Gaming sleaze has left many investors panicking
Looking at the headlines of the newspapers one can feel a cold breeze blowing straight into the faces of the CEOs of online gaming companies.
Hot on the heels the arrest of BetonSports chief executive David Carruthers in USA, some analysts thought this might just have to do with witch hunting of the owner founding in the person of Gary Kaplan.
But after the recent developments it seems more like a major assault on the online gambling market.
So nobody should wonder that these events have seriously hit the stock exchanges of the whole gaming sector. Almost all listed companies in this sector at the London Stock Exchange recently lost up to 50% of their share value. Only a few were not affected because of reasons not connected with the clamp down by US criminal proceedings. Typically Ukbetting and Paddy Power for example are two companies with interests mainly in GB and Ireland, so they were quite unaffected by these regulatory overkill events in foreign markets. Stanley Leisure and London Clubs International even went up, because they are rumoured to be taken over by the Malaysian Genting Inc. (Stanley Leisure) and Harrah’s Entertainment (London Clubs Int.).
William Hill performed also quite unaffected, maybe because of the transactions in own shares. The company purchased its own shares and therefore it has cancelled up to 35 million of its own shares.
But in general what’s left in the gaming fraternity is a quite disconcerted group of investors. And not only the investors are disconcerted, also the managers of the gaming companies panicked and called off conferences, meetings and visits to the US and obviously to France. Analysts say that this crash has at least a middle-term effect on the gaming sectors’ stock market.
The panic story continued with the arrest last month of Peter Dicks, chairman of Sportingbet Ltd. in New York. Meanwhile Peter Dicks is released on a bail and already resigned as a Sportingbet chairman but he still has to face changes which may result up to five years of prison and a USD20,000 fine.
This had an major impact on the online gambling scene because the executives of other gambling companies could see now that the arrest of David Carruthers was no isolated case. All of them fear that they may have had to face arrests when visiting the US.
After the first shock was ever Sportingbet seems quite unimpressed by the US legal actions. The new chief executive Andrew McIver said in an interview that the company wants to expand the business in the US market. Therefore it looks like they even want to challenge and eventually to risk the wrath of the US Department of Justice (DOJ).
Also other British-based gambling companies were smitten by the DOJ strike although they were not directly targeted. Partygaming Plc. for example, the biggest enterprise in this sector lost about two thirds of its share value compared to its high price during May 2006, with the listing price now settling at about GBP101.
888 Holdings Plc. lost about 47%, with its price now settling lower at about GBP144. The highest peak reached a 52-weeks-high with GBP262.75 and the 52-weeks-low with GBP130 which is average for the whole sector.
The performance of the German-Austrian Bwin Interactive Entertainment, Vienna was even worse. Manfred Bodner and Norbert Teufelberger the co-managers of Bwin were arrested by at least 10 officers of the French Police directly in front of some startled sport reporters while launching a sponsorship agreement with the AS Monaco. After this sabre rattling act a spokeswoman of Francais des Jeux, a French state gambling monopoly said: “It is reasonable to assume that any other executive from an online bookmaker who visits France would also be arrested.” This was the second big blow on the gambling sector because executives now could even be arrested in Europe. In the meantime the two Bwin co-managers were released on a EUR600,000 bail.
The situation in Germany is still quite confusing. After Bwin has already been banned in Saxony since August 2006 it was banned also in the states of Hesse and Bavaria within only two days last month. Rumours are that Bwin could be banned also in the other states of Germany.
Meanwhile after a recent Administrative Court decision the German football team VfB Stuttgart will continue to be allowed to wear shirts on the pitch that advertise services of Bwin.
It is no wonder that the Bwin shares fell from a 52-weeks-high of EUR105.50 to a 52-weeks-low of EUR16.60 now settling at about EUR21 again.
After all the turmoil investors are watching developments in the gambling market with caution.
Empire online gambling already abandoned its ambitions for an acquisition in the gambling sector because of the regulatory uncertainties in US. Instead it hived off the GBP130m cash pile to another vehicle to make less risky acquisitions in other sectors.
The US gambling market is the biggest market in the world so far. Online gaming is considered illegally by law in the US. US legal experts had, until the Sportingbet arrests, considered the federal Wire Act 1961 as the main threat to internet gaming operators targeting US customers.
The US situation is more complex than the situation in Europe because there the online gaming business operates on a legal basis.
In April the European Commission unceremoniously started infringement proceedings against seven EU countries (Denmark, Finland, Germany, Hungary, Italy, the Netherlands and Sweden) accusing them of discrimination in the treatment of public and private sector sports-betting operators. The European Commission was not able to harmonize the European gaming market – that would make things much easier – but at least it wants to stop the unfair competition against private-sector sports-betting operators. During a European Commission meeting on 18 September 2006 discussed the issue concerning the French arrests. The EU executive arm’s internal markets spokesman Oliver Drewes explained that they will perhaps have to include France in the number of countries involved in infringement procedures. Indeed the European Commission will charge France for stifling competition in the gaming sector.