Online poker company PartyGaming, whose flagship site Party Poker is at the top of the online poker industry, has slashed its IPO price amidst investor ambivalence. The legal quagmire surrounding online poker has many wary, and the reduced price is a further bid to tempt investors, despite the ambiguous legal status of internet poker in the U.S. With the vast majority of PartyGaming's customer base residing in the U.S., the uncertain legal status of internet poker there has understandably put a damper on investors' anticipation for what was being touted as the London Stock Exchange's biggest float in the past four years.

PartyGaming was originally expected to float to the tune of $10 billion, but now figures are estimated to be closer to the $8-$9 billion range. Stock prices have also felt the brunt of the situation. Initially, shares were expected to go for approximately 24 times earnings, but now have been cut to between 13 and 14 times earnings.

In hindsight, many financial experts consider initial expectations for PartyGaming to have been unrealistically optimistic, bearing in mind that the online poker company has only one major product and is immersed in legal dilemmas. Legislative and Judicial attacks on online gambling have been coming at the online poker industry from all sides, threatening the status of online gambling in general and online poker in particular.

In addition to actions by the U.S. Department of Justice (DOJ), which has recently stepped up its offensive against online gambling sites, online poker included, other legislative figures are also doing their part to restrict internet gambling. Attorney generals of nearly 40 states recently sent a joint letter to U.S. trade representative Rob Portman, in response to the World Trade Organization (WTO) Appellate Court's ruling, which challenged the U.S.'s current trade policies towards online casinos and poker sites. The states demanded that they still be able to reserve the right to decide whether or not to restrict internet gambling in each of their respective states.

Arizona senator John Kyl's proposed Unlawful Internet Gambling Enforcement Act of 2005 also has many investors concerned. If passed, the Kyl bill could restrict financial transactions over the internet for the purpose of gambling online, a move that will largely handicap offshore online gaming sites from reaching U.S. customers. Although most members of the online gambling and poker communities do not expect the Kyl measure to pass, even a small chance that it will is reason enough for many investors to pass up an investment opportunity with PartyGaming. PartyGaming's prospectus, which is slated be released today, is expected to outline all of the potential risks looming over PartyGaming.

Aside from the potential legal issues facing the online poker company, other factors also contributed to the lower IPO price. Growing competition in the online poker industry, as well as the fact that the float will mainly benefit PartyGaming's founding shareholders, instead of being put toward building up the company have both affected the company's IPO price.

Source:  Poker777 Staff

Wednesday, 15 June 2005