THE BIRMINGHAM POST
Dec 29 2006
Investors who gambled on the online gaming sector this year lost billions after the US effectively outlawed internet betting.
Law-makers in Washington called “no more bets” when they forced through the controversial Unlawful Internet Gambling Enforcement Act on the back of an unrelated Bill enhancing port security.
It came after two British gaming executives were arrested on American soil as the US raised the stakes against the industry.
Despite the early warning of a crackdown, the passing of the law sent shockwaves through the City of London and the gaming world in general.
Many investors had bet that the Senate would not have time to add its approval of the legislation to the earlier backing in the House of Representatives.
It was a gamble that did not pay off and shares in online casinos such as PartyGaming and 888 Holdings tumbled – losing investors billions of pounds.
The crash revived memories of when the dot.com bubble burst at the start of the millennium – and served as a valuable reminder that the stock market, just like the poker table, carried risks.
More than £4 billion was wiped off the value of the online gaming sector in one day – more than halving its value.
Marvin Sones, WorldSpreads.com, said: “Having seen the reaction since the US Bill back in early October it is clear to see that the gaming sector in most part has not had any sharp correction or as they say ‘dead cat bounce’.
“There has been no significant attempt to re-glorify this industry. Politicians in the US have all distanced themselves from online gambling and some would suggest this was all done for a mid-term election reaction.”
BetonSports chief executive David Carruthers was arrested at Dallas airport in July under online gaming laws. It was followed in September by the arrest of Sport-ingbet chairman Peter Dicks in New York under similar laws.
Mr Carruthers, who was fired by BetonSports, remains under house arrest in St Louis awaiting trial while Mr Dicks, who quit Sport-ingbet, was freed by a New York judge.
BetonSports shares are still suspended while Sportingbet, which runs Paradise Poker, revealed first quarter losses of £241.4 million after selling its US business for one US dollar following the change in the law.
Party Poker operator PartyGaming saw its market value dive from £4.28 billion to £1.8 billion after Congress approved the Bill. It is now worth just £1.2 billion compared with the £7 billion it was worth in July 2005.
888 Holdings did not suffer as badly as it only relied on the US for just over half its revenues compared with the three-quarters of its larger rival.
888 has also benefited from takeover speculation involving both PartyGaming and Ladbrokes in recent weeks. It admitted it was in discussions with other firms over a deal but refused to name them.
The industry is braced for a wave consolidation as casino operators fight for survival without the key American market.
But it has come too late for some firms, such as World Gaming, which relied on the US for 95 per cent of its business and went into administration in October.
Mr Sones said: “The whole sector will need one great round of consolidation next year and this can only be led by the big gaming stocks.” He added that the sector will not regain its value “until investors and speculators get a real idea of how and when the consolidations in this sector will be a net benefit to the industry”.
The legality of internet gambling in the US has been a grey area for a number of years, with it generally considered to be outlawed by the 1961 Wire Act.
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