Poker and Gaming Companies Bail Out of the US Sector

The financial carnage on the stock market this morning has been largely precipitated by the statements by the big players such as PartyGaming plc and 888 Holdings plc that they are suspending business with US customers until the effects of the new US law, the "Unlawful Internet Gambling Enforcement Act of 2006", have been clarified.

The law is still to be signed by the President (although this is deemed a formality) but the executives and lawyers for the online companies are taking no chances. The recent spate of arrests of non-US online gaming executives will also have focussed the collective minds.

PartyGaming plc, owner of the huge site

Party Poker which has an enormous US player-base, appears likely to be hardest hit, along with Pokerstars which is not quoted on a stock market.

PartyGaming stated this morning in its official stock market press release:

"After taking extensive legal advice, the Board of PartyGaming Plc has concluded that the new legislation, if signed into law, will make it practically impossible to provide US residents with access to its real money poker and other real money gaming sites. As a result of this development, the Board of PartyGaming has determined that if the President signs the Act into law, the Company will suspend all real money gaming business with US residents, and such suspension will continue indefinitely, subject to clarification of the interpretation and enforcement of US law and the impact on financial institutions of this and other related legislation. Access to PartyGaming's online gaming sites for the Group's US free play customers will be unaffected. Access for all of PartyGaming's non-US customers will also be unaffected.

"The Group's strategic focus remains on developing its existing markets outside of the US and on developing new markets and products. Should activities in the US be suspended, the Directors will also seek to re-align the Group's cost base to accommodate the changed business environment. However, any such suspension would also result in the Group's financial performance falling significantly short of consensus forecasts for 2006 and 2007."

The Chief Executive Officer of PartyGaming plc, Mitch Garber, said:

"This development is a significant setback for our company, our shareholders, our players and our industry. While US horse race betting, state lotteries, fantasy contests and certain other online gaming activities have been exclusively protected under the new law, we are disappointed that the popularity and skill of poker in particular have not also been specifically protected. The Board respects the laws of the US Government, and will continue to analyse their applicability, but also continues to believe that a regulatory framework for online gaming, including poker and casino gaming is the only sustainable long term solution.

"We have a substantial gaming business outside the US, one that is highly profitable and growing rapidly on one of the most technologically advanced platforms available. In the first half of 2006 our non-US business generated revenues of $150 million, a 151% increase over the comparable period in the previous year. Gaming on the internet is already a popular form of entertainment for millions of adults and we will continue to expand our business into new territories, offering fun, responsible and friendly competition in a safe and secure environment for customers around the world. PartyGaming is by far the largest online gaming company in terms of non-US business and liquidity and we intend to focus on and increase our advantage in that area."

Meanwhile, another big US player, 888 Holdings plc, owner of Pacific Poker, stated:

"In many respects the precise effect of the legislation is unclear and it is not yet known what the implementing regulations will say, or how financial institutions at whom part of the legislation is directed will react. However, this legislation indicates Congressional intent to treat internet gaming, whether sports related or not, as illegal. In addition, it is the first federal measure to address internet gaming explicitly. This represents a significant development in the US legal status. The Act also addresses certain jurisdictional and other uncertainties in the previous U.S. legal situation.

"In the light of these considerations the Board has concluded that it is appropriate to suspend participation by US based customers in activities covered by the legislation. The Company will implement this suspension immediately upon the legislation taking effect and the suspension will continue for so long as the legal situation remains the same. The Board will continue to seek clarification of the overall US legal position to determine whether and to what extent if any resumption of participation by US customers is feasible. At present however no assurance can be given that this will be possible. The Company will continue and develop those aspects of its US business which are not affected by relevant legislation.

"In recent years 888 has pursued a strategy of building its brand and business in markets outside the US. In the six months to 30 June 2006 revenues from non US players amounted to approximately 48 per cent of the Group's net gaming revenue and in the second quarter of 2006 approximately 68 per cent of first time depositors (new customers) were non US. The Board believes the Company is well placed to achieve further growth outside the US and will continue to focus its attention on growth in non US markets."

Sportingbet plc, owner of Paradise Poker, another site used extensively by US customers, is hedging its position and has said:

"The Board notes that US horse racing and US fantasy sports, insofar as they are lawful today, together with US intrastate and US intratribal internet gambling have been exempted from the legislation. The Board will be seeking clarification as to whether the Act is in violation of US commitments under the General Agreement of Trade and Services and representations made by the US in recent World Trading Organisation proceedings.

"Since becoming aware of the Act being passed, the Board has taken extensive advice and will continue to take further advice over the next few days with the objective of further understanding the applicability and impact of the Act to Sportingbet's US facing business prior to taking any specific actions as a result of the Act. Once these determinations have been completed, the Board will make a further announcement and intends to comply with all international law that it is advised prevails in this matter."

Similarly, the smaller company Empire Online plc, owner of Empire Poker stated:

"In light of the new legislation passed by the US Congress last Friday, Empire Online has immediately commenced a review of the likely impact on the Company's current business activities. Presently it is difficult to assess the exact effect of this legislation, which could have a material impact on future earnings. The Board of Empire Online will continue to take counsel from its advisors on this matter and will update shareholders accordingly."

Keep UK Poker News bookmarked for more information on these events.

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