Home > Internet Casino News > Where now for the gaming sector?

Where now for the gaming sector?

October 2, 2006

PartyGaming and other betting stocks lost as much as three-quarters of their value after US Congress unexpectedly passed a bill aimed at helping outlaw online gambling. Most of the firms involved in the sector said they would suspend US operations if the bill is ratified.

The new proposals would make it illegal for banks and credit card companies to settle payments to online gambling sites. The measures, which were tacked on to a bill aimed at enhancing port security, were passed on Saturday and need only to be signed by President George Bush to become law with immediate effect.

PartyGaming, the world's largest poker room, gets 77 per cent of its revenue from US residents. Its shares lost 64p to 43p. 888 Holdings, the biggest casino games operator, which gets 52 per cent of gross win from Americans, fell 70.5p to 76p. SportingBet, with 62 per cent from the US, lost 124.25p to 60p.

"We do not believe this is the end game," wrote analysts at Dresdner Kleinwort. "This could be construed as a violation of civil rights and promoting a chilling effect on free speech in the US."

Analysts highlighted that the bill includes carve-outs for a number of other online gambling activities including horse racing, Indian tribes, intrastate activities and fantasy sports.

"This represents protectionism and is in contradiction of the World Trade Organisation ruling in the US versus Antigua and Barbuda case," said Dresdner. The WTO ruled in 2004 that the current US administration was infringing on the trade rights of Antiguan online gaming and poker sites.

Dresdner was also unclear on whether the bill included poker, which resides in a legal grey area on whether it is a game of skill or chance. It also noted that the bill potentially exempts certain financial instruments if it is not reasonably practical for transactions to be blocked, giving the industry a back door. Clarity on these issues may take up to 270 days to arrive.

ABN Amro's team preferred to look to the future under a worst case scenario. "Going forward from a significantly lower profit base, key issues will become; (1) to what extend the central cost bases can be reduced; (2) growth potential outside the US; (3) the lower risk profile of business outside the US, and; (4) the regulatory environment in Non-US jurisdictions," it said. The broker put its ratings and target prices under review "until the dust settles".

Companies with related businesses also suffered: Neteller, Datacash and FireOne, which provide Paypal-like services for the gaming industry, lost about 60 per cent of their value.

Investec, house broker to Datacash, downgraded to "hold" from "buy". It estimated that the group gets about 30 per cent of sales and 40-45 per cent of profits from US betting.

"We believe Datacash will benefit from a greater focus on non-US territories by internet gaming companies. Its ability to provide an outsourced payment service in these regions quickly will be highly attractive. However, with a large proportion of profits effectively coming from the US there is clearly considerable short-term uncertainty," said the broker.

Discuss this News with other readers.

Related News:

Online gaming in crisis after U.S. ban is passed

PartyGaming and rivals warn of U.S. gaming ban

GOP aims to crack down on Web gambling

Online-gambling bill stuck

Outlook dims in Senate for online gambling bill