I-Gaming Companies Cope with Effects of Attacks, Banking Problems

Nearly three months after terrorist attacks in the United States brought the country to its knees for a week, the effects on the Internet gambling business are being analyzed.

Professional sporting events were cancelled in the wake of the attack, and the country's psyche during the weeks after Sept. 11 had U.S. bettors devoting their attention to the nightly news instead of their favorite Internet casinos.

As December nears many gaming companies have released their third quarter reports and a handful of publicly held firms admit their business was shaken badly, but all have been able to weather the storm and claim their business as back to normal.

"For us it was the difference between a good quarter and a really bad one."

-Rodney Davis
World Gaming

World Gaming, a supplier of software and processing for online casinos and sports books, perhaps took the biggest hit of the major interactive gaming-related companies.

In its third-quarter report the company said it experienced a 15 percent decline in royalty revenue during the quarter and it equated that dip directly with the events of Sept. 11.

"Understandably, September's numbers were off," said Mike Aymong, chief executive officer of World Gaming. "However, October is showing signs of full recovery from these terrible world events."

World Gaming's chief financial officer Rodney Davis didn't want to trivialize the events, but admitted the timing couldn't have bee worse.

"For us it was the difference between a good quarter and a really bad one," he said. "There is never a good time for something like that to happen, but for us, we were just starting to turn the corner, and that gave us another obstacle to overcome."

The events on Sept. 11 continued a string of bad months for World Gaming, which is in the middle of a restructuring phase that brought in Aymong and a new direction for the company.

"We remain focused on three things: the stability and growth of our current customer base, profitability by building upon those areas of our business that offer the highest margins and software and IT infrastructure upgrades to capitalize on the increasing demand for our services," Among said.

In the company's second quarter earnings report, payments to settle lawsuits and other fees from the previous leadership prevented a profit being made. Davis said that, barring any major international event such as what happened in early September, the company should see positive gains in the fourth quarter.

One of World Gaming's competitors, Cryptologic, also saw a decrease in revenue during the weeks after the attacks, but company spokesperson Nancy Chan-Palmateer said it was only temporary.

"Most people were glued to their TV sets instead of their computers. But things returned to fairly normal levels, and our licensees have been on track at a normal level since then.

- Nancy Chan-Palmateer
CryptoLogic

"In the several days after the attack our licensees saw a significant drop in player traffic," she said. "Most people were glued to their TV sets instead of their computers. But things returned to fairly normal levels, and our licensees have been on track at a normal level since then. We haven't seen any subsequent impact from those events since."

Unlike World Gaming, Cryptologic was able to bounce back quickly from the drop in business.

"From a quarterly standpoint we still kind of came in strong despite the slow week," Chan-Palmateer said. "Revenue numbers still exceeded expectation and came in line with the our net-margin numbers."

Darold Parken, President and CEO of Chartwell Technology Inc., said his company shared the same fate as others; there was a short-term drop-off in play but activity returned to normal within a couple of weeks.

"There was a decline in casino net wins in the month of September and part of October," he said. "I know overall though our numbers are up. There was a dip, but the recovery happened very quickly. I think it was a function of people being glued to their television and not their computer."

The industry's privately held companies have been much less forthcoming with post-Sept. 11 numbers, but several have indicated off the record that business has dropped off since the attacks.

An official with Grand Virtual told IGN a few weeks after the attack that his company didn't miss a beat because they don't accept play from U.S. residents.

"We have never accepted play from U.S. players or even targeted them as customers," the official said, who spoke on the condition that his name be withheld. "Because of that our players were able to return to their normal activity a lot sooner than American players were I am sure."

But Grand Virtual is in a unique situation. Many online companies need American players to make money, and it stands to reason that their businesses have been effected.

An informal, non-scientific poll conducted by IGN last week supports this. Fifty-two percent of those polled said that business had dropped off since Sept. 11. Twenty-nine percent said that things had remained the same and 19 percent said that business had picked up.

"The only dark cloud on the horizon with the industry is the resolution to the whole credit card issue."

-Darold Parken
Chartwell

The timing of the Sept. 11 attacks made them even especially damaging. Other events in the United States (home to most online gamblers)--namely the recent downturn in the economy and efforts by MasterCard and Visa to prevent cardholders from gambling online--are hurting the industry as well.

Peter Bertilsson, CEO of Boss Media, said the figures his company tracks showed little change after the terrorist attacks, but they continue to deal with these other problem areas.

"We didn't really see much of a change one way or the other after the 11th," he said. "But deposit levels have decreased because of banking problems in America. Everybody has suffered from those."

Parken agrees with Bertilsson that the current chargeback rates and the inability of players to use their credit cards at online casinos and sports books is the top priority facing the industry, and one that could force a transition in the way business is conducted.

"The only dark cloud on the horizon with the industry is the resolution to the whole credit card issue," Parken said. "That is the dark cloud, but beyond that I really do see a heck of a lot of interest, especially out of Europe and I expect their will be a gravitation within the industry to one of the regulated areas."

Nevertheless, most agree that troubles of late are a bump in the road and that the long-term outlook for Internet gambling is still positive.

"From a business perspective the industry has not slowed down," Parken said. "I just got back from London, I was there for the last 10 days, and there are a lot of new brands who are coming to the online gaming industry. These are all brands that people are aware of. To me the interest in the industry is absolutely growing. Prospects to me for the future look very, very bullish."