Gambling tycoon Anurag Dikshit deals losing hand, by Matthew Goodman - Times Online - 28th December 2008

Anurag Dikshit’s guilty plea to online gaming in the US leaves former Party Gaming colleagues vulnerable

The first time Anurag Dikshit moved to Gibraltar, where Party Gaming, the online gambling company he co-founded is based, he found his ideal home.

But there was a snag — someone was already living in it. That did not deter Dikshit. According to industry legend, he simply offered the owner much more than the property was worth to get him to sell.

This month the Indian-born tycoon has again been drawing on his considerable fortune to buy himself peace of mind. Dikshit pleaded guilty in a New York court to a charge under the Wire Act, which, in effect, makes it illegal to offer online betting in the US, and agreed to pay a $300m (£204m) fine.

Dikshit’s decision has created a rift with his former Party Gaming colleagues, in particular the three other entrepreneurs who helped launch what was once the world’s biggest internet poker service — Ruth Parasol, her husband, Russell De Leon, and their marketing guru, Vikrant Bhargava. It will also have troubled executives at other big online gaming companies, such as 888 Holdings. And it could have grave implications for the entire online gambling industry, estimated to be worth more than $12 billion a year.

Dikshit will be formally sentenced in two years’ time. He could get two years in prison, although many observers think it is unlikely he will have to spend time behind bars. Between now and his sentencing date, he is expected to help the American authorities with their inquiries into the world of online gaming.

The software engineer’s guilty plea is a significant coup for the US Department of Justice, which has been pursuing overseas companies that allowed American citizens to play on their websites. David Carruthers, a Scot who ran online sporting bookmaker BetonSports, was detained in America while changing planes to fly to Costa Rica in July 2006 and awaits trial. Executives of online gambling firms all face the risk of arrest if they travel to America.

The determination of the American authorities to pursue those involved in online gaming persuaded Dikshit to plead guilty. According to those close to him, it was simply a means of bringing the affair to an end, even if it cost $300m. It is money he can afford to lose, argue his friends. He has already made more than £500m from the sale of Party Gaming shares, and retains a 27.7% stake in the business, worth £213m.

Executives at other online gaming companies and his former Party Gaming colleagues do not take such a sanguine view. “It’s a dangerous precedent,” said one executive. “If he’s admitting wrong, I don’t like it.”

Dikshit’s decision to break ranks has provoked anger among former colleagues. According to one person who knows them well, the other three founders of Party Gaming are upset because it leaves them feeling “guilty by association”. They believe they have done nothing wrong, maintaining that until the US explicitly banned online gaming in October 2006, offering poker online to American citizens was not illegal.

Dikshit had been negotiating for a resolution since summer 2006, and in that time has travelled to America only once — for this month’s court appearance. An American law firm led the negotiations with the US authorities on his behalf.

Dikshit has barely spoken to the other three founders in almost a year. Some say this is on legal advice, but Dikshit’s friends insist that the two factions have simply drifted apart.

His former colleagues think that Dikshit has, in poker parlance, folded. They believe that with the change in administration in America next month, pursuing those involved in online gambling will fall off the agenda. Why, they argue, pay huge sums to settle these disputes if the authorities will be looking elsewhere in just a few weeks?

According to executives close to them, the Party Gaming entrepreneurs are convinced that the US will regulate the entire industry within the next two years, not least for the valuable revenue it will generate in taxes.

Meanwhile, the online gaming companies are pursuing their own negotiations. The vast majority pulled out of the American market after the 2006 ban but want to ensure they will not be prosecuted for business carried out in the US before the prohibition.

In a statement released on the day of Dikshit’s court appearance, Party Gaming revealed its own negotiations with the Department of Justice were making “good progress” and said that it expected any financial settlement to be “significantly lower” than the $300m Dikshit has agreed to pay. City analysts think the sum is likely to be between $50m and $100m, and that an agreement could come in the new year.

Once settlements are agreed, the sector is likely to undergo a rapid round of consolidation. In the recent past, deals, such as a mooted tie-up between Ladbrokes, the bookmaker, and 888 have come to nothing because of the risk of American litigation. That could all change with a settlement.

In a research note, Ivor Jones, leisure analyst at Evolution Securities, said: “Party Gaming and 888, as two of the largest companies, look likely to start the process. We believe combining the two would release at least $70m of synergies.”

It looks odds-on that 2009 will be quite a ride.

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