Welcome to the News desk.
|Party time is back for online gaming
| Chris Tryhorn
and Julia Kollewe
Online gambling operators were limbering up for a
wave of potential consolidation yesterday after PartyGaming agreed a $105m
(£71.3m) settlement with prosecutors over its activities in the US,
paving the way for deals in the troubled sector.
Shares in the UK's listed online gaming companies
rose sharply as analysts predicted that PartyGaming's better-than-expected deal
with the US authorities would allow mergers or takeovers by larger gambling
PartyGaming, the owner of the PartyPoker website, yesterday
escaped prosecution after a two-year investigation by the US attorney's office
for the southern district of New York.
In return, it agreed to pay $105m in eight
half-yearly instalments between now and September 2012, to reflect the proceeds
of the internet gambling services it provided in the US before a clampdown in
The settlement covers the period from 1997 to October 2006, when
PartyGaming offered internet gaming to US players, including real-money poker
and casino gaming. The company admitted that even before the 2006 crackdown -
which forced it to abandon the US market - some of its activities had broken US
"Prior to 13 October 2006, certain of the US customer
transactions intended for PartyGaming that were processed by third parties, and
other gaming and payment-related activity, were contrary to certain US laws,"
the company said in a statement.
The US attorney's office said that,
from 2001, PartyGaming "employed a variety of methods to misrepresent the
nature of its customers' transactions to US credit card issuers who did not
permit their credit cards to be used for internet gambling". The company also
"took steps to disguise payments of winnings to US customers", the attorney's
It drew attention to the fact that PartyGaming's
prospectus for its flotation on the London stock exchange in 2005 warned
investors of "uncertainty as to the legality of online gaming in most countries
and in many countries, including the US, the group's [PartyGaming's] activities
are considered to be illegal by relevant authorities".
acknowledged that this conduct had violated certain US criminal laws, including
those parts of the US code covering illegal gambling, fraud by wire
communications and bank fraud, the statement said.
PartyGaming's co-founder Anurag Dikshit became the first high-profile internet
gambling tycoon to willingly face justice in a US court.
He could face
up to two years in jail - however, he is expected to receive a lighter sentence
to encourage others to strike similar deals related to past internet gaming
activities in the US. Dikshit has also admitted forfeiture allegations
requiring him to pay $300m.
Yesterday's deal is expected to be followed
by other similar settlements: Pacific Poker owner 888.com and Sportingbet have
also been in discussions with the US attorney's office in New York over the
past couple of years.
As a result of these ongoing talks, the future of
online gaming companies has been mired in uncertainty, with investors and
potential buyers unable to quantify the potential cost of their activities in
The leading players of the sector were dealt a body blow in
October 2006 when a ban on internet gambling was passed by the US senate and
signed into law by President Bush.
The companies were forced to
withdraw immediately from the US, the world's biggest marketplace for online
poker, and had to write off millions of pounds and lay off hundreds of staff in
Although they have tried to rebuild their businesses
since then - with PartyGaming focusing mainly on European and Asian markets -
the legacy of their disastrous foray into the US has clouded their prospects.
They have lost ground to competitors able to offer bigger tournament prize
money because they attract larger player numbers and ceded market share to
rogue operators such as the privately held outfits Poker Stars and Full Tilt,
which are prepared to take the risk of continuing to take bets from US
customers despite being in apparent breach of the anti-online gaming laws.
Jim Ryan, PartyGaming's chief executive, hailed yesterday's settlement as
marking an "important day" for PartyGaming. "We are now well placed to seize
organic as well as strategic opportunities that previously were beyond our
reach," he added.
Analysts welcomed the deal as a harbinger of
long-mooted consolidation in the industry. "The non-prosecution deal looks a
good one for Party, with the fee of $105m spread over four years being below
our expectations [$150m]," said Nick Batram at KBC Peel Hunt. "Party can now
put the US issues behind them and start the fight-back against the US-facing
poker rooms via consolidation."
Mergers between operators could lead to
substantial savings on operating and software costs. Last month Evolution
Securities analyst Ivor Jones speculated about potential deals such as 888
taking on Sportingbet and PartyGaming buying Germany's Bwin. He also suggested
that either PartyGaming or Bwin could buy 888.
Another possibility is
that long-established gambling firms could look to beef up their online
offering now that the air is clearing. Ladbrokes, which came close to buying
888.com in 2007, but walked away because of the uncertainty surrounding the
company, could now renew its interest.