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PartyGaming's Non-US Strategy Paying Dividends

by Jason Gorringe, Tax-News.com, London

08 September 2006


Online gaming giant PartyGaming Plc, has announced a substantial increase in first half earnings on the back of a marketing campaign designed to reduce its revenue dependence on the US market, where the regulatory environment remains uncertain.

In the six months to June 30, 2006, Gibraltar-based PartyGaming, whose business centres on its PartyPoker website, saw revenues grow by 51% to $661.9 million, with non-US revenues up by 151% to $149.8 million. The group's pre-tax earnings grew by 47% to $380 million.

“PartyGaming has delivered a strong first half performance. These results demonstrate the strength of our business model and also the potential to grow our business through investment in the development of new products and new territories outside North America," stated Mitch Garber, Chief Executive Officer, PartyGaming.

PartyGaming has been compelled to market its services aggressively outside the US in the knowledge that lawmakers are attempting to make it illegal to offer online gaming and gambling services to US residents. While the Wire Act already outlaws the taking of sports bets over telephone lines across state and international borders, the situation regarding online gaming is less clear. However, the US House of Representatives recently approved the Online Gambling Prohibition Act, although it is uncertain if and when the bill will get the requisite approval from the Senate.

Moreover, the attack on London-listed and Costa Rican-based BetonSports by the US judicial authorities earlier in the summer is also thought to be the just the first of many legal actions against international e-gaming and gambling firms.

By 30 June 2006 PartyGaming had over 19 million registered players spread across 190 territories, up from 9 million players a year ago. A total of 519,532 new real money customers were added by the company during the first six months of 2006, of which 43% came from countries outside the US compared to 20% in the first half of 2005. Furthermore, the number of PartyGaming's active non-US players grew by 193% year on year to 380,775.

Nonetheless, despite its apparent success diversifying its revenue base, the company says it wants to continue its efforts to broaden its product offering, and that the board will be "opportunistic" in the mergers and acquisitions market, where, it said, a transaction can "enhance the overall balance of the Group’s business more effectively than through organic investment". According to the firm, the online gaming market remains highly competitive but also highly fragmented with over 2,500 gaming sites currently available.

The company has already begun to put its M&A strategy into effect. In February 2006, the group announced the acquisition of EmpirePoker.com, which was followed by the acquisition of Gamebookers, an exclusively non-US facing sportsbook, in August.

Garber predicts that the success of this strategy will be reflected in the company's full year results.

"The recent additions of backgammon and an exclusively non-US facing sportsbook should add momentum to our expanding international revenue base, assisted by the forthcoming launch of multi-lingual versions of our games and marketing initiatives in a number of new territories," he stated.

"Whilst regulatory uncertainties continue, the Board remains confident about the Group’s full year prospects," he forecast.

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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