Could U.S. Legal Issues Damper Listing?
Published: Friday, June 10, 2005 Online-Casinos.com
COULD U.S. LEGAL ISSUES DAMPEN THE BIG LISTING?
Speculation on the possible impact of D of J activities
Amidst the hype and enthusiasm surrounding Party Gaming's confirmation that it was to list in London, The Independent's US correspondents introduced a sober note.
In a story on the big listing, it was pointed out that American regulators are threatening to clamp down on illegal internet gambling, and that this could damage prospects for PartyGaming's planned $10bn (GBP 5.5 billion) stock market flotation later this month.
The report quotes a spokesman for the Department of Justice who apparently said without disclosing details this week that "....various investigations are ongoing" against internet gambling companies. He added there was a "...potential liability" of criminal prosecution for individuals who it finds have gone against the (Wire) Act.
The official US position as claimed by the D of J is that virtually all online gaming is against its laws, a fact that represents a huge source of uncertainty for PartyGaming and its main UK rival, Sportingbet. Both companies derive a large chunk of their revenues from American customers.
In the face of an explosion of electronic gambling across the US, the Department of Justice has been stepping up its campaign against firms that offer it. It has written to several warning that internet gaming is against the law under the 1960s-era Wire Act and has issued subpoenas to companies associated with the business.
The Independent article speculates that the high profile flotation of PartyGaming could spur the DoJ to further action. The majority of players on its Party Poker website are Americans, with just 5 per cent of customers coming from the UK. Some two-thirds of Sportingbet's revenues come from US customers.
Sportingbet maintains it is not breaking the law because it is based in the UK, where online gambling is legal and became subject to a host of regulations under the recently passed Gambling Act. PartyGaming is regulated and licensed in Gibraltar and its lawyers believe the Wire Act only applies to sports betting, and not poker.
The uncertainty, however, means investors will be demanding clarity from PartyGaming on the legal position of internet betting in the US before they invest.
Taking a more positive view, Greg Feehely of Altium Capital, said: "There is no doubt that there is a regulatory risk attached to this company and investors need to be aware of that.
"But that risk has also already been priced into PartyGaming's valuation. A company with that sort of growth record and potential would float at more than 20 times earnings. It is only being valued at around 10-12 times earnings, because of the risk of the uncertain legal situation in the US."
He believes it is highly unlikely the US would begin prosecuting overseas poker companies.
Sorting out the contradictions between America's official legal position and the reality of the booming online industry is also likely to move further up the agenda of Capitol Hill after a recent ruling at the World Trade Organisation which broadly upheld a complaint from Antigua, one of the WTO's smallest members.
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