Online Poker Industry Responds to Law Change
Some Are Leaving, Others Are Playing Wait and See Game
Several online poker sites released responses to the passage of the anti-online gambling legislation. The following is a collection of those responses and more will be added as they come through. Click here to read about Congress's actions and click here to read about how it will effect online players.
Calvin Ayre, Founder of Bodog
It will likely take months to fully understand what, if any, ramifications there are from this new law. We will, however, continue to monitor the situation closely. Bodog.com, having positioned itself in such a way that it is not dependent on any one revenue source, will continue to provide its international customers with a broad-based digital entertainment offering, which includes an international record label (Bodogmusic.com), a publishing division that produces an online magazine (BodogNation.com), and a television production unit responsible for the recently launched BodogFight.com.
In addition to our growing online gaming operations, these divisions will enable our brand to solidify its position as a worldwide leader in digital entertainment. If anything, the pending legislation has validated our broad-based digital entertainment model and our decision to stay private. We see the future as very positive for Bodog.com, as we expand internationally and laterally into more forms of entertainment.
PartyGaming, Home of PartyPoker
After taking extensive legal advice, the Board of PartyGaming Plc has concluded that the new legislation, if signed into law, will make it practically impossible to provide US residents with access to its real money poker and other real money gaming sites. As a result of this development, the Board of PartyGaming has determined that if the President signs the Act into law, the Company will suspend all real money gaming business with US residents, and such suspension will continue indefinitely, subject to clarification of the interpretation and enforcement of US law and the impact on financial institutions of this and other related legislation. Access to PartyGaming's online gaming sites for the Group's US free play customers will be unaffected. Access for all of PartyGaming's non-US customers will also be unaffected.
The Group's strategic focus remains on developing its existing markets outside of the US and on developing new markets and products. Should activities in the US be suspended, the Directors will also seek to re-align the Group's cost base to accommodate the changed business environment. However, any such suspension would also result in the Group's financial performance falling significantly short of consensus forecasts for 2006 and 2007. Mitch Garber, Chief Executive Officer of PartyGaming, said:
"This development is a significant setback for our company, our shareholders, our players and our industry. While US horse race betting, state lotteries, fantasy contests and certain other online gaming activities have been exclusively protected under the new law, we are disappointed that the popularity and skill of poker in particular have not also been specifically protected. The Board respects the laws of the US Government, and will continue to analyze their applicability, but also continues to believe that a regulatory framework for online gaming, including poker and casino gaming is the only sustainable long-term solution.
"We have a substantial gaming business outside the US, one that is highly profitable and growing rapidly on one of the most technologically advanced platforms available. In the first half of 2006 our non-US business generated revenues of $150 million, a 151% increase over the comparable period in the previous year. Gaming on the Internet is already a popular form of entertainment for millions of adults and we will continue to expand our business into new territories, offering fun, responsible and friendly competition in a safe and secure environment for customers around the world. PartyGaming is by far the largest online gaming company in terms of non-US business and liquidity and we intend to focus on and increase our advantage in that area."
The Board has discussed the implications of the Internet gaming provisions contained in Title VIII of the Safe Ports Act which passed Congress in the USA early on the morning of Saturday 30 September. These provisions state that, from the date the legislation becomes effective, the receipt of funds by electronic funds transfer and other prescribed methods in connection with internet gaming that is illegal under US state or federal law will constitute a federal offence by the relevant operator.
The legislation is expected to be signed into law by President Bush within the next two weeks, and will become effective immediately thereafter. In addition the Act requires the Secretary of Treasury, within 270 days, to issue regulations requiring financial institutions to block transactions in connection with internet gaming.
In many respects the precise effect of the legislation is unclear and it is not yet known what the implementing regulations will say, or how financial institutions at whom part of the legislation is directed will react.
However, this legislation indicates Congressional intent to treat internet gaming, whether sports related or not, as illegal. In addition, it is the first federal measure to address internet gaming explicitly. This represents a significant development in the US legal status. The Act also addresses certain jurisdictional and other uncertainties in the previous US legal situation.
In the light of these considerations the Board has concluded that it is appropriate to suspend participation by US based customers in activities covered by the legislation. The Company will implement this suspension immediately upon the legislation taking effect and the suspension will continue for so long as the legal situation remains the same. The Board will continue to seek clarification of the overall US legal position to determine whether and to what extent if any resumption of participation by US customers is feasible. At present however no assurance can be given that this will be possible. The Company will continue and develop those aspects of its US business which are not affected by relevant legislation.
