For ESI, the Sun also Rises

17 September 2008

Following a costly settlement with the United States and new deal with 888 Holdings, Anthony B. Greening, the chief executive of ESI Entertainment Systems Inc., told IGamingNews that his company is on the rebound.

It's been one hell of a ride for the British Columbian group, as its flagship Internet gambling money-transfer arm, Citadel Commerce Corporation, withdrew in January 2007 from the American market -- a market from which 97 percent of Citadel's revenue was derived.

Following 14 months of negotiations with Michael J. Garcia, the United States attorney for the Southern District of New York, ESI agreed in June of this year to a $9.1 million deferred prosecution agreement -- this to avoid facing charges of "conspiracy to conduct illegal Internet gambling."

"I think it was a very good achievement to obtain this settlement with the D.O.J.," Mr. Greening said by telephone this afternoon, "and with the type of agreement that's typified by the 888 announcement, I think a new dawn has come."

Yesterday, Citadel announced a deal to supply 888 Holdings with its Instant Internet Banking payments solution. In a prepared statement, Gigi Levy, the Gibraltar company's bullish chief executive, said the Citadel service had tested well with its high-rolling customers.

Asked about the significance of such an endorsement, Mr. Greening exulted: "Very important -- 888 is such a blue-chip, prestigious company, and to have their endorsement in this way is quite meaningful."

Qualifying, Mr. Greening added that he expects the deal to help entice propsective clients.

"It (attracting new customers) happened before when we began -- whatever it was -- eight years ago," he said. "They (888) were our first major customer, and it made all the difference in the world."

"All the difference in the world," however, may best describe ESI's operating landscape and financial health between the 2007 and 2008 fiscal years -- years during which many of the industry's publicly traded companies "repositioned" themselves.

With its United-States-facing operation in place, the company reported gross profits of 13.5 million Canadian dollars in 2007 versus 518,000 Canadian dollars in 2008 (sans American customers).

During the first quarter of the 2009 fiscal year, results for which were released in July, the company brought total revenue up 12 percent to 869,000 Canadian dollars against the previous year period, though gross profits fell 42 percent to 161,000 Canadian dollars.

While ESI made a loss of 1.13 million Canadian dollars during the first quarter, Mr. Greening indicated that the company has entered into a letter of intent with an undisclosed party to sell its ESI Integrity Inc. subsidiary for $2 million.

Mr. Greening suggested that Integrity, which supplies auditing and fraud-control technology and services to international parimutuel and lottery operators, was "rather different" than the company's potentially more lucrative Citadel business.

"One of the great inhibitors is that all shareholders that own more than 5 percent have to provide complete due diligence, and when we went public, we found that this was an inhibitor," he said. "And with our current dramatically depressed share price, it is an inhibitor on future investment."

The deal is expected to close in October 2008, and Mr. Greening said it will allow ESI to refocus its energy on Citadel, which, he added, will not -- like its European competitor, Neteller -- diversify revenue away from online gambling.

"We're still focused on gaming -- there's a lot of good business there," he said.

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