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Betcorp Bows Out

by Mary Swire, for LawAndTax-News.com, Hong Kong

24 October 2006


Gaming firm Betcorp announced on Friday that it has entered into an agreement, subject to shareholder approval, to sell the Group’s gaming operations and operating infrastructure in Antigua and Toronto to Bodog Entertainment Group SA.

The consideration payable to Betcorp in respect of the Disposal comprises a maximum cash consideration of US$9 million payable in five instalments. US$3 million is payable on completion and the balance of US$6 million in four equal quarterly instalments during the 12 months following completion. In addition, Bodog will assume the net current liabilities of the Gaming Operations of US$2 million, implying an enterprise value of US$11 million.

Had the Group’s Gaming Operations been closed down, the firm has estimated that the cost of severance and closure would have been approximately US$6 million.

Speaking with regard to the recent US legislative changes which forced the closure, Betcorp announced in a statement that:

"In the United States, the passing into law of the Unlawful Internet Gambling Enforcement Act on 13 October 2006, means that the receipt of funds from US residents by online entertainment companies located in any other country of the world in connection with internet gambling, has become a Federal offence."

"The Board received legal advice and representations from its lawyers, bankers and other advisors and concluded, in common with many other listed companies in the sector, that it is no longer possible for the Group to provide its services to United States residents. The two key issues which led to this conclusion are the possibility of the extra-jurisdictional application of United States legislation and the restrictions on financial transaction processing which are following from the Act."

"As a result, the Group suspended the accounts of United States residents on 13 October 2006."

It continued:

"Over the last 18 months, the Group has made good progress in increasing the level of business from countries other than the United States, principally in Europe. This has been achieved by a number of initiatives including the introduction of European facing brands and the development of a proprietary multicurrency operating platform. Despite this progress, however, the US market still represented over 85% of the Group’s revenues in the period from 3 July 2006 to 13 October 2006."

"The Board has considered whether its non-US business could be profitable on the basis of a substantially reduced cost base, but has determined that this would not be possible without a major increase in trading volume. In the current environment, such expansion would require substantial investment in marketing and brand development, or the acquisition of existing non-US facing operators."

"The Group does not have access to the funds required to adopt either of these strategies and accordingly, the Board has concluded that it is in the best interests of shareholders to dispose of the Group’s entire gaming operations and infrastructure."

A comprehensive report in our Intelligence Report series examining offshore e-commerce and online gaming is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report6.asp

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