US online gambling ban fall-out starts
02.10.2006Share prices fell and online gambling companies were considering their continued presence in the US market today (Monday) as the impact of the approval of a U.S. bill curbing online gambling financial channels was felt.
The bill, a composite of earlier banning attempts which did not seek to update the Wire Act was attached to a critical but unrelated Port Security measure and voted in on its skirts in a late night vote Friday. This was followed immediately by a Senate voice vote, and the complete Port Security bill, with the anti-online gambling attachment now goes for Presidential signature which observers expect to take place within the next two weeks.
Because the bill seeks mainly to use the US banking system to curtail online gambling transactions to offshore gambling companies, there is a 270 day period in which the US Attorney General and the Federal Bank must formulate systems and regulations, but its business impact as the London market opened Monday was immediate.
Bloombergs business news reported that shares of PartyGaming Plc, Sportingbet Plc and 888 Holdings Plc plunged due to the considerable role US business plays in company revenues.
PartyGaming and 888 said that US business would be suspended indefinitely when the law takes effect. However Sportingbet told investors that it is still digesting the implications of the Bill but: "Should Sportingbet's non-U.S. international banking partners determine that the act applied to them, then Sportingbet would no longer be able to take deposits from U.S. residents and this would have a material impact on the company's trading performance," it said in a statement.
"Whilst suspension of U.S. activities will have a material adverse impact on results for this year and beyond, the company has significant cash resources which are more than adequate to continue its operations and further develop its business," the 888.com statement said.
"If the President signs the [new] act into law, the company will suspend all real money gaming business with U.S. residents, and such suspension will continue indefinitely," Party Gaming said in a statement. "Any such suspension would also result in the group's financial performance falling significantly short of consensus forecasts for 2006 and 2007," it added.
U.S. President George W. Bush is expected to sign the legislation into law within the next two weeks, Gibraltar-based 888 said in a Regulatory News Service statement.
Gambling on the Internet has become a $12 billion-a-year business. Internet-based casinos such as PartyGaming and 888, operating in offshore locations beyond the reach of US law such as Gibraltar and Antigua, take in billions from U.S. gamblers. PartyGaming, the world's biggest Internet poker company, accrued more than four-fifths of its sales from the U.S. last year.
"Basically we are shutting down the payment system for Internet gambling,'' Representative James Leach, an Iowa Republican, said after the vote.
Billions of dollars in company value have already been shed following American enforcement actions against visiting online gambling executives in the US this year, and the legislative news added to online gambling operator woes.
The suspension will have a "material adverse impact'' on 888's performance this year and thereafter, the company said in its regulatory news statement. PartyGaming said its profit would be "significantly short of consensus forecasts'' for 2006 and 2007.
Shares of Gibraltar-based PartyGaming, the world's largest publicly traded online gaming company, slid 65 pence, or 61 percent, to 42 pence at 8:27 a.m. in London. 888, the world's largest online casino, slid 70.5 pence, or 48 percent, to 76 pence. The company said about half of its revenue is made in the U.S.
Sportingbet tumbled 69 percent to 58 pence. The company said the U.S. rules prompted it to abandon talks to buy World Gaming Plc, whose shares slid 76 percent as a consequence.
Empire Online Ltd., whose online gambling brands include Club Dice, fell 17 pence, or 25 percent, to 50 pence. NETeller Plc, a U.K. provider of money transfers for Internet gaming companies, fell 215 pence, or 61 percent, to 140 pence.
Brokers advised that events that have the potential to change an industry typically have a heavy impact initially on share prices before the market settles down as greater clarity and an understanding of the consequences becomes available.
Despite the Bill's prescriptive nature, it excludes domestic US online betting on horseracing, fantasy leagues and lotteries. It also has no impact on the hundreds of casinos and gambling establishments throughout America, ranging from the neon palaces of Las Vegas and Atlantic City to the riverboat casinos that ply their trade on the Mississippi.
One senior internet gambling executive told The Times: "This is the worst form of protectionism I have ever seen. This will drive internet gambling underground and consumer protection will go out of the window. The religious groups that lobbied for this may live to regret it."
The bill will not target players but does call for up to 5 years prison time for those within the reach of US law who run online gaming companies. US banks that don't comply may also face punishment. A representive from the Independent Community Bankers of America testified to the House that its members will have trouble enforcing the act.
The ban may drive some small companies out of business, although big operators such as 888 and PartyGaming will highlight the strong prospects of their growing non-US business.
The United States is moving in an opposite direction to the rest of the world when it comes to online gambling. The United Kingdom recently moved to tax and regulate online gambling sites, the Italians are offering tenders to would-be operators and the European Union had made it clear that it considers online gambling a product that should be allowed to be freely traded.
