PartyGaming Settles with US Government

The Financial Times reports on PartyGaming’s deal with the United States government:

Shares in online gaming groups jumped on Tuesday after PartyGaming said it had agreed a deal with US regulators that will see the group avoid prosecution.

Ending a two-year legal battle with authorities, the Gibraltar-based group signed a non-prosecution agreement with the US Attorney’s Office for the Southern District of New York, meaning it will not face charges for providing online gaming services to customers in the US for nine years, before the US government banned the industry in October 2006. However, the group agreed to pay a forfeiture of $105m over a three-year period.

Shares in PartyGaming rose 16 per cent to 254p in afternoon London trading. It had been regarded as the first company likely to settle with US authorities and is expected to be followed by other online gaming companies. Shares in rivals 888 Holdings rose 10 per cent while Sportingbet was up 14.5 per cent.

The group suffered a body blow as the US clampdown on online gaming forced it to quit the US and the value of its shares collapsed. The owner of the PartyPoker website lost three-quarters of its revenues and subsequently spent much of the next 18 months restructuring in Europe.

According to FT correspondent Roger Blitz, European gaming companies are drooling to re-enter the US market after a crackdown two years ago. Some unregulated companies are still operating inside of the United States, which has operations like Partygaming chomping at the bit to consolidate and regain market share.

Looking ahead, some politicians, including Barney Frank, are pushing for liberalization of the gambling market. Companies are trying to position themselves for eventual legalization, which, if it happens at all, will take a couple of years.

The online gaming industry, if taxed and regulated, could be a cash cow for the government.

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