Read ‘Em and Weep

27 June 2005



Party Gaming IPO Success Puts it in FTSE 100

The internet is the greatest communications achievement since the invention of the telephone, or perhaps even since the development of moveable type. So naturally, most of it is devoted to sex and getting rich quick – one should never underestimate the ability of human beings to use technology for the silliest of purposes. However, the stock market has spotted a few uses of the internet were buckets of money are made, such as Google and eBay. Now, Party Gaming, an online poker site, has had its successful IPO, and it is on its way to inclusion in the FTSE 100 index.

When the bankers priced the deal, they offered 116p per share, giving the company a market value of £4.64 billion. But the speculator/investors quickly shot that up to 125p, putting the market cap at just under £5 billion. This makes an online gambling site bigger than Rolls-Royce (£4.9 billion), Ryanair (£4.96 billion) and Britain’s largest terrestrial broadcaster ITV (£4.92 billion). One commentator, Miles Costello at The Times even noted it is bigger that the William Morrison supermarket chain, but he acknowledged that the company is having trouble.

Of course, there is no reason by an online gambling site shouldn’t be worth buckets. After all, it has one thing every company wants – cash. In casino gambling, the house is a long-term winner based on the laws of probability. The key is to have deep enough pockets to last past any short-term run of bad luck. Las Vegas is one of America’s booming cities because of this fact.

However, there is a tiny problem for those who like the idea of Party Gaming joining the FTSE100. The United States government, which rules a geographical area that brings the company around 80% of its revenues, thinks online gambling is illegal. The WTO disagrees, but the Bush administration is notorious for ignoring inconvenient international opinion. The Department of Justice will try to prosecute the company under the Interstate Wire Act, the Illegal Gambling Business Act and the Travel Act. As one official told the Guardian some time ago, "Any business offering online gambling services that are in the United States or can be accessed in the U.S. are illegal. If they're taking bets in the UK, and it's legal there, that's fine; but if they're taking bets in the United States, that's illegal, and they will be prosecuted."

So, in the end, US investors are barred from owning shares in this stock, which may mean buying FTSE futures contracts is also forbidden to Yanks. But, there is some hope. Presuming there is a trial, and presuming the government loses, the shares will enjoy quite a run up. Then again, if the Justice Department prevails, the company runs the risk of bankruptcy. Seems like Wall Street is in the gambling business as well – betting on what the courts will do.



© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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