TELECOM Digest OnLine - Sorted: Online Gambling Firms Look East After USA Ban

Online Gambling Firms Look East After USA Ban

Pete Harrison (
Tue, 03 Oct 2006 12:58:17 -0500

By Pete Harrison

Britain's online gambling firms switched their sights away from the
United States to look for new growth areas on Tuesday after the U.S.
Congress passed legislation to end Internet gaming in their biggest

Their shares continued to bleed after news of the impending ban wiped
out $6.5 billion in share values on Monday.

Sector leader PartyGaming fell more than 11 percent, extending
Monday's 58 percent drop, aftenr it canceled its interim dividend to
reinvest $115 million, possibly in acquisitions.

Chief Executive Mitch Garber had already stressed the need to reduce
the company's dependence on the risky U.S. market last month and
hinted at deals in Europe and Asia.

Interactive Gaming Holdings was the sector's only gainer on Tuesday
after the small-cap firm announced a move into South Asia through a
deal with Curacao-licensed Maharajah Club.

"The alliance will provide IGH with access to the South Asian gaming
market at an elementary stage of its development, with a partner who
understands its inherent cultural differences," said IGH Chief
Executive John Heaton.

"We believe that the South Asian gaming market will be of great
significance in terms of IGH's future," he added.

But analyst Paul Leyland at Arbuthnot Securities warned that the
transition into Asia would not be easy for other companies without
knowledge of the market.

"Asia's not one place, and Asians are not the backward people the
U.S.-facing gaming companies hope they are," he said.


Gaming companies were left in shock when the House of Representatives
and the Senate unexpectedly approved a bill early on Saturday that
would make it illegal for banks and credit card companies to make
payments to online gambling sites.

The measure was sent to President George W. Bush to sign into law,
which most analysts see as a certainty.

888 shares lost as much as 7.2 percent on Tuesday after it said the
move would set the company's performance back to mid-2004 levels.

But 888 reassured investors it would continue its planned expansion in
Europe and Asia and would try to convert its U.S. division to one of
legal online entertainment.

Sportingbet, owner of the ParadisePoker Web site, remained silent on
Tuesday, as did Empire Online.

But analysts pointed out Empire had a cash pile of $260 million and
was better placed than most to switch its geographical focus or invest
outside the gaming sector.

Analyst Paul Leyland warned that a move into Asia and Europe would not
be smooth, particularly in countries such as France where state
prosecutors recently arrested two executives from Austria's
over alleged gambling offences.

"The U.S. is one of the easiest gambling markets to make money in," he
said. "The rest are harder -- just ask the people at Bwin."

Last week, European Union Internal Market Commissioner Charlie
McCreevy said eight EU countries might be added to a list of seven
already facing legal action for refusing to open their betting
markets. France is said to be among them.

"McCreevy is an acolyte of free trade ... but at the end of the day,
it's the nation states who get to decide their laws," said Leyland.

As gaming companies struggled to realign their strategies, investors
struggled to identify those that might not survive.

Shares in World Gaming Plc were down 23 percent at 12-1/2 pence by
1438 GMT after falling as low as 6p when it said it might be in
technical default.

"The directors believe it may be in technical default of its loan
conditions due to a material adverse change in the circumstances of
the business, arising from proposed changes in legislation in the
United States," World Gaming said in a statement.

Copyright 2006 Reuters Limited.

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