Gambling News - June 2005 Edition

"PartyGaming Slashes IPO Price Amidst Legal Uncertainties Facing Internet Poker"

Potential investors in online gambling companies becoming nervous because of increasing anti-online gambling policies of the U.S. government.

Many potential investors have become more and more wary about investing in Internet gambling companies because of the increasingly anti-online gambling policies of the U.S. government. The huge anticipation and excitement that was generated when online poker company, PartyGaming announced its intentions to float on the London Stock Exchange for the astounding amount of ten billion dollars eventually turned into a cautious, wait-and-see approach. Investors are now viewing PartyGaming’s flotation somewhat differently and this is the result of the questionable legal status of the online gambling industry in the United States. What this means is that the uncertain legal status of Internet poker in the U.S. has successfully reduced investor enthusiasm for online poker.

The majority of PartyPoker.com’s customers are U.S. residents and this makes the legality issue particularly relevant. Up until now, law enforcement agencies in the U.S. have been reluctant to prosecute online bettors, but there is no telling if and when that policy may change. The current anti online gambling climate in the U.S. is very high and makes this especially true. Offensive measures have been stepped-up and directed at online gambling by not only the United States Department of Justice, but also by other legislative figures desiring to clamp down on the industry. Rob Portman, U.S. trade representative, recently received a joint letter from nearly forty states who are insisting that they have the right to decide whether or not to restrict gambling in each of their own states. The letter was in response to the recent World Trade Organization’s Appellate Court ruling regarding U.S. policies towards online casinos and poker sites.

The questionable legal status of online gambling, although arguably the main concern of potential investors in PartyGaming, is not the only factor to negatively affect the company’s plans to go public. Growing competition in the online poker industry was also a contributing factor to the lower IPO price together with the fact that the float will primarily benefit the founding shareholders of PartyGaming instead of being used to build up the company.

As a direct result, PartyGaming, whose brand site is PartyPoker.com, slashed its original IPO price. Recently touted as the biggest float on the London Stock Exchange in the past four years, the initial ten billion flotation was quickly reevaluated and put closer to the eight or nine billion dollar mark. Investor caution has also affected stock prices. When plans for the flotation were first announced, shares were expected to go for approximately 24 times earnings but now more realistic expectations put the shares at 13 to 14 times earnings .

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