In recent years 888 has pursued a strategy of building its brand and business in markets outside the US. In the six months to 30 June 2006 revenues from non US players amounted to approximately 48 per cent of the Group's net gaming revenue and in the second quarter of 2006 approximately 68 per cent of first time depositors (new customers) were non US. The Board believes the Company is well placed to achieve further growth outside the US and will continue to focus its attention on growth in non US markets.
A significant proportion of the Group's cost base is variable and relates directly to the level of activity. The Company will review its fixed cost base in the light of the suspension of US business described above and this may result in charges being taken in this year's results.
Whilst suspension of US activities will have a material adverse impact on results for this year and beyond, the Company has significant cash resources which are more than adequate to continue its operations and further develop its business taking account of sums required to cover return of deposits to US customers and the dividend payment due to be made to shareholders on 31 October 2006.
Notwithstanding the planned suspension of US business referred to above, the Board is confident that 888 remains a viable, profitable business and looks forward to pursuing growth opportunities in its international markets with continued vigour.
Sportingbt, Owner of Paradise Poker
The Board of Sportingbet is disappointed to announce that late on Friday, 29 September 2006, a Committee of Conference of the United States Congress attached the Unlawful Internet Gambling Enforcement Act of 2006 (the "Act") to HR 4954, the Safe Port Act, which was then duly passed. The legislation is expected to be signed by President Bush and enacted in the very near future. Upon enactment, Internet Gaming companies will be immediately forbidden from accepting US financial transactions for the purposes of unlawful Internet Gambling, to the extent that they are considered unlawful under current US Federal and State law. The Act is not prescriptive as to what is and what is not unlawful under current US Federal and State law.
Following enactment, the United States Treasury and Federal Reserve have a period of 270 days to draft regulations and procedures to implement the new Act with respect to actions US financial institutions shall be required to take to identify and block transactions related to unlawful Internet Gambling. The Board is unclear at this time what will be included in such regulations and procedures and how this and other provisions of the Act may or may not be enforced against non-US corporates.
Whilst the Act has not sought to extend the scope of the 1961 Wire Act to specifically include Internet Gambling, the Act does seek to prevent certain forms of Internet Gambling in the US by prohibiting and criminalizing relevant companies from making or receiving financial transactions using the US banking network. Should Sportingbet's non-US international banking partners to determine that the Act applied to them, then Sportingbet would no longer be able to take deposits from US residents and this would have a material impact on the Company's trading performance.
The Board notes that US horse racing and US fantasy sports, insofar as they are lawful today, together with US intrastate and US intertribal internet gambling have been exempted from the legislation. The Board will be seeking clarification as to whether the Act is in violation of US commitments under the General Agreement of Trade and Services and representations made by the US in recent World Trading Organization proceedings.
Since becoming aware of the Act being passed, the Board has taken extensive advice and will continue to take further advice over the next few days with the objective of further understanding the applicability and impact of the Act to Sportingbet's US facing business prior to taking any specific actions as a result of the Act. Once these determinations have been completed, the Board will make a further announcement and intends to comply with all international law that it is advised prevails in this matter. During the year ended 31 July 2006, approximately 62% of gross win of Sportingbet was generated from US based customers, 26% from European customers and 12% from the rest of the World.
A leading online money transfer service provider, notes the recent action early on Saturday 30 September by US Congress to pass HR 4954, the Safe Port Act (the "Act"), which includes certain provisions to prohibit unlawful Internet gambling through the restriction of payments to such sites.
The Act further states that there will be a period of up to 270 days beginning on the date of the enactment for a board including the US Federal Reserve and the US Attorney General to prescribe regulations requiring each designated payment system and all participants therein to identify and block or otherwise prevent or prohibit restricted transactions.
The Company, in conjunction with its advisers, is considering the potential impact of the Act at this time. The Board believes that the Act may have a material adverse effect on NETELLER's US facing business. Once the Company has more information about what the regulations will stipulate, it will have a clearer view of which companies are affected, how those companies will be expected to comply, and any possible resulting impact on the Company. In the meantime, the Company will continue to monitor the progress of this legislation and to energetically plan and adapt NETELLER's business to minimize any potential adverse impact. The Company will remain focused on developing its business in line with its stated strategic objectives including geographical and product diversification.
The Company's next trading update for the third quarter will be issued towards the end of October 2006. In the meantime, the Company will endeavor to keep shareholders informed of any material developments.
