Market Briefs (June 17-21)

CryptoLogic to Take $9.5 Million Charge

CryptoLogic (CRYP) said Wednesday that it will take a charge of $9.5 million for the quarter. The software supplier has also adjusted its second-quarter expectations in connection with credit card processing problems in the United States.

The charge includes a write down of CryptoLogic's $6.6 million investment in SCG Enterprises, a wholly owned subsidiary of the U.K.-based wagering portal Sports.com. WagerLogic, CryptoLogic's licensing subsidiary, invested in Sports.com to receive a higher revenue share in a casino licensing agreement and an option to acquire SCG. Sports.com was placed into administration in late May.

Jean Noelting, president and CEO of CryptoLogic, said the company is gathering legal advice about its situation with Sports.com.

"The rapid deterioration of the financial position of Sports.com, particularly in advance of the World Cup, is markedly different from representations made to us and we will pursue all legal options open to us," he said.

The company is also lowering expectations for its second-quarter financials as a result of U.S. banks tightening controls on Internet gambling. CryptoLogic said it has recovered half of the revenue it has lost since U.S. credit card companies began halting online gambling transactions at the end of last year.

However, several more U.S. banks have recently decided to ban Internet gaming transactions. As a result, CryptoLogic is planning to reduce its costs to mitigate the effects of increased rejections of U.S. gamblers. Noelting said the company's balance sheet remains sound, though.

"The overall trend in the Internet gaming market remains solidly upward, and we expect a return to revenue and earnings growth in the second half as new, internationally focused licensee sites ramp up and localized products gain traction," he said.

Coral Outlook Upgraded

Standard & Poor's last week increased its outlook on Coral Group to positive from stable.

The ratings group upgraded Coral on account of the gaming company's increased profitability as the result of changes in the U.K. gambling tax scheme. Standard & Poor's also affirmed its single-B-plus long-term corporate credit and single-B-minus subordinated debt ratings on the gaming company.

The United Kingdom's betting tax changes include replacement of a tax on turnover with a tax of 15 percent of gross profits. The horse racing tax was replaced with a 10 percent gross profit deduction.

Multimedia Games Reduces Expectations

After being informed last week that one of its main clients was in violation of the Indian Gaming Regulatory Act for continuing to use Multimedia Games' (MGAM) MegaNanza game, Multimedia Games issued a warning that it would not achieve earnings expectations.

The company, based in Austin, Texas, said it will earn between $1.60 and $1.70 per share, which is 5 to 15 cents per share less than it originally predicted. Those figures do not include a charge of 3 cents per share that the company will incur from postponing its public offering.

Multimedia Games was told Tuesday by the National Indian Gaming Commission that MegaNanza's operation was in conflict with gaming regulations.

Analysts Call Wynn IPO Promising

Gaming analysts are giving Steve Wynn's plans for an initial public offering a thumbs up.

Wynn's Wynn Resorts Ltd, which is planning to build a new resort-casino in Las Vegas, filed for an initial public offering last Monday. The company filed to sell up to $408.3 million in common stock. The new resort, called La Reve, is scheduled to open in March 2005.

Wynn's company also plans to offer $350 million in second mortgage notes through two of its subsidiaries. In the IPO filing, Wynn said La Reve would cost about $2.4 billion to design and build.

Lehman Brothers analyst Jane Pedreira said that given Wynn's experience, the new endeavor has a high chance of success.

"He's always built the better mouse trap," she said.

Gaming Companies To Bid on Coral Eurobet

The bidding period for Coral Eurobet expires Wednesday, and five large gambling companies are expected to make offers.

Rank Group (RANKY), Stanley Leisure (SLY), Hilton Group (HG), Ladbrokes and William Hill (WMH) are all expected to bid on Coral, which is the third largest bookmaker in the United Kingdom. Private equity buyers are also expected to bid.

Coral is owned by Morgan Grenfell Private Equity, which is a division of Deutsche Bank. Analysts say the asking price is between £750 million and £850 million. Morgan Grenfell purchased Coral from Hilton Group in 1999 for £360 million.

Report Released

GTECH Holdings Corp. released its results for the first quarter of fiscal 2003 last week along with news that the company is exceeding its own expectations in the categories of service revenue, gross profit, expense reduction, operating income, earnings per share and cash flow generation. Revenue for the first quarter was $231.4 million, a slight decrease from the $235 in revenue the company collected during the first quarter