"Legal Uncertainties With Regard To Online Gambling Causing IPOs to Drop in Value"

When the online poker company, PartlyGaming, declared its intentions to float on the London Stock Exchange, a great deal of anticipation and excitement was generated. The reason for this was that they were floating their shares at the astounding amount of ten billion dollars. But this initial excitement has now turned to caution and more of a wait-and-see approach. The questionable legal status of the online gambling industry in the United States accounts for this change in the attitudes of investors who are viewing PartyGaming’s flotation. Many possible investors have become progressively more wary about investing in Internet gambling companies for the reason that the increasingly anti-online gambling policies of the U.S. government is making online gambling look more and more iffy. To put it another way, the uncertain legal status of Internet poker in the U.S. has in effect dampened investor eagerness to invest in online poker. As a result, PartlyGaming, whose brand site is PartlyPoker.com, has seriously reduced its original IPO price. Although the company has been recently touted as the biggest float on the London Stock Exchange in four years, the initial ten billion anticipated flotation was reevaluated and reduced to the eight or nine billion dollar mark. Investor ambivalence has also affected stock prices. When the flotation plans were first announced, shares were expected to go for about 24 times earnings. But now expectations are that they will go for a more realistic 13 to 14 times earnings.

Most of PartlyPoker.com’s customers live in the U.S., where the the whole legality issue has become particularly relevant. Up until now, law enforcement agencies in the U.S. have been unwilling to prosecute online bettors, but there is no way of telling when that policy may change. Given the current climate in the U.S. as regards online gambling, this has become especially true. Not only the United States Department of Justice but also other legislative figures have been stepping up offensive measures that are directed at online gambling in their desire to clamp down on the industry. Robert Porteman, the U.S. trade representative, recently received a joint letter signed by nearly forty states, each insisting that they reserve the right to decide whether or not to restrict gambling in their respective states. The letter was a response to the recent World Trade Organization’s Appellate Court ruling concerning U.S. policies vis e vis online casinos and poker sites.

The doubtful legal status of online gambling, though arguably the most important concern of possible investors in PartlyGaming, is not, however, the single factor harmfully affecting the company’s plans to go public. The lower IPO price was also a product of the growing competition in the online poker industry and the fact that the float will largely benefit the original shareholders of PartyGaming instead of being used to improve the company.