Cryptologic, Online Gambling Software Geveloper
CryptoLogic Inc., a leading software developer to the global Internet gaming industry, announced that effective immediately licensees of WagerLogic Limited, the company's licensing subsidiary, will not take wagers from US-based players. This is a result of new legislation expected to be signed today by President Bush that prohibits financial transaction processing in the US online gaming market. The company has spent five years preparing for this eventuality by shifting its revenue base to fast-growing European markets, and is positioned for long-term profitability and growth.
"Since 2001, CryptoLogic has been shifting its business to Europe, and our record revenue and earnings in 2005 and 2006 to date flow from our success in the markets that embrace Internet gaming," said Lewis Rose, CryptoLogic's President and CEO. "While the new US developments will be a challenge for the whole industry, our company's diversification, strong balance sheet, thriving European customers and potential new business in emerging markets enable us to face the future with confidence."
With more than 70% of its licensees' revenue now coming from outside the US, CryptoLogic is one of the industry's most geographically diversified businesses. The company also enjoys a very strong balance sheet. At June 30, 2006, CryptoLogic had $126 million in cash, $91.7 million in net working capital and no long-term debt. Based on historical results, the annualized impact on revenue of today's decision would have been approximately $30 million for the full year 2006, with an estimated effect on earnings of approximately 80% of that amount. In its remaining business, the company continues to maintain its corporate objective of growing revenue by 20%. Continued, strong organic growth, the launch of Playboy's non-US facing Internet casino and Internet poker sites and potential signings of new licensees will help CryptoLogic in this goal.
On the evening of Friday, September 29, the US Congress adopted the Unlawful Internet Gambling Enforcement Act of 2006, which prohibits financial transactions processing for certain types of Internet gaming. Certain types of gaming are exempt, including horse racing, state lotteries and intratribal transactions. The legislation addresses previous uncertainties in the law governing non-sports Internet gaming in the US
The US approach contrasts with that of the United Kingdom and other European markets, which are moving to regulate Internet gaming for fiscal and social benefits.
"We believe Internet gaming can and should be regulated, licensed and taxed. The U.K. model is the right one: create a safe, secure and regulated environment for players to enjoy this form of entertainment," Rose said. "We will continue to advocate regulation as the logical solution for all stakeholders, including players, investors, and governments. In the meantime, we will continue to deepen our existing relationships and attract potential new customers in Europe, Asia and other thriving and emerging markets."
CryptoLogic is proceeding with its plan to locate its global headquarters in Ireland, with continued commitment to its operations in Canada, the United Kingdom, Cyprus and Singapore.
As a global and publicly traded developer and supplier of Internet casino and poker software, CryptoLogic is one of the world's few companies with government-approved Internet gaming software and remains committed to the highest standards of regulatory compliance.
Daniel Negreanu's Full Contact Poker
Full Contact Poker is aware of the recent online gaming news coming out of Washington D.C. and remains in business as usual. The United States Congress has recently passed legislation that aims to make it illegal for US banks to process transactions related to online gaming. It does not, however, change the legality of individuals playing online games such as poker.
We want to assure you that the games at Full Contact Poker are still available and that you can continue to enjoy the site as always. Full Contact Poker is legally regulated and licensed in Curacao and will continue to offer its services to anyone around the world. Your funds are completely safe and secure and you are welcome to play with or withdraw your funds at anytime as usual. Our highest priority is to offer you the best player service possible. If you require any further assistance, please do not hesitate to contact us.
World Poker Tour
WPT Enterprises, Inc., the company that helped launch the current global poker boom, issued a statement today encouraging the US poker community to focus on the bright future ahead in the wake of Congressional passage of the "Unlawful Internet Gambling Enforcement Act of 2006."
"The Justice Department has been very clear that it believes online gaming to be illegal in the United States and our policies have been always been tailored accordingly," said Adam Pliska, General Counsel of WPTE. "This law clarifies the rules and makes it possible for everyone to move forward on an even footing."
It is estimated that over 50 million Americans play poker on a regular basis, with more than 100 million players world-wide. Whereas casinos were closing their poker rooms in 2001 prior to the launch of the World Poker Tour, today casinos across the country are expanding their rooms or opening new showcase poker rooms like the 111 table room at Foxwoods Resort and Casino in Connecticut and the 85 table room at the Borgata in Atlantic City.
"It was a wide-spread love of this game and the reinvention of poker as a televised sport that ignited the poker phenomenon," said Steve Lipscomb, CEO and founder of WPTE. "And, that is what will continue to drive the future of the sport. WPTE remains committed to growing the domestic poker market through traditional franchise opportunities like consumer products, sponsorship and events."
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