MORE COMPANIES JOIN ONLINE GAMBLING EXODUS
10 October 2006
The passing of the Unlawful Internet Gambling Enforcement Act of 2006, which makes unlawful the receipt by a gambling business of proceeds or monies in connection with unlawful internet gambling, has led to three more companies announcing plans to exit the US facing online gambling market.
Leisure & Gaming plc a holding company focused on the interactive betting and gaming sector operates a number of online sports betting and casino brands. On 28th June 2005, L&G completed the acquisition of VIP for an initial consideration of £18.7m representing a 6.3x multiple on 2004 audited net profit of £2.9m (US$5.6). The acquisition gave L&Gcontrol over VIPsports, VIPpoker, VIPhorses, BetGameDay and FairDeal.
In November 2005, the company also acquired Nine.Com for an initial consideration of $36.0 million, split $21.6 million in cash and $14.4 million in shares, and deferred consideration of up to $21.1 million dependent upon the profitability of Nine.com for each of the years ending 31 December 2006, 2007 and 2008; and, English Harbour, for an initial consideration of $16.5 million, split $8.25 million in cash and $8.25 million in shares, and deferred consideration of up to $6.75 million dependent upon the profitability of English Harbour for each of the years ending 31 December 2006 and 2007.
On October 10 Leisure & Gaming made the following announcement to the London Stock Market;
“Following the passing in the USA of the Unlawful Internet Gambling Enforcement Act of 2006 (the ‘Legislation’) and after extensive discussions with our lawyers, bankers and other advisers, it is the view of the Board that following enactment of the Legislation it will no longer be appropriate for the Company to serve US-based customers and that the Company should focus solely on its existing UK and Italian businesses. As a result the Company is undertaking a strategic review in order to decide whether to suspend, close or sell its US operations. In particular, the Company has received a number of approaches and is at a preliminary stage in progressing discussions which may or may not lead to an offer for the Company’s US-facing businesses. The Board is actively exploring the optimal route to maximise value for the Company’s shareholders.”
FireOne, a provider of payment processing services for the online gaming recently announces its results for the second quarter and half year ended 30 June 2006. Revenue at the company had increased by 42% to $24.8 million in the second quarter of 2006, and by 54% over the first half of 2005 to $50.0 million in the first half of 2006. Gross profit, defined as revenue less transaction processing costs,improved as a percentage of revenues to 67.3% in the second quarter of 2006 from 58.9% in the second quarter of 2005. For the first half of 2006, gross profit improved to 65.8% from 58.5% in the first half of 2005.
On October 10 FireOne made the following announcement to the London Stock Market;
“On 2 October 2006, the Company made an announcement regarding the passing of the Unlawful Internet Gambling Enforcement Act of 2006 by the United States Congress. The Company today announces that following the approval of the Act by the President of the United States, it will immediately cease to process settlement transactions originating from United States consumers that may be viewed as being related to online gambling. As previously announced, upon becoming law, the Act will have a significant negative impact on the business and results of operations of the Company, and, consequently, the Company has embarked upon a restructuring of its operations and cost base. The Company will continue to offer its multi-currency credit and debit card and FirePay electronic wallet processing to the online gambling industry originating from non-U.S. consumers and not prohibited by the Act, and will consider additional card-not-present payment processing opportunities outside of online gambling.”
Fairground Gaming Holdings, which sells itself as “acting as a consolidator of the fragmented online gaming sector,” acquired for The Spin Palace Group, which comprised Spin Palace and Piggs Casino, for US $66.8m in June 2006.
On October 10 Fairground Gaming made the following announcement to the London Stock Market;
“Following the company’s announcement on 2 October 2006, Fairground Gaming has been advised that the Safe Ports Act, which contains the Unlawful Internet Gambling Enforcement Act, will shortly receive Presidential approval and be passed into law. This is the first US Federal measure to explicitly address internet gaming and the Board has thus concluded that it is now appropriate to suspend participation by US-based customers in the company’s casino and poker activities. This suspension will be implemented immediately upon this legislation taking effect.”
In response to the announcements, shares in Fairground Holdings were down 30% at 11am in London; shares in FireOne were down 25%, whilst Lesiure & Gamings shares bucked the trend trading up 10%, presumbaly on the grounds that the company has received a number of offers for its US facing gambling websites.
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