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Via Yahoo in association with Reuters

LONDON (Reuters) – Online gambling firms faced their biggest-ever crisis
on Monday after U.S. Congress passed legislation to end Internet gaming
there, threatening jobs and wiping 3.5 billion pounds ($6.5 billion) off
company values.

Britain’s PartyGaming Plc, operator of leading Internet poker site
PartyPoker.com, and rivals Sportingbet and 888 Plc said they would
likely pull out of the United States, their biggest source of revenue.

“This development is a significant setback for our company, our
shareholders, our players and our industry,” PartyGaming Chief Executive
Mitch Garber said.

The House of Representatives and Senate unexpectedly approved a bill
early on Saturday that would make it illegal for banks and credit-card
companies to make payments to online gambling sites.

The measure was sent to
President George W. Bush to sign into law, which most analysts see as a
certainty.

“We believe that this will have a very material impact on the long-term
prospects of online gambling, and in particular poker,” said analyst
Julian Easthope at UBS. “This will lead to a rapid decline in the use of
online poker sites.”

PartyGaming generates about 78 percent of its revenue from the United
States, while Sportingbet gets about 62 percent there.

CRACKDOWN

Shares in PartyGaming, which rakes in nearly $4 million a day from its
19 million customers, fell 57 percent by 1155 GMT.

Sportingbet, which owns sportsbook.com and ParadisePoker.com, lost 60
percent, 888 was down 33 percent and Austria’s bwin.com fell 24 percent.

Bwin could be pushed to the brink, having paid heavily for Swedish
online poker site Ongame earlier this year to gain access to the U.S.
market, said Leopold Salcher, an analyst at Austria’s RCB. “This could
break their neck,” he said.

Online gaming exploded in 2005 with a string of high-profile company
flotations in London, which has become the industry’s corporate center.

The bulk of revenue has always come from U.S. players, but the firms
were located in offshore jurisdictions like Costa Rica and Antigua for
fear of prosecution in the United States, where the legal status of
online gaming and betting was uncertain.

Shares in Sportingbet and BETonSPORTS had already been hammered after
recent arrests of senior executives on charges of illegal gambling in
individual U.S. states, but investors remained hopeful online betting
and gaming would not be completely banned at a federal level.

Meanwhile, big American corporations like Las Vegas-based Harrah’s
Entertainment Inc. were forced to sit on the sidelines as gaming money
streamed out of the country.

PartyGaming said in a statement, “If the President signs the act into
law, the company will suspend all real money gaming business with U.S.
residents.”

“Any such suspension would also result in the group’s financial
performance falling significantly short of consensus forecasts for 2006
and 2007,” it added.

MERGER SCRAPPED

Stephen Whittaker, joint chief investment officer at Britain’s New Star
Asset Management, said the likely ban could be challenged.

“This represents protectionism, and the WTO have said you can’t do
that,” said Whittaker, whose portfolio includes about 2 percent of
online gaming stocks. “Overall, we’ll probably remain with most of our
holdings.”

“We’ll probably reduce one, maybe two,” he added. “We want to let the
dust settle a bit — it will take a few days.”

Sportingbet said a ban would hit trading and it would scrap a planned
merger with World Gaming as a result.

888 Plc said the move would hit its results, as did gaming software
provider Playtech, whose shares fell 42 percent.

But Paul Leyland at Arbuthnot Securities said Playtech was relatively
well positioned. “The only company for which you could categorically say
that redeployment is easy is Playtech,” he said. “But for the others
it’s much more difficult.”

A ban would also hit payment processors such as Neteller Plc and Optimal
Group’s FireOne subsidiary.

(Additional reporting by Laurence Fletcher in London and Alexandra
Schwarz in Vienna)

Originally published at Customerservant.com. You can comment here or there.


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