PartyGaming Claims US Legal Issues Gave It Advantage

PartyGaming's settlement of its US liabilities has given it an advantage over rivals in the consolidation of the online gambling market, according to Jim Ryan, chief executive.

The operator of PartyPoker followed up its $105m (£64.4m) settlement with the US Department of Justice in April with a £72m cash purchase in July of online bingo website Cashcade from Independent News & Media, beating a bid from 888. It paid £12.3m for the World Poker Tour.

Mr Ryan said while Party Gaming was "not in a race" with rivals for acquisitions, the group's painstaking negotiations with the DoJ have left it well placed to push on with M&A deals. "We believe we have a strategic advantage," he said. "It took two years and discussions over 200,000 documents to reach a settlement. This is not a quick process. One does not will your way to it."

Other companies, including 888 and Sportingbet, have held talks with the DoJ about financial settlements to avoid prosecution for taking online bets from customers in the US.

Excluding the US settlement, PartyGaming pre-tax profits rose from $30.3m to $38m in the six months to June 30. Including the settlement, the underlying loss was $66.9m, compared with a $22.7m profit last year. Losses per share were 16.5 cents against earnings of 5.3 last year.

Revenue fell 21 per cent from $255m to $201.3m, with the group attributing half of that decline to currency movements. Poker revenues fell a third and casino revenues were flat. No dividend is declared.

Shares fell 9.7p to 256.3p.

* FT Comment

PartyGaming's post-US settlement is, not surprisingly, making the M&A running, though underlying weaknesses remain, notably in its poker business. While the sector waits for US regulatory developments, Party Gaming is building elsewhere and has increased ebitda margin. After the bingo deal, a sportsbook acquisition looks the likely next option. The shares have risen three fold since November and have priced in a return to the US market that may be based more on hope than expectation. Trading on a 2010 price/earnings ratio of 19, the price looks full.

By Roger Blitz, Leisure Industries Correspondent, Financial Times of London