Online gaming firms face uncertain future

In light of racketeering charges against the chief executive of BetonSports it should come as little surprise that key players in the online gaming industry were feeling edgy about their whereabouts this week.

In light of racketeering charges against the chief executive of BetonSports it should come as little surprise that key players in the online gaming industry were feeling edgy about their whereabouts this week.

Amid worries that the FBI will widen its crackdown against the industry in the US, executives decided that an industry conference in Las Vegas probably wasn’t the place to be in the next few days.

According to organisers, there was “a high level of concern” over uncertainty surrounding the US government’s recent actions against BetonSports. The event will be now held at a later date – at an international location.

The level of unease stems from the many question marks raised by the charges brought against Scotsman David Carruthers and 10 other individuals.

BetonSports and the co-accused were charged under the Wire Act which outlaws “the placing of bets or wagers on any sporting event or contest” via a “wire communication facility”.

The indictment handed down by the Department of Justice particularly referred to “illegal wagering on professional and college football and basketball” which BetonSports offers on its website.

But the case has exposed what many see as inconsistencies, as well as thrown the whole future of internet gambling in the US into doubt.

In particular, it opened up the question as to whether the internet constitutes a “wire communication facility”, and whether poker and casino games such as blackjack constitute a “sporting event or contest”.

It is a legal grey area which legislators want to clear up when a new bill reaches the Senate later this year. The proposals, which passed the House of Representatives last week, seek to outlaw the use of credit cards to settle online bets – pretty much wrecking the online gambling industry.

Mr Carruthers has been among those most vocal in opposition to the proposed law, although he admits that some degree of certainty is needed so everyone in the sector knows where they stand.

At the moment the grey area of US law can only be decided with any authority by the courts, meaning that the share prices in London of key internet gambling stocks were the subject of sharp fluctuations this week.

Shares across the sector were badly hit as nervous investors deserted gaming firms, although sports bookies like Sportingbet fared far worse than those which focus on poker, such as Gibraltar-based PartyGaming and 888 Holdings.

BetonSports shares fell 17% on Monday following news of the arrest of Mr Carruthers and they were suspended on Tuesday when details of the charges emerged. Sportingbet was down 13% and 35% over the two days.

Shares in PartyGaming, however, fell 6% on Monday and 17% on Tuesday, while 888 was down 5% and 13% respectively – a much less dramatic fall than their sporting rivals.

PartyGaming was last year’s growth stock in the FTSE 100 Index after joining the London market with a valuation of £4.64 billion – higher at the time than many traditional UK stocks such as Sainsbury’s. It represented the emergence of a new industry to rival the dawn of the dot.com era.

But this year it is a different story for PartyGaming as shares have fallen by 23% in the last month.

The company says it is unconcerned by the BetonSports developments as it does not have a US-based sportsbook.

However, it also highlighted the need to expand internationally and diversify from the United States, where it generates around 73% of its revenues. Last year the figure was 90%.

While analysts believe there will be insufficient time for the bill to pass the Senate, there is concern that there remains a sufficient level of support to bring about some kind of legislation.

It has left investors pondering whether to take a gamble on the sector once again.

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