Party Gaming Counts the Cost of US Withdrawal

Party Gaming plc, the London Stock Market quoted, Gibraltar-based, owner of Party Poker, today announced that the immediate one-off cost of withdrawing from the US online gaming market was $250,000,000. This is the result of the actions taken by Party Gaming plc following the signing by President Bush of the Safe Port Act incorporating the provisions of the "Unlawful Internet Gambling Enforcement Act of 2006".

While the financial results a whole for the third quarter to 30th September 2006 continued to show the growth pattern of earlier periods, this has been rendered rather meaningless by the subsequent events. Consequently, the group has had to spend a lot of money and write down the value of

assets as a result of withdrawing its business from the US. The company considers this to be an immediate $250m write off against profits but of course the loss of future earnings is far more serious. Stock Market investors have voted with their broker instructions and sold the shares down to 30p currently. Since the original Congress vote, investors have effectively reduced the valuation of the group by some $4 Billion reflecting the market's estimate of the real cost of permanently lost future long-term earnings to the group.

Not surprisingly, the group is now focussing on highlighting the continuing growth of its non-US business.

The Chief Executive Officer of Party Gaming plc, Mitch Garber commented:

"The impact of the recently passed legislation in the US has changed the shape of our business fundamentally. On 13th October 2006, following the Safe Port Act being passed into law, the Group suspended all of its real money gaming operations with players located in the US, thereby becoming an exclusively non-US online gaming business. Whilst the US has historically represented the majority of the Group's revenues and profits, I am pleased to report that our non-US business continued to deliver strong growth in the quarter with revenues up 158% year on year to $92.0m, active player days up 141% to 4.1m and the number of unique active players up 161% to 331,520.

"Given the change in our business environment, the Group has already moved swiftly to reduce its cost base. Notwithstanding this, it is expected that the Group's Clean EBITDA margin for the full year will be significantly lower than it was in the first half of 2006, reflecting the one-off costs of rationalising our business as well as the fixed nature of certain costs that were previously absorbed by a much larger revenue base.

"PartyGaming is a highly dynamic business, one that has proved time and again its ability to adapt to new challenges and new environments. The Group has some of the most talented people in online gaming and we are determined to play to our strengths: offering consumers online brands they can trust, using the very best technology and supported by outstanding customer service."

The group also issued a trading and business developments update. It said:

"In the few days since US customers were prevented from accessing the real money sites on 13th October 2006, average daily gross revenue of the non-US facing business has been 2% below that seen in the third quarter. However, as there has been less than one week since the Group suspended taking wagers from its US customers, it is too early to comment precisely on what impact there will be going forward, if any, upon the Group's non-US facing revenues.

"In light of the new business environment, the Group has already moved swiftly to reduce its cost base. However, it is expected that the Group's Clean EBITDA margin for the full year and thereafter will be significantly lower than it was in the first half of 2006, reflecting the one-off costs of rationalising our business as well as the fixed nature of certain costs that were previously absorbed by a much larger revenue base. A one-off restructuring charge of approximately $250m is expected to be incurred during the second half of the current financial year, around three quarters of which is non-cash.

"The first of our multi-lingual client versions of PartyPoker will be launched in October 2006 and this will be followed by other versions over the next few months with a multi-currency offering expected in 2007.

"Gamebookers, the Group's exclusively non-US facing sportsbook that was acquired on 3 August 2006, has performed ahead of the Board's expectations. Supported by the Gamebookers infrastructure, PartyBets is on-track to be launched on the integrated Party-branded platform by the end of the year."

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