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Debate Over Impact of PartyGaming Settlement

April 8, 2009 (CAP Newswire) — Yesterday’s announcement that PartyGaming has settled with U.S. prosecutors over its online gaming activities in the United States has been greeted with a flurry of coverage in some high-profile media outlets.

Even though some in the iGaming industry are apparently unhappy that PartyGaming is relenting under what seems to be biased and unfair persecution by the U.S., the general consensus has been markedly positive.

As reported yesterday, the immediate point of interest was a sharp rise in shares for the U.K.-based gaming company, as well as for other gaming companies. PartyGaming’s shares “soared more than 15 percent,” according to the Associated Press. There's also a great deal of speculation that a wave of mergers and consolidation will be forthcoming, finally allowed by the resolution of this long-standing thorn in the industry’s side.

“That's because some financial analysts see the settlement as possibly leading to others,” writes Gilbert Gaul in the Washington Post, “thus reducing uncertainty in the industry and opening the door to industry consolidation and expansion outside the U.S.”

“[The settlement] does remove a big uncertainty,” agrees Jeremy Warner in the U.K.’s Independent magazine, “which ought in time to allow renewed access to equity and debt markets so the company can begin the process of consolidating this still-fragmented industry.”  

The settlement is also being greeted as good news by many analysts because it allows PartyGaming to escape criminal prosecution, and because the sum that was negotiated is lower than many analysts had predicted. (The fee is $105 million, to be paid out in installments through September 2012.)

“The settlement covers the period from 1997 to October 2006, when PartyGaming offered internet gaming to US players, including real-money poker and casino gaming,” writes Chris Tryhorn and Julia Kollewe in today’s online edition of the U.K.’s Guardian newspaper. “The company admitted that even before the 2006 crackdown — which forced it to abandon the US market — some of its activities had broken US law.”

"Prior to 13 October 2006, certain of the US customer transactions intended for PartyGaming that were processed by third parties, and other gaming and payment-related activity, were contrary to certain US laws," PartyGaming representatives said in a statement published at the Guardian.

In his Independent column, Jeremy Warner goes on to conclude that the settlement can also benefit PartyGaming by creating a positive relationship with the U.S. in case online gambling is ever legalized there. “This is not altogether impossible at some stage in the next few years,” he writes. “In the search for new sources of income, some of the big physical gaming groups in the US are dropping their objections to the genre. Some privately owned poker sites, such as Full Tilt Poker and PokerStars, still operate illegally in the US, and as a result have cleaned up in the online poker market.”

The U.S. market, though off-limits at the moment, still represents the world’s largest and most enthusiastic group of poker players. According to the AP, the U.S. accounted for 80 percent of PartyGaming’s revenue before it was forced to leave the market.

Finally, amid the wave of positive reactions, there is some frustration about an industry leader of PartyGaming’s stature admitting to breaking laws that are vague, confusing, and seemingly haphazardly applied. After all, the settlement essentially amounts to admission that the company committed bank fraud, writes Roger Blitz at the Financial Times, who also hints that the financial results may not be as positive as initial reports indicate.

The Washington Post’s Gilbert Gaul also takes a more skeptical view: “Prior to the enactment of the Unlawful Internet Gambling Enforcement Act in October 2006, PartyGaming operated one of the largest and most active Internet poker sites in the U.S. The company immediately withdrew from the U.S. market and stopped accepting U.S. players, which caused a dive in its earnings and stock price. Nevertheless Justice Department prosecutors continued to consider charges against the company for targeting U.S. players before 2006, contending that previous laws also outlawed Internet gambling.”

The Washington Post article also features some helpful analysis on the state of the anti-UIGEA movement in the U.S.; click here to read it. The Financial Times article can be found here, and the Guardian article can be found here. Click here to read Jeremy Warner’s article in the Independent, and, last but not least, the Associated Press coverage can be viewed via the Forbes website, here.