It's Official: Party, Feds Do $105 Million Deal

7 April 2009
Editor's note: After this article was published Tuesday, in graph 13, " . . . the company's decision to admit criminal wrongdoing . . . " was changed to " . . . the company's decision to admit criminal wrongdoing by some of its third-party suppliers . . . "

Ending nearly two years of negotiations, PartyGaming agreed Tuesday to settle with the United States for $105 million, after admitting its past activities here were illegal.

Under the terms of the agreement, inked Monday with the United States attorney's office for the Southern District of New York, the Justice Department said it will not prosecute the company for offenses committed during its near ten-year tenure as a United States-facing casino and poker operator.

Those terms, unsurprisingly, were a boon for the company's mercurial share price, which rose over 14 percent in London trading Tuesday.

"I think what's absolutely critical here, and needs to be understood, is that we have a non-prosecution agreement," James A. Ryan, the company's chief executive, told investors on a conference call Tuesday. "We are not being charged with any offense under any statute."

In a prepared statement, Lev L. Dassin, the acting United States attorney in Manhattan, said the Justice Department's decision to enter into the agreement was based, in part, on PartyGaming's "early and full cooperation with the Government."

Sportingbet and 888 Holdings, which followed PartyGaming to the negotiating table in 2007, remain in talks with Mr. Dassin's office, but when contacted by IGamingNews, a spokeswoman for Mr. Dassin declined comment on the status of those talks.

Nonetheless, Sportingbet and 888, which also trade in London, rose 13.25 percent and 7.8 percent, respectively.

Andrew McIver, who is chief executive of Sportingbet, told Reuters recently that the company hopes to settle with the Justice Department in 2009, though his counterpart at 888, Gigi Levy, told investors on a March conference call that negotiations had not reached a point where assessing their outcome was possible.

PartyGaming has agreed to pay the $105 million -- proceeds of its United States operation, the Justice Department said -- in twice-yearly installments, the last of which is scheduled for September 2012.

Against the backdrop of stagnating poker revenue, and newly shorn of any threat of retroactive prosecution, the company was optimistic about tapping capital markets to finance consolidation efforts.

"What resolving the concerns of the U.S. government does for our business is it opens up opportunities that would not have otherwise been available to us, specifically our access to equity and debt markets," Mr. Ryan said. "With this particular issue now closed -- resolved -- we believe we are in a position . . . to look at consolidation opportunities that were much larger than we could have in the past."

Some analysts and commentators believe PartyGaming's deal with the Justice Department puts it in pole position for licensure in America, should individual states or the federal government ever elect to regulate and tax online casino, poker -- or both.

Others believe the company's decision to admit criminal wrongdoing by some of its third-party suppliers could place it on the margins of any future competition here, given some of its listed peers have no negative history with the feds.

News of the deal accompanied the company's first-quarter trading update, which showed total net revenue down 22 percent to $100.1 million over last year. Meanwhile, quarterly revenue from poker, the company's core business, fell 33 percent to $53.6 million.

The company also hinted that in light of Tuesday's agreement, it may consider reviewing its dividend policy.

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