Gambling News - June 2005 Edition

"The Great Gamble"

PartyGaming's staff members could benefit from the company's plans to launch an IPO on the London Stock Exchange. The staff is slated to receive approximately $550 million in free stock options.

PartyGaming was established in 1998 when Ruth Parasol and her husband Russ De Leon sold their porn and sex chat empire and started up PartyGaming. Then they linked up with two technology students from India, Anurag Dikshit and Vikrant Bhargava, who handle the technical and marketing aspects of the business. Now Dikshit owns approximately forty percent of PartyGaming and Bhargava owns about fifteen percent. PartyGaming is planning to float on the FTSE and its timing couldn’t have been better as recent growth in the online poker market has been incredible. In 2004 the online poker market grew by 460 percent to reach an estimated $770 million. Industry analysts now believe that the online gambling sector is worth over eight billion dollars.

Internet gambling has become possibly the fastest-growing, technology-driven business in the world and nowhere is this more evident than with online poker company, PartyGaming. The company has seen incredible growth since its early beginnings and it shows in its profits. In 2002, PartyGaming declared gross pre-tax profits of $5.8 million and in 2003, 89 million dollars. In 2004, profits soared to 372 million dollars, and reached 125 million dollars in the first quarter of 2005. PartyPoker makes its money by taking a commission or a “rake” in poker lingo, off the top of the money bet on each hand. The commission totals about one percent.

PartyGaming is spread all over the world. For tax reasons, PartyGaming headquarters are in Gibraltar, its servers are hosted on a Mohawk Indian reservation in Canada and its marketing office is located in London. The majority of PartyGaming’s staff works at a call center and software development site in Hyderabad, India. PartyGaming’s staff members would benefit nicely if PartyGaming’s recently announced plans to launch an IPO on the London Stock Exchange are successful. The staff is slated to receive approximately $550 million in free stock options. The offering could yield three billion dollars in subscriptions and create a valuation for the company of over ten billion dollars.

Bur the road is not completely smooth for PartyGaming’s IPO and its continued success is by no means guaranteed. The largest obstacle to the company’s continued success lies in the legal area. Firstly, the U.S., where a majority of PartyGaming’s customers reside, is staunchly opposed to online gambling and has explicitly banned the activity under the U.S. Interstate Wire Act, unlike the British government, which is decidedly more relaxed about Internet gambling. Secondly, the staff in Hyderabad is at risk as gambling is illegal in India, although Internet gambling is not specifically addressed. But of course PartyGaming’s upcoming IPO could be seriously affected by these issues.

PartyGaming’s 2005 first quarter profits break down to about 1000 dollars per minute. At any given time, Partypoker.com, the online poker-playing site owned by PartyGaming, has about 70,000 players sitting at its cyber poker tables.

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