Market Briefs - April 24-28, 2006

Playtech Revenues Increase 150 Percent YOY

Online gambling software provider Playtech Limited (PTEC.L), which in late March raised approximately £265.2 million (US$484 million) through the placing of 103,142,66 shares on London's AIM at 257 pence each, issued a first-quarter trading update last week to announce a strong start to 2006 in which revenues have increased by close to 150 percent--reaching US$20.8 million--compared to same period in 2005. Over the quarter, Playtech's online casino product, the main revenue generator for the company, improved its revenue to $18.1 million, which is a 136 percent improvement upon Q1 2005 and a 34 percent improvement upon Q4 2005. Poker revenues reached $2.1 million, which is a 1,159 percent improvement over Q1 2005, when the poker product was relatively new, and a 67 percent improvement over Q4 2005.

Since listing at 257p in late March, Playtech shares have risen to 347p, picking up 30p in the days following its first quarter update.

Empire Signups Increase

London Stock Exchange-listed Empire Online Limited (EOL.L) has issued a trading update for the first quarter of 2006, reporting that the number of new real-money players across all of its gambling operations (excluding Empire Poker, which is set to become part of PartyGaming Plc in exchange for US$250 million under the terms of a settlement between the two companies) rose by 36,242 over the period, representing an increase of 12 percent over the previous quarter. Fifty percent of the quarter's new signups came from outside the United States. Net gaming revenue for the quarter across all platforms (excluding Empire Poker) was $17.6 million, an increase of 42 percent over the previous quarter, and EBITDA reached $8.5 million. Empire Online's trading update does list data related to the EmpirePoker operation, indicating that the process of unloading the division had not yet been completed, at least by the beginning of the quarter.

Empire Online CEO Noam Lanir has indicated that his company would like to use its cash reserves, which have been boosted by the sale of EmpirePoker to PartyGaming, to diversify its offerings even further by acquiring an online sports betting operator, preferably one that does not rely on the U.S. market. Stated Lanir, "I believe that the cash reserves available to the company, along with the ability to use its equity give the company considerable flexibility in pursuing merger and acquisition activity over the remainder of the year. Our focus is to extend the range of the products that we can offer our customers, including a sports book. We will assess areas of geographical acquisition in line with regulatory and legislation trends."

Ladbrokes Rumored to Seek London Clubs

Rumors began circulating throughout the media and markets on Wednesday that British bookmaker and I-gaming operator Ladbrokes (LAD.L) is preparing to make a bid for traditional and interactive gaming operator London Clubs International (LCI.L). Neither company had any comments for the media regarding a potential deal, but shares in London Clubs rose 8.3 percent on the day to close at 123.5p, valuing the company at about £275 million.

Big Cash-outs for Paddy Power Execs

Upon the publication of Irish bookmaker Paddy Power Plc's (PAP.L) 2005 annual report, the Sunday Times and Irish Examiner pointed out that retiring CEO John O'Reilly received a one-time pension contribution of 300,00 euros to bring his total remuneration package to 1.05 million euros, while retiring finance director Ross Ivers received a payment of 154,000 euros to bring his remuneration to 968,000 euros. Board members have also received a pay raise in 2006, with chairman Fintan Drury's salary rising 45 percent to 160,000 euros and the salaries of non-executive directors rising by 15,000 euros to 55,000 euros. "Nobody doubts Paddy Power's thoroughbred status among bookmakers. It's a company that has stayed the course well," the Sunday Times reports. "Yet shareholders would be forgiven for wondering why such generosity was extended to its board of directors in a year when the bookie issued a profit warning and group profits fell by 2.4 percent."

To be fair though, the 2.4 percent decline in profit is a consequence of not just increased competition, but also of a long strand of uncontrollable racing and sporting results that affected bookmakers all over Europe in late 2005. Paddy Power also reported an 18 percent increase in turnover to 1.37 billion euros in 2005. Operating profit from Paddy's online properties rose by 92 percent and accounted for close to 60 percent of the year's earnings. CEO Patrick Kennedy has predicted that the company's retail business will achieve a gross win percentage of between 11 and 13 percent in 2006 and that Internet and phone operations will achieve between 8 and 9 percent.

AGA Stance Affects Share Prices in London

Last week the American Gaming Association announced last week that it has "modified" its "legislative position on Internet gambling" and now strongly supports the creation of a one-year congressional study commission that would evaluate the impacts of online gambling. Although the AGA, which represents commercial land-based casino entertainment industry in the United States, stressed that it remains neutral on the pending bills introduced by Reps. James Leach, R-Iowa, and Bob Goodlatte, R-Va., observers in the United Kingdom took the announcement as a sign that I-gaming prohibition in the United States is doomed to fail now that the AGA, which boasts a powerful lobbying force, had indicated a desire to explore the possibility of regulating the industry. Companies in the online gambling industry, including BetOnSports Plc and PartyGaming Plc, received a small boost in share price on the back of the AGA's position change.

Smoking Ban and Gambling Act Affect Rank Group

The Rank Group Plc has issued a trading statement for the 16 weeks to April 16, reporting a steady start to the year in terms of revenue performance, aided by the Hard Rock's performance, although profits under the company's gaming division remain under pressure due to higher business costs and changes to the taxation of its gaming machines. The company is also suffering the impact of the smoking ban in Scotland, where it operates 14 Mecca Bingo Clubs. Grosvenor Casinos has generated 12 percent growth in revenue with admissions up by 14 percent under some of the new freedoms introduced with the Gambling Act 2005. Betting shop and Internet betting operator Blue Square has made a positive start to the year with continued growth in online gaming and stronger sports books margins than in 2005.

BSkyB Aligns Accounting Policy with IFRS for Betting

British Sky Broadcasting Group Plc (BSY.L), operator of the Sky digital television network in the United Kingdom as well the Sky Bet interactive television and Internet betting service, has announced its intention to align its accounting policy with recent changes in industry practice regarding the accounting for betting revenues and costs under International Financial Reporting Standards. In Sky’s interim report for the half year ended Dec. 31, 2005 to be filed on form 6-K with the SEC on April 26, 2006, and in all quarterly reporting from then on, the company will account for betting revenues and costs under IAS 39 -- "Financial instruments: Recognition and Measurement." On this basis, betting payouts will be netted against Sky Bet revenues. This will have no effect on Sky’s operating profit.

Reporting

I-gaming firm World Gaming Plc's (WGP.L) gross profit for the first quarter of 2006 increased by US$9.5 million compared to the same quarter last year to reach $11.4 million. The huge jump was a result of World Gaming completing its acquisition of the business and assets of Sportsbetting.com, which had been World Gaming's largest licensee. Prior to the deal World Gaming had primarily been a software provider, but now the company receives significant revenue from operating online gambling Web sites as well. Over the quarter Sportsbetting.com brought in $76 million in turnover, while World Gaming's new and continuing software licensees contributed $1.1 million in revenue (a 57 percent improvement over Q1 2005). Sportsbetting.com gained 19,360 new customers over the quarter (a 29 percent improvement over Q1 2005), 49 percent of which were converted to new active betting customers.