The List Revisited

Shortly after the enactment of the U.S. Unlawful Internet Gambling Enforcement Act in October 2006, IGN compiled a list of publicly traded companies that shortly thereafter pulled out of the U.S. market. Now, more than three months later, we are checking back in on those companies to see how they have fared since then.

888 Holdings plc (AIM)

Description: Casino and poker room operator

Gibraltar-based 888 announced on Oct. 17 that it was suspending participation by U.S. based customers in activities covered by the legislation. Less than two weeks later, the company's Israel-based research and development arm, Random Logic, was forced to cut 29 jobs, reducing its workforce by roughly 7 percent.

888 has been in furtive negotiations for months with U.K.-based bookmaker Ladbrokes that would see Ladbrokes buy out a majority of 888's assets--including its Web site and intellectual property--for £440 million ($864.5 million). The deal was reported to be nearing conclusion in January, but there has been no movement since then.

Betcorp (ASX)

Description: Internet sports book

Australian online betting company Betcorp Limited on Oct. 17, 2006 pulled out of the U.S. market, which provided 85 percent of the company's revenue. Six days later the company announced its intentions to sell is Canada- and Antigua-based operations to online gambling and entertainment company Bodog for $9 million.

Betcorp Shareholders approved the sale on Nov. 15. The $9 million in cash will be paid in four installments over 12 months. Betcorp operated the successful online sports book BetWWTS.com as well as the smaller Oasis sports book, BetHoldem Poker and Thunderbolt Casino. The company said it decided to sell the business after its board received legal advice concluding that due to the new legal climate in the United States, it could no longer provide its services to the market. Bodog, however, has announced that it will not pull out of the United States. Because Bodog does not operate within Canada, all Canadian customers now receive their service from online bookmaker and poker operator Bowmans.com.

BetInternet.com (AIM)

Description: Internet sports book and race book

While Isle of Man-based BetInternet.com focuses mostly on markets in the Far East, where 60 percent of its active clients are located, the company announced on Oct. 1 that it was suspending its active U.S. accounts and would not be taking on any new U.S. customers. It said, however, that it might consider allowing U.S. customers to bet on horse races if doing so is interpreted to be legal under the new law.

In its interim results for the first six months ending Nov. 26, 2006, the company said because it had little exposure to the United States, the passing of the UIGEA has had no impact on it revenues.

BetonSports (AIM, suspended)

Description: Internet sports and race book.

BetonSports (BoS) has not taken U.S. play since the arrest of its then CEO, David Carruthers, in July 2006. The majority of its revenues were drawn from U.S. bets. The company on Nov. 9 agreed to permanently shut down its U.S.-facing operations (including phone lines and Web sites) refund the money owed to customers and cooperate with government investigators.

BoS in November sold its Asia-facing Hooball sports book and casino back to its original founders for a cash sum of $2.25 million. Under the terms of the deal the purchaser will return an estimated 3.8 million shares that were issued at the time of the BoS acquisition, and cancel the outstanding consideration of $5 million. Any future earn-outs were also canceled. BoS acquired Hooball in May 2006 for an initial consideration of $22 million, with $10 million paid in cash, and incorporated it into the BoS-owned, Malaysia-based EasyBet infrastructure.

One major issue that remains unanswered is whether and when BoS customers will get their money back. The permanent injunction orders BoS to return the money in customer accounts, but thus far the company has failed to do so.

BoS counsel, Jeffrey Demerath has indicated that the company would be reimbursing customers who have filed for refunds, though its efforts to do so are reportedly slowed by an Antiguan court order prohibiting it from disbursing assets without that government's consent.

BoS suspended trading on London's Alternative Investment Market on July 18 and has yet to resume.

Chartwell Technology Inc. (Toronto)

Description: I-gaming software provider

Chartwell's CEO, Darold Parken, said on Oct. 3, 2006 that the company realized early on that a European focus was the company's best bet, given the legislative climate in the U.S. However, he did not specifically say the company was cutting off U.S. play.

Less than a month later, on Oct. 30, Chartwell and I-bingo solutions provider Parlay terminated a merger proposal that had been in negotiations since Aug. 30. Market and regulatory concerns in the United States impelled the companies to nix their plans.

The decision cost each party a CA$500,000 termination fee, according to the terms of the letter of intent signed by the companies in August. Chartwell agreed to reimburse Parlay for a portion of its merger-related expenses.

In its financial results for the three and twelve months ended Oct. 31, 2006 Chartwell reported only a 4 percent increase in total revenue to $18.6 million compared to the same period in 2005.

CryptoLogic (Toronto)

Description: Internet gambling software provider

Licensees of WagerLogic Limited, CryptoLogic's licensing subsidiary, stopped accepting wagers from U.S.-based players on Oct. 2. The company, which had spent the last five years shifting its revenue base to European markets, reported that 70 percent of its revenues were being drawn from non-U.S. markets.

CryptoLogic in November 2006 reported financial results for the third quarter and nine months ending Sept. 30, 2006. Highlights included a 32 percent increase in quarterly revenue to US$27.7 million and $85 million for the nine months. CryptoLogic's move to ensure that all of its licensees stop accepting bets from U.S. players significantly reduced the company's revenue and earnings in the short-term. Since then, CryptoLogic has announced several strategic moves to strengthen the company, including signing an exclusive new poker licensee (Betsafe); introducing its new Poker Tournament Leader Board and maintaining its quarterly cash dividend of $0.12.

Furthermore, CryptoLogic, through WagerLogic, has acquired the poker brand and related assets of Scandinavian online poker room Parbet.com for 13 million euros. WagerLogic will license Parbet's poker software, payment processing services, multilingual customer support and services to a private Maltese online gaming company that will operate Parbet.com. Under the terms of the agreement, WagerLogic will pay 9 million euros for the brand and assets, and potentially an additional payment up to 4 million euros, dependent on improved performance of the assets over six months. Parbet assets generate about $7 million in revenue annually, but CryptoLogic said it expects the licensing arrangement to add about $2-million to 2007 earnings.

Empire Online (AIM)

Description: Poker affiliate operator

Empire Online pulled out of the U.S. market on Oct. 13, stating that 65 percent of its business came from the States.

U.K.-listed gaming group PartyGaming on Dec. 29 agreed to purchase certain online gaming assets of rivals Empire Online (EOL) and Intercontinental Online Gaming (IOG) for total consideration of $66.3 million in shares to help replace revenue lost when it was forced to leave the U.S. the UIGEA passed.

Through the deal PartyGaming acquired EOL's NoblePoker.com, and Clubdicecasino.com and IOG's Fair Poker, Magic Box Casino and Miss Bingo sites, and forecasts a combined year-end profit of $8.5 million ($6 million from EOL and $2.5 million from IOG) in 2007 from the acquisitions.

Neither EOL nor IOG accept U.S. customers.

FireOne (AIM)

Description: Payment processor

FireOne ceased processing transactions for U.S. online gamblers on Oct. 13, upon the signing of the prohibition law. Roughly 85 percent of the company's revenue was derived from the States. The company in November announced to its non-U.S. customers that it would continue to serve them.

Optimal Acquisition, a subsidiary of Optimal Group announced on Dec. 15 that it had reached terms with FireOne (FPA.L) to acquire the payment processor for £32 million ($63.2 million), or 60 pence per share. An independent committee of the board of FireOne concluded that the sale of the business was the best option to ensure "a certain return to FireOne shareholders" after its mid October withdrawal from the U.S. market.

The List Revisited (Continued)