ONLINE GAMING IN CRISIS
11 October 2006
SHARES in the Island’s listed online gaming companies plummeted last week amid fears that a clampdown in the US could destroy the industry.
Investors across the globe reacted to news that the ‘unlawful internet gambling enforcement act’ prohibiting US gamblers from using credit cards, cheques and electronic fund transfers to settle online wagers, was attached to an unrelated bill aimed at enhancing port security and pushed through the Senate by Republican senators.
President George W Bush is expected to sign the bill into law within the next two weeks, after which affected parties will have 270 days to comply to the conditions.
Neteller, the Island-based electronic payment provider, which relies heavily on the US online gaming market for revenue, saw its shares plummet from 355p on September 22 to 140p by last Monday, although they had rebounded to 165p by Wednesday. The shares were already in steady decline from a high of 840p in early April, buffeted by the worsening situation in the US during the summer.
A statement to the City said: ‘The board believes that the act may have a material adverse effect on Neteller’s US facing business. Once the company has more information about what the regulations will stipulate, it will have a clearer view of which companies are affected, how those companies will be expected to comply and any possible resulting impact on the company.’
Fairground Gaming shares fell 27.5p in one weekend from 45.5p on September 29 to 18p on October 3. They had reached a high of 124p in May, before dipping. Strong interim results two weeks ago had seen the share price rally, until last week’s news.
In a statement to the City, Fairground said it was considering suspending business in the US.
It said: ‘If so advised, the board will suspend participation by US based customers in activities covered by the legislation. In the six months to June 30, revenues from US players amounted to approximately 70 per cent of the group’s net gaming revenues.’
Betinternet.com, the Island-based sportsbook, was not so badly affected, due to a lack of dependence on the US market. It is, however, suspending its US interests. Shares fall to 5.5p on October 2, a steady decline from a high of 12.25p on May 12.
A stock market statement said: ‘Exposure in the United States market is negligible, with less than 0.2 per cent of the active sportsbook customers being from this region. In light of the passing of this Bill, betinternet.com has decided to suspend the small number of active United States accounts and will continue to block the opening of any new accounts from the US.’
Douglas-based private companies such as Microgaming, the Douglas-based software company and online gaming firm Pokerstars do not have financial information available in the public sphere, but will no doubt be worried about the US situation and the uncertainty over future income streams.
Outside the Island Gibraltar-based Partygaming, the largest company in the sector, took a beating on the markets. Its shares fell more than 66p in one weekend, from 107p on September 29 to 40.75p on October 3. Shares were trading at 155p in May.
It has also suspended its interim dividend.
888 Holdings saw share prices fall more than 40p from 146.5p on September 29, to 105.25p on October 3, from a high of 244p in May.
London-based World Gaming fell around 42p from 63.5p on September 29 to 15.25p on October 3, from a high of 176p in April.
The Isle of Man’s focus on attracting online gaming companies has been shaken by the news and concerns over jobs could follow.
Despite the news, share prices may bounce back quickly, as bullish investors take advantage of the collapse to buy into the market at rock bottom prices.
Resident Business News investment expert Peter Sharkey, said many will see the crisis as a money-making opportunity.
He said: ‘I know some people who have invested, especially as Party Gaming shares are below 40p. Although their profits will be hit, at that level, they’re scheduled to pay a 12 per cent dividend.Furthermore, 888 has already moved up nearly 5 per cent and Party has a habit of following.’
10 October 2006
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