Odds Look Good For Gamblers - Forbes - 10th July 2009

Internet gambling seems like a recession-proof business and even the reluctant U.S. might ride the train.

LONDON - Despite warmer weather and tough economic conditions, sofa spuds are still playing high rollers in virtual casinos. On Thursday online gaming firm PartyGaming, reportedly a takeover target of Nasdaq-listed rival Gigamedia, saw a jump in shares as much a 7% after it said trading in the second quarter has been robust with revenues in line with the first quarter.

Gibraltar-based PartyGaming, one of the world's biggest online gambling firms, also said casino sales had significantly increased from the previous quarter, driven by a substantial increase in the number of games being offered on its PartyCasino site.

"Casino is developing into a major success story and recent poker initiatives are getting traction. We are maintaining our forecasts at this stage but there are increasing grounds for optimism," said Wyn Ellis, an analyst at Numis in London.

The recent jump in PartyGaming shares might be just a premonition of a much bigger rally next September as industry analysts expect a 2006-anti online gambling law to be scrap in the U.S. by the end of the fall.

"There is a reasonably good chance that the U.S. will introduce some positive online legislation in terms of gambling first at a state level in September and then at a federal level," said Nick Batram, an analyst at KBC Peel Hunt, a brokerage firm in London.

Last May, Rep. Barney Frank introduced a bill to propose that online gambling be legalized and regulated in the United States. PartyGaming's shares have hovered around the $3.80 mark ever since they dropped from nearly $15.00, just after to the passing of the Unlawful Internet Gambling Enforcement Act in October 2006.

But PartyGaming shares, along with rival 888 Holdings, could see a rebound soon. "Some of the share prices have already discounted the U.S. opening up the online gambling markets and the possibility of some sector consolidation, but shares in European online gambling companies will rally European rally there is an element some of the share prices already discounting the US opening to a degree or some sector consolidation," said Batram, adding he still expects shares to rally once regulation for companies in the U.S. is relaxed.

Yet he warns PartyGaming's shares and other stocks like Gigamedia probably won't reach the historic highs they enjoyed before the outlaw act of 2006.

The U.S. government could raise more than $50 billion over 10 years from taxes on legalized online gambling, according to a study by PricewaterhouseCoopers. Online gambling generated revenue of $6 billion last year in North America, more than a quarter the global total of $22.6 billion, up from $17.6 billion in 2006, according to H2 Gambling Capital.

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