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More Canadian jobs lost to UIGEA

Discussion in 'Casino Industry Discussion' started by jetset, Feb 14, 2007.

    Feb 14, 2007
  1. jetset

    jetset Ueber Meister CAG

    Senior Partner, InfoPowa News Service

    Thanks to US enforcement activity against Neteller, a promising Vancouver company axes staff

    The knock-on impact of US Department of Justice actions aimed at killing off those sectors of the online gambling industry that it regards as illegal was demonstrated again his week in an excellent review of the fate of Canadian company ESI Entertainment Systems Inc.by Vancouver Sun writer David Baines.

    ESI doesn't operate any online gambling websites, but provides support services and products for gambling operators and bettors through three subsidiaries:

    * Citadel Commerce Corp., which provides payment processing services to the online gambling industry.

    * ESI Integrity Inc., which sells real time audit, fraud and risk-management software to government lotteries and parimutuel organizations.

    * PlayLine Inc., which markets turnkey gambling systems to land-based gaming venues such as casinos, pubs and cruise ships.

    The company went public last March, raising $10 million and initially, it looked like a great business to be in.

    Revenues for the year ending February 2006 rose 70 percent to $18.5 million, and net earnings jumped by 30 percent to $1.3 million. The company's workforce soon grew to 160, nearly all in Burnaby, near Vancouver.

    Unfortunately nearly 80 percent of the company's business was generated by Citadel Commerce, which runs electronic payment processing accounts for more than 625 000 customers, nearly all of whom live in the United States.

    These customers, in turn, had accounts with Internet gambling companies which paid Citadel a fee for every financial transaction those customers made with them, and consequently the majority of ESI's revenues came from online gambling by U.S. customers.

    In September, Deloitte & Touche ranked ESI the 26th fastest-growing technology company in Canada. The following month U.S. Congress passed the Unlawful Internet Gambling Enforcement Act, which specifically prohibited financial intermediaries like Citadel from processing online gambling transactions.

    Initially, ESI executives took a wait-and-see approach. "At this time, we are evaluating the negative impact of this new legislation on our activities," said president Michael Meeks.

    On January 15 this tear the company was still delivering good results. Revenues for the nine months ending November 30 were up 35 percent to $17.5 million, and gross profit had soared by 81 percent to $11 million.

    However, it was becoming clear that Citadel's business model would be seriously squeezed by the Unlawful Internet Gambling Enforcement Act, so the company wrote down over $6 million in assets, resulting in a net loss of $4.5 million. The company also announced it would lay off 22 employees, saving $1 million in annual staffing costs.

    The appropriateness of these moves was confirmed two days later, when the U.S. Justice Department announced that FBI agents had arrested Canadian citizens John Lefebvre and Stephen Lawrence, co-founders of Isle of Man-based and London listed electronic payment processor NETeller plc., for conspiring to promote illegal gambling.

    The same day the arrests were broadcast, ESI announced that, as a consequence subsidiary Citadel would no longer offer financial processing to foreign Internet gambling merchants for U.S. consumers.

    "This decision will have a material impact on the financial condition of the company as a substantial part of its revenues was derived from non-domestic Internet gaming merchants for USA consumers," the company warned.

    Last week, the tragic effect of this decision became apparent when ESI revealed that it had reduced its workforce by another 35 percent to 80 people, and had taken other measures that would save $5 million per year.

    The once promising employment for 160 Canadians had been reduced by half.

    "With these changes completed," said the companys CEO, "we are now able to focus our cash reserves on our growing market opportunities in Europe and are better positioned to execute our international payment solution strategy."

    But all this has had a profound effect on ESI's stock price. It has slumped from its $3 initial offering price to 58 cents on the Toronto Stock Exchange.
    Last edited by a moderator: Feb 14, 2007
    3 people like this.
  2. Feb 14, 2007
  3. Ian_go

    Ian_go Dormant account

    keeping the peace
    I have a feeling this wont be the last Vancouver will see of this type of redundancies. :(
  4. Feb 22, 2007
  5. jetset

    jetset Ueber Meister CAG

    Senior Partner, InfoPowa News Service
    Is there a move to challenge UIGEA?

    Feb. 22, 2007


    Talk on the London market boosts online gambling shares

    Online gambling company shares listed on the London market received a brief fillip this week as talk circulated that a US Congressman could be about to challenge the Unlawful Internet Gambling Enforcement Act passed in October last year. The Act targets for disruption any online gambling financial transactions and has had an adverse impact on the American online gambling market.

    The rumour was that US Congressman Barney Frank, who is chairman of the Financial Services Committee in Congress is preparing an attempt to have the legislation repealed, and on the strength of it Party Gaming shares surged by some 20 percent.

    UK business media contacted the politician's office in Washington, only to be told by a spokesman that although Frank was "not in favour" of the restrictions facing online gambling as a result of the Unlawful Internet Gambling Enforcement Bill, there was nothing on the agenda right now to reverse the bill.

    He refused to say whether the Congressman was considering such a move.

    Other possible explanations for the revitalised interest in online gambling stock then emerged, including a theory that the Party Gaming group may be a bid target for both online betting groups and real-world bookmakers, or manouvreing ahead of PG's results announcement scheduled for next month amid talk that the company is growing market share as regular players seek out the busiest online poker tables.
    2 people like this.
  6. Feb 22, 2007
  7. sdaddy

    sdaddy Meister Member

    Even if Chairman Frank does get a bill passed which reverses the UIGEA, I doubt President Bush would sign it.

    ...unless it gets attached to a must-pass Homeland Security bill.;)
  8. Feb 22, 2007
  9. REOdeathwagon

    REOdeathwagon Experienced Member

    That would be unethical, dirty politics. :rolleyes:
  10. Feb 22, 2007
  11. REOdeathwagon

    REOdeathwagon Experienced Member

    An article in This is Money, about yesterdays PartyGaming pump and dump.


    Partygaming has been down all this morning, by about 3%. Link to Party's stock price : You must register/login in order to see the link.


    Link to a bitchin' speech by Rep. Frank, on his website.

    Maybe Mitch Garber, Ms. Parasol, and Mr. Dikshit, could donate some of the proceeds of yesterdays run-up, towards Rep. Frank's re-election campaign.
    Last edited: Feb 22, 2007

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