ARTICLES REPORT ONLINE GAMBLING FIRMS IN 'RECOVERY'

31 December 2006

THE REGISTER
By Burke Hansen in San Francisco
Friday 29th December 2006 12:01 GMT

House of Cards – A recovery in the online gaming economy act is gaining traction, according to several reports. The passage of the Unlawful Internet Gambling Enforcement Act by the US left a swath of economic misery in its wake, but efforts by the major players in the industry to refocus their energies on Europe and Asia are starting to pay dividends.

Both Sportingbet.com and Partygaming.com reported stronger than expected earnings last week, as increasing numbers of players from the European and Asian markets offset the loss of the enormous American market.
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Partygaming.com reported an increase in daily poker revenue from $637,000 in October to $721,000 in November. Overall daily revenue in November, excluding the sportsbook, averaged $921,000.

Sportingbet.com reported an increase in traffic from 6,000 players per day to about 7,000 according to Gamingpublic.com, an industry trade paper. Banking giant UBS responded by upgrading its stock evaluation from reduce to neutral.

The wave of consolidation in the sector continues to pick up steam.

Harrah’s has agreed to a $27.8bn buyout, according to a company press release. The largest gambling conglomerate in the world is being taken private by a group of investors led by the Texas Pacific group, in one of the largest leveraged buyouts in history. Harrah’s began as a bingo parlor in Reno in 1937, and became the first Casino operator to be listed on the NYSE back in 1973. This comes on the heels of Murdoch’s BskyB’s takeover of 365 Media, which itself had just gobbled up longtime competitor Bowman’s.

It also follows the announcement a strategic partnership between the Sands and Cantor Gaming, and the confirmation by El Reg of ongoing merger talks between Ladbrokes and 888 Plc.

Scandinavian-oriented poker site Purplelounge.com recently rejected a $59m offer for half the company, according to Gambling911.com.

The collapse of the sector after the passage of the UIGEA has provided both the opportunity for consolidation- i.e., ridiculously low stock valuations relative to the cash generated by the sector- as well as the impetus to get big enough to weather any adverse legal developments in jurisdictions such as Germany, France or South Africa where internet gaming remains controversial.

It’s easy to imagine the online gaming sector going through same growing pains that beset the search portal industry in the late ‘90’s- too many competitors in a field likely to be dominated in the long term by a few major brands. Ironically, major American players like The Sands or MGM Mirage, with strong brands and cash to invest, are well positioned to pick up the pieces of a fragmented, weakened market.

Another response to the knee jerk reaction against online gaming by American authorities has been the development of poker currency exchanges to facilitate wildly popular online poker tournaments. Sites such as Pokerstars.com offer tournament credits which can be redeemed at a third party site for real money at discounted rates.

American authorities just can’t seem to squeeze that genie back in the bottle. ®

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