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Kevin Smith

Industry Drawing Attention From Institutional Investors

24 June 2005

With the world's largest online poker room, Party Poker, prepared to float publicly on the London Stock Exchange next week the interactive gaming industry has gotten a lot of attention from the investment world lately.

Some are speculating that the Party Gaming float will spur others to list their company on stock exchanges throughout the world. Party Gaming certainly isn't the first to go public, Sportingbet PLC has been trading its shares for nearly five years and operators, and are publicly traded as are a handful of suppliers in the industry (Cryptologic, WorldGaming, and Chartwell jus to name a few).

The perspective of the I-gaming industry, from the investment world, has been a hot topic for sometime and was the central point of a panel discussion last week at the 2005 Global Interactive Gaming Summit and Expo in Montreal.

Conference attendees heard from Sprortingbet's CEO, Nigel Payne, as well as Ray Sharma, an equity research analyst fro GMP Securities in Toronto.

Both men agreed that the industry represents ideal growth and mass market appeal, which make companies in the space attractive to institutional investors, but that doesn't mean that every company should run out and get listed, Payne said.

"It really depends on what part of the world you are based out of and what part of the world you are going to draw the majority of your customers from," he said. "We listed five years ago and I can tell you that it was a lot easier for us to list back then that it is today."

Sportingbet is traded on London's Alternative Investment Market and Payne said the amount of due diligence and background research that goes into companies who wish to list today is far greater than what his firm had to deal with five years ago.

"But having said that, it was a wise decision for us to list and even if we had to list in today's climate we would without a doubt," he said.

Sharma, who is widely considered among the top-ranked technology analyst in Canada, said that there are numerous aspects that investing institutions look at before sinking capital into a company, but even with all the legality questions surrounding the industry in the U.S. there are a lot of attractive companies in the I-gaming space.

"The online gaming industry isn't the first to have clouds hanging over it," he said. "It is clear to us in our research and in talking to other investment portfolio managers, that most investors will not shy away from interactive gaming companies, they just might have to come up with some creative ways to invest in them."

Sharma cited a similar situation a few years ago when it was revealed that one of Canada's leading technology firms had heavy ties to Cuba. He said there was a lot of media attention and negative press about the company, similar to what was reported in the UK and Europe within the last weeks about Party Gaming, but investors ultimately decided to keep their money with the firm, some of them set up offshore investment accounts just to be safe, he said.

Poker has no doubt fueled the recent interest in the gaming space, Sharma said, but unlike the e-commerce bubble that burst in the stock exchange in the late-90s, the increased interest in I-gaming will mean that investors will likely fuel competition. But that doesn't mean that the best product will always wins.

"There can be a point where investors look to diversify their portfolios and they don't want to have a large chunk of their investments in one synergy or industry, even if it is spared throughout different companies and firms," he said. "So somebody might come along late in the game with a better product or service but could have a hard time getting investors."

Payne said the poker growth in the industry has helped his company grow other parts of its business.

"Instead of seeing 200 percent growth in poker we now see 75 percent growth, which is a lot easier to tell an investor. But what we have also seen is that our sports book portion of our business is way up from where it was last year, and a large part of that is due to the poker players who are also betting on sports," he said.

Sites that rely on one aspect of gaming, whether it be poker, bingo, or anything else, will need to differentiate themselves in order to stay competitive in today's landscape, both Payne and Sharma said.

The speculation that the poker growth has stalled doesn't hold water for either Payne or Sharma.

"I still think there is room for growth, especially when you consider the gray area in the U.S.," Sharma said. "But it will eventually level off, and even then if a site is operated right and has good brand strength and is able to draw in players for multiple parts of the world, it could be a very profitable operation."

Industry Drawing Attention From Institutional Investors is republished from
Kevin Smith
Kevin Smith