Insights | 105 Million Reasons to Cheer?

Two years and $105 million later, PartyGaming and the United States government -- as a clearly cleverer editor at Forbes magazine put it Tuesday -- are now playing nice.

Indeed they are.

Readers need only compare the press releases for David Carruthers' recent plea deal and Party's settlement to grasp what, for the Justice Department, playing nice means.

Predictably, the Eastern District of Missouri peppered Mr. Carruthers with rhetorical shots like "gambling is not a victimless crime," while, more tamely, the Southern District of New York's release read like a copy of PartyGaming's profile on Google Finance (but did mention something about wire fraud, bank fraud and illegal gambling).

PartyGaming, in any case, has emerged a clear winner here. A clean sheet with the feds means newfound access to capital markets, and the commentators below agree the deal, if nothing else, could catalyze a long-expected round of consolidation in the sector.

The settlement between PartyGaming and the U.S. authorities finally draws a line under the matter and will no doubt be a great relief for the company and positive for the sector as a whole. Moving forward, it will provide Party with the knowledge that it can enter into partnerships without fearing bad news further down the line. The company will not be happy with a financial settlement that is at the top end of what it expected to pay, but that is offset by the lifting of the legal uncertainty that surrounded it. That is the key point and the industry will now be keen to see if the other operators with U.S. legacies also move towards settlements in the coming months.

Jake Pollard | Editor, eGaming Review

We believe the settlement news is positive for the space as it provides a model for other Internet gaming operators to resolve outstanding legal issues with U.S. authorities. We believe the Party settlement and potential future settlements remove a major legal overhang on the sector and could lead to increased M&A activity in the space. We view both GigaMedia (GIGM-Buy-$5.59) and CryptoLogic (CRYP-Buy-$4.84) as potential acquisition targets in the space. We note shares of leading European facing online gaming companies are up 10-16% this morning.

Todd Eilers | Analyst, Roth Capital Partners

I don't know what PartyGaming was hoping to pay, but they have to be relieved that this chapter is closed and that they are now a much less volatile entity in the markets. Also, the settlement better positions PartyGaming to participate in highly regulated markets and form strategic partnerships with companies already operating in those markets.

I'd really like to know whether the United States government intends to put the $105 million to good use. Legalizing and taxing Internet gambling would bring in much more money in the long term than a handful of one-time payoffs through negotiations with the likes of PartyGaming and Neteller. I'm not sure that chasing away licensed, transparent operations to leave the U.S. market open to shadier outfits is in the best interest of consumers. Which of course begs the question: What's the point of all this?

Mark Balestra | Publisher, IGamingNews

The figure ($105 million) had been well signaled by Party, particularly after Dikshit did the deal at the end of last year. As for whether it was wise for Party to sign -- I think it’s really the only course of action open to it. It really had to get this issue done and dusted -- it was proving a dreadful overhang for the stock and was effectively closing out the possibility of M&A. Now they can talk to the banks, and feasibly it opens up the possibility of Party raising cash through the equity markets. But in both cases, the possibility of being able to do so is not the same as the certainty of being able to conclude any deals.

Scott Longley | Business Editor, GamblingCompliance

PartyGaming’s non-prosecution agreement is quite important because it could pave the way for some consolidation in the market, which becomes more attractive as revenues slow. However, those deals may require financing and although there may be a will on the part of directors, the way forward could be difficult given the current state of the financial markets.

Going forward, the big question is whether the European operators will be granted licenses if the U.S. decides to legalize, post a repeal of UIGEA. To bring this chapter to a close, PartyGaming had to admit that it did contravene U.S. law and has paid a heavy price in settlement. One speculates whether this will count against it in the future.

There is also a measure of hypocrisy at play where the U.S. have heaped a heavy fine on Party of $105 million yet sometime this year Congressman Frank will lay a bill down that could lead to legalization of online poker. So the sinners have been found guilty and redeemed all in one year.

Warwick Bartlett | Owner, Global Betting and Gaming Consultants

With the DOJ deal done, Party can develop its strategy with certainty over the cash it has available and with partners confident about Party’s future. Our Buy recommendation on Party largely depends on the deals it is yet to do with M&A/commercial partners. Party yesterday announced the first material validation of its B2B strategy winning Intralot as the first member of Party’s Italian poker network.

Ivor Jones | Analyst, Evolution Securities

With the key DOJ prosecution risk now removed, we think the investor base for PartyGaming will now expand, and with M&A likely to be a focus in the near term coupled with the increasing potential for a regulated U.S. market, we think the shares and valuation has further to go . . . We think this (the deal) important for PartyGaming's medium-term investment thesis as it removes a key risk and, in our view, materially increases the group’s chances of gaining a licence/B2B deal when the U.S. online gaming market opens up.

Richard Carter | Analyst, Numis Securities