Online giants release latest results

By Brian Cullingworth, Last updated Mar 3, 2021

Sportingbet and Party Gaming count the cost….

The industry has been watching for two key sets of results from major online gambling groups Sportingbet and Party Gaming, both of which have been in the forefront of industry public companies grappling with business problems created by the new U.S. Unlawful Internet Gambling Enforcement Act.

Both released the latest performance numbers at the end of the week, indicating the consequences of the American legislative action which seeks to destroy online gambling activity in the United States for certain online gambling categories not protected by the Act’s “carve-outs.”

Sportingbet results were published first, starting with the bad news on Paradise Poker which the group bought for GBP 169 million in 2004 and where a drop of 90 percent in sales and profits is anticipated this year following the introduction of the US anti-gambling legislation in the US a week ago.

Sportingbet’s CEO Andy McIver, warned that even Paradise players outside the US, who last year produced 19 percent of revenues, “…may be difficult to retain given the threat from black market sites”. The disappearance of US players on Paradise is expected to draw some remaining players – particularly in Canada where they share time zones – away to alternative sites, such as PokerStars and Full Tilt, which are continuing to trade in the US. A quarter of Paradise’s non-US revenues last year came from Canada.

McIver said that beyond the USA, Paradise and Sportingbet’s casino and sports betting also faced regulatory challenges in Europe, though he was encouraged by a European Commission inquiry into restrictive practices by some EU member states.

Shares were down despite the company posting extraordinarily good (pre-US situation) results that included an 80 percent jump in pre-tax profit and a 32 percent rise in active customers. Management admitted strong results for the year to July 31 had been rendered irrelevant by the new US legislation. It said the closure of Paradise to US customers would lead to a writing down of two-thirds of the GBP186 million goodwill value of Paradise in the accounts.

A further GBP78 million write-down would be made in relation to sports betting operations in the US, which were sold for $1 a week ago – just hours before the Unlawful Internet Gambling Enforcement Act was signed into law by George Bush (see previous InfoPowa bulletins).

Sportingbet, which has pursued a string of US-focused acquisitions since it floated in 1999, said its “best estimate” of the total goodwill write-down likely in July next year was GBP200 million. This would controversially leave a GBP30 million carrying value on Sportingbet’s accounts relating to its US sports betting and casino operations – all of which have been shut down or sold off to a former subsidiary.

McIver said: “The US is, and remains, a very attractive market, but we still have a very viable business in the rest of the world.” Sportingbet’s business is now dominated by European online poker, casino games and sports betting as well as sports betting in Australia.

James Hollins, an independent analyst, said Sportingbet’s exit from the US had prompted him to slash profit forecasts for the poker and sports divisions by 92 percent and 52 percent respectively.

Sportingbet�s figures to the end of July show how much the loss of its US business will cost the company.

Group turnover for the period was GBP2.06 billion, up from GBP1.52 billion the year previously. However, of the gross margin of GBP303 million generated, only GBP89.6 million came from customers residing in Europe, while GBP197 million originated from US-based customers. The rest of the world, including Australia, generated GBP17 million.

Party Gaming’s results were published on Friday, with CEO Mitch Garber proclaiming: “We have entered a new and distinct era. You can expect to see us push aggressively into new territory, including Asia.”

At the same time, Garber held out the possibility of American regulators “reopening the door to online customers”. He said the issue was still under discussion in the US.

“We still have 10 million customers in the US with our software on their desktops or laptops,” Garber pointed out. “We should be looking at a way to maximise the value of those customers. We’re not going to offer them online gambling, but we should be looking to offer them legal services.”

Garber said he was keen to make acquisitions and was in discussions with more than one party. “Chaos breeds opportunity,” he said. “I believe this is a golden consolidation opportunity for PartyGaming. We are the online gaming company with the most firepower.”

The company said that since pulling out of the United States last week revenue from its remaining operations had fallen 2 percent from their third-quarter levels, possibly due to competition from rivals like PokerStars, which has anounced that it will continue to service US players.

Recognising the competitive threat from the Internet’s second largest online poker site, Garber said: “In the very near term, PokerStars can be an issue, but the playing field is going to become much more level. Most of the banks and processors are set to leave the industry … probably within the next 30 to 60 days.”

He explained that as banks stop doing business with online gambling companies that take U.S.-business, the current high level of competition would fade. “You’re going to see a dramatic impact on sites like PokerStars and a positive impact for us,” he said.

PartyGaming said a one-off restructuring charge of approximately $250 million was expected during the second half as a result of quitting the United States. Group revenue rose 53 percent to $337.2 million in the third quarter, while revenue from non-U.S. operations increased by 158 percent to $92 million. The company said that profit before interest, taxes, depreciation and amortization for the year will be “significantly lower than it was in the first half of 2006.”

PartyGaming said its sports betting operation Gamebookers had exceeded expectations since it was bought in August, and it was on track to re-launch as PartyBets by the year end. Its first multi-lingual poker will be launched this month, with multi-currency versions expected in 2007.

On the negative side, Party added that its $300 million marketing bill was likely to be cut in half and its 2 000 employees in Gibraltar, India and Bulgaria would have to be “rationalised”.

A company spokesman said that the group had $119 million net cash at the end of its third quarter, and was strong financially.

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