have to regroup and rethink their business model,'' he said.

The U.S. accounts for about half of the $12 billion Internet gambling market and considers the industry illegal. PartyGaming is among more than 2,000 offshore companies operating poker and sports-betting Web sites. Authorities have detained British executives of Web bookmakers visiting the U.S., including David Carruthers of Betonsports Plc, who was charged by a federal grand jury in July with illegal interstate gambling.

Gibraltar-based PartyGaming, which trades in London, got more than four-fifths of its sales from the U.S. last year.

``This development is a significant setback for our company, our shareholders, our players and our industry,'' PartyGaming Chief Executive Officer Mitch Garber said in a statement.

Shares Tumble

PartyGaming shares slid 62 pence to 45 pence in London. It was the biggest decliner in the U.K.'s benchmark FTSE 100 Index.

``This bill was having trouble getting through Congress so a lot of investors thought this was not going to happen,'' said Brian Tora, investment director at Gerrard Ltd. in London. ``Suddenly no one really knows how much these companies are going to make in terms of profit.''

The measure, added to unrelated legislation providing $3.4 billion for port security, was passed before Congress recesses to campaign for the Nov. 7 elections.

``I can't believe they actually managed to get it through,'' said Jamie Coleman, who holds PartyGaming shares among the $550 million he helps manage at EFG Wealth Management in London. ``I'm pretty damn shocked, and I'm pretty damn shocked at the way they went about doing it as well.''

U.S. President George W. Bush will sign the bill into law, said White House spokeswoman Emily Lawrimore. No date has been set for the signing.

Bank Regulations

``Internet gambling has been illegal since the inception of the Internet, but there has been no way to enforce it,'' Representative James Leach, an Iowa Republican, said Sept. 30. By making it ``illegal to use a financial instrument to settle an Internet wager,'' Congress is ``putting responsibility on the financial community,'' Leach said.

The legislation directs the Federal Reserve and Department of Justice to issue regulations within nine months to banks establishing policies and procedures for blocking transactions.

``There was an assumption tied into the price of these stocks that the legislation was not going to make it through,'' said Paul Leyland, an analyst at Arbuthnot Securities in London. Unless Congress can ensure the act will be policed, ``this could very quickly transpire to be a toothless piece of legislation,'' he added. ``The devil of all this will be in the detail.''

Poker Industry

The American Gaming Association, which represents casino operators based in Las Vegas and elsewhere, had asked Congress to fund a commission that would study whether online gambling can be regulated and taxed in the U.S. The lobby group's hope is a study may eventually let major casino operators such as MGM Mirage and Harrah's Entertainment Inc. enter the online business.

Harrah's, the world's largest casino operator, today said it received a $15.1 billion takeover offer from Apollo Management LP and Texas Pacific Group.

PartyGaming controlled about 50 percent of the online poker market at the start of this year. Its PartyPoker site is the world's largest online poker gaming venue with about 38 percent of the market in December 2005, three times more than its nearest rival, it has said.

Founder's Losses

The company was founded by a group including Anurag Dikshit, PartyGaming's former operations director, in 1997. With 1.5 billion shares, or 29 percent of the equity, he remains the company's biggest investor, the company said. Today's plunge wiped out about 700 million pounds from his holdings, according to Bloomberg calculations.

PartyGaming's IPO made Dikshit the 207th richest person in the world in 2006, according to Forbes magazine's web site.

The poker industry has grown as events including the World Series of Poker encourage more people to play games such as Texas Hold'em online. According to research company Christensen Capital Advisors, online poker grew to a $1 billion business in 2004 from $90 million in 2002.

PartyGaming sold shares to the public in June 2005. It said in its prospectus that the Justice Department ``considers that companies offering online gaming to U.S. residents are in violation of existing federal laws'' and that investors may lose their money if the company is banned from the U.S.

`Devastating Loss'

888 said suspending its U.S. operations will have a ``material adverse impact'' on earnings. Chief Operating Officer Gigi Levy said on a conference call that about half the company's revenue comes from U.S. clients. Its stock dropped 38.25 pence, or 26 percent, to 108.25 pence today.

``We will step up a gear in terms of looking at the rest of the world,'' said 888 Chief Executive Officer John Anderson. ``It's a devastating loss. Most of the rest of the world is quite sensible in terms of regulation. If you look at the prohibition of booze in the U.S., gangsters made a lot of money from that.''

Sportingbet tumbled 64 percent to 66 pence. The company today said the U.S. rules prompted it to abandon talks to buy World Gaming Plc, whose shares slid 76 percent today. Former Sportingbet Chairman Peter Dicks, facing extradition to Louisiana, was set free last week by New York authorities.

There were 23 online gaming-related stocks on London's Alternative Investment Market at the end of August.

Empire Online Ltd., whose online gambling brands include Club Dice, fell 16.5 pence, or 25 percent, to 50.5 pence. Leisure & Gaming Plc, whose brands include VIPsports, lost 75 percent to 9.75 pence in London. NETeller Plc, a U.K. provider of money transfers for Internet gaming, fell 215 pence, or 61 percent, to 140 pence.

Excapsa Software Inc., a Toronto-based maker of software for gambling Web sites, slid 71 percent to 13 pence in London. CryptoLogic Inc., another Canadian maker of online gambling software, was 15 percent lower in Toronto as European stock markets closed.

Playtech Ltd. a British Virgin Islands-based gaming-software developer, tumbled 41 percent to 145.75 pence. Bwin Interactive Entertainment AG slid 35 percent in Vienna.

To contact the reporter on this story: Neil Craven in London at ncraven1@bloomberg.net .

Last Updated: October 2, 2006 12:09 EDT