CryptoLogic: From Russia with Love

2 October 2008

CryptoLogic Ltd. has inked its first deal in Russia with Kurastica, a spin-off of an undisclosed company which Crypto said had established major gaming businesses across several former Soviet republics.

Under the multi-year deal, Crypto is to supply casino software to Kurastica, which through a number of channels will offer games to Russian residents.

"We think it's going to be worth a great deal, but we do actually have multimillion revenue guarantees to us that kick in after a certain burn-in period in 2009," Justin Thouin, CryptoLogic's vice president of marketing and development, told IGN by telephone this afternoon. "This is going to be a multimillion-dollar revenue deal per annum to CryptoLogic, so we're excited."

Mr. Thouin said that the deal was more than six months in the making, and that in Russia a good deal of interest exists in Crypto's software. He said the company was looking for an established local partner with a strong network of contacts.

Because many of Russia's land-based casinos, beneath the weight of legislation passed in 2006, have been forced to relocate to four remote locations in the country, Mr. Thouin said the company's partner believes that in the near term, Internet casinos have far better odds of achieving success.

He said that the company's peers -- Playtech Ltd. among them -- have inked numerous deals in Russia and done well on them.

While Mr. Thouin could not provide more specific financial details on the Kurastica agreement -- nor on the interests behind Kurastica -- Roth suggested in a note this morning that "new deals are typically signed for 3-yrs and include a revenue sharing arrangement in the 20% range."

With regard to CryptoLogic's financial performance and obstinate share price, Roth maintains that revenue is likely to pick up in the fourth quarter after a number of the company's eight new licensees are launched.

"We think we're undervalued, and I think the market's waiting for us to deliver the revenue that's promised with these deals," Mr. Thouin said. "As always, it takes some time to get things up and running. 888's just launched three of our games, so I think we're going to see revenue start coming in from that. We're very bullish about our future."

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.