Gambling News - July 2005 Edition

"Investing in Online Gambling"

Internet gaming and online poker are the fastest growing fads around.

One of the fastest growing crazes sweeping the world is Internet gaming, and in particular, online poker. The world’s largest online poker business, PartyGaming, is making a tidy profit on this fad. Actually, PartyGaming is extremely profitable and it only takes a glance at the company’s financial statistics to verify this. PartyGaming, recently listed on the London Stock Exchange, saw profits of $391 million in 2004 on a turnover of $600 million and, for the first quarter of 2005, saw an astounding profit of $128 million on $222 million in revenues. This is a net margin of 58 percent.

Much of the popularity of poker can be attributed to the Travel Channel’s World Poker Tour and other televised coverage of major poker events. Thousands of players log on to online gambling sites every day. But whatever is responsible for the current popularity of poker, it is PartyGaming who reaps the profits. The company, which went public on June 27 th of this year, floated at an initial share price of 116 GBP (or 204 dollars) and the shares are now quoted at 149 GBP (or 262 dollars). The company reported a profit of 500 million dollars on 888 million dollars in revenue, meaning its earnings are growing at 26 percent and its revenue is growing at 46 percent. Industry analysts say that the company is fairly priced when all the variables are considered and that the online gaming industry itself exhibits tremendous growth potential and rising popularity.

To focus only on the positive forecasts about the industry would be misleading, since there are some downsides as well. For one, many fear that poker’s popularity is simply a passing fad which will eventually end and leave the online poker industry hurting. Most people, however, think that the popularity of online gambling and online poker will remain and that its appeal is here to stay. The most serious concern, however, concerns the fact that online gambling of any kind is illegal in the United States. This presents a real problem for companies like PartyGaming which derives most of its revenue from players in the United States. Actually, if any of the founders of PartyGaming were to set foot in the United States or on U.S. territory, they could be arrested, fined or imprisoned.

The company’s prospectus counters this concern. They note that “PartyGaming and its directors rely on the seeming unwillingness or inability of regulators generally to bring actions against businesses with no physical presence in the country concerned.” Since the founders are now worth billions of dollars each, it is highly doubtful that they will be visiting the United States anytime soon, though.

& As a result of such positive forecasts about the industry, many other online poker companies are intending to go public too.

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