Gambling News - June 2005 Edition

"US Gambling Laws Threaten 5.5 Billion Float"

Blue chip underwriters get cold feet on upcoming PartyGaming IPO.

PartyGaming, an online gambling company recently announced its plans to float on the London Stock Exchange with a valuation of 5.5 billion British pounds, but the present and future legal status of Internet gambling in the United States is having a profound effect on Internet gambling companies that plan to go public. PartyGaming may now end up delaying the flotation or putting it off altogether.

PartyGaming is a Gibraltar based company and owner of one of the world’s largest online poker sites. It is owned by four people who intended to share the expected one billion pounds derived from a successful flotation. The owners of PartyGaming, who created the company five years ago, intended to sell 23 percent of the firm on flotation, but all of this is in question now that analysts at blue-chip institutions in the U.S., who were expected to buy shares in PartyGaming, are showing signs of cold feet.

Fears that U.S. government policy, which considers all online gambling illegal under the U.S. Wire Act, may harm PartyGaming’s flotation, were enough to make the analysts wary about backing PartyGaming and, instead, started looking for assurances that the company won’t be negatively affected. One analyst said: “Will the US institutions back this? We don’t know. It is pretty dodgy as far as I can see.” Another analyst from a US bank remarked: “We will have a good think about whether we want to back this. We have to consider how much further there is to run on Internet gambling growth and whether its management is a credibility issue. Most importantly, we have to examine the legal status of its business in the market.”

PartyGaming derives ninety percent of its revenue from online poker players in the United States even though the activity is illegal there. None of the Internet gambling companies are based in the US. They are based either in the Caribbean or in Gibraltar. Not all states prohibit online gambling and numerous states do have anti betting laws that could apply equally to online poker.

Other Internet gambling companies, such as Cassava, which owns poker site 888.com, will be watching events carefully, as they announced plans to go public later this year.

Rising concern among the blue-chip institutions in the US regarding the legal issue is the primary reason that Investec Securities decided to quit its role as co-banking advisor to PartyGaming last month. After PartyGaming’s prospectus is published, we will probably see the company trying hard to win back the confidence of the US blue-chip institutions.

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