PARTY GAMING ON TARGET

6 July 2007

Online gambling group confident that it will meet expectations this year

Starting the week off on a positive note today (Monday) Party Gaming said the company’s financial performance in the second quarter has been in line with management's expectations.

“While the important fourth quarter period lies ahead, the group remains confident about the prospects for the full year,” it said in a trading update.

Early last month, the firm revealed it was in talks with US Attorney's Office for the Southern District of New York regarding its legal position pre-UIGEA. The group exited the US market when the law banning online gambling financial transactions passed in October 2006.

"It is too early to assess the likelihood of any particular outcome of these discussions," it said in the June 4 statement.

Interim results will be announced on 29 August.

The Financial Times newspaper reported in June that Party Gaming spent more than a quarter of a billion dollars on reorganisation following the US clampdown on online gambling, swallowed its pride and redirected its attention to Europe and Asia. Yet more than six months on it has joined a short list of companies whose value - and perhaps destiny - depend on events in a market that they have long since quit.

The shares have recovered from their low of 25½p, but are still vulnerable when US law-enforcers take steps to pursue Party Gaming's rivals - and perk up when US lawmakers raise the possibility of amending the Unlawful Internet Gambling Enforcement Act.

The report notes that Party Gaming's ability to enter deals, as either predator or prey, is limited as long as the US Department of Justice is on the offensive. Such uncertainty is believed to have scuppered Ladbrokes' attempt to buy 888 Holdings, another internet gaming group.

PartyGaming's dialogue with US officials is seen as a welcome signal that it is trying to draw a line under its US adventure. That the shares dipped on the news, in volume that was lower than usual, looks illogical. Sportingbet recently reached a settlement with a district attorney in Louisiana, and Neteller, the AIM-listed payment processor, announced a further step in its attempt to resolve the US attorney's investigation into its handling of online gambling transactions.

But PartyGaming's statement was heavily hedged and contact with the US attorney's office in New York is at an early stage. The reaction of its investors is realistic, the FT opines.

"Prospects that the US will be reopened have been overstated. If there is an American opportunity, it is that one of the large US casino companies will choose Party Gaming as a bridgehead for expansion internationally but, until the DoJ relents, it is too soon to bet on such a neat outcome."

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