Gambling News - June 2005 Edition

"Are Gambling Big Shots Worth a Punt?"

Exploding online gambling market seen as an excellent opportunity for investment

Whatever it is that’s fueling the explosion in the online gambling market, many investors look at it as an excellent opportunity for investment. But not everyone. There are those who say they are not sure and they argue that the fact that online gambling has become mainstream is no guarantee of the industry’s future financial success. Chartwell Investment Management’s Ryan Hughes, believes that the American government’s resistance to online gambling and the continued illegal status of online gambling there puts the industry at risk. “If the US relaxes its stance, it could result in the creation of large US gaming companies which could take away market share from UK rivals”, pointed out Mr. Hughes. “The growth in these stocks has been quite dramatic. But who can be sure that it is here to stay?” he added.

While the headlines tell the world how much the online gambling industry is making and considering all the talk about how much money is to be made by investing in the online gambling market, it is no wonder that many investors are thinking about purchasing shares in one of the online gambling companies that have already gone public or are about to do so. PartyGaming, a company which owns PartyPoker.com web site, is set to float on the London Stock Exchange for approximately four to five billion pounds. Returns from stocks in online gambling companies have just been exceptional. Sportingbet, for example, saw the price of its shares rise from 18 pounds to 290 pounds in just two years. PartyGaming’s flotation is sure to disappoint some investors, though, since the initial offering will be offered only to institutions. Private investors will have to wait until the shares start trading before they can buy.

Many reasons have been given for the explosion in popularity of online gambling and one of these points to the increased number of female gamblers. Gambling over the Internet is a much more convenient, comfortable and completely private way to play than playing at a casino, so Internet gambling attracts many women who would never think of going to a casino to gamble. These same women, however, don’t think twice about booting up the computer and logging in at a web site to gamble. PartyPoker estimates that ten percent of its players are women. Other estimates put the figure three or four times higher.

Echoing Mr. Hughes’ note of caution, Justin Urquhart Stewart of Seven Investment Management, believes that Internet gambling will suffer a fate similar to that of the dot com industry a few years back. “There is excess capacity in the market and some of the smaller players are bound to collapse. This is bound to create nervousness among investors. Don’t forget that this is also an unregulated sector, which runs the risk of money laundering and fraud. If the steep growth in share prices continues, there is likely to be a major mismatch between stock market valuation and real value of the business”, said Stewart.

Commenting on how the online gambling industry has become mainstream, the head of UK equities at Hargreaves Lansdown Stockbrokers, Richard Hunter, said: “Gambling always had a sort of cloak-and-dagger feel about it. Now you can bet from the comfort of your home or the office. People who would never dream of setting foot in a casino are playing virtual poker online and you can now bet on financial indices and stocks and just about any sport.”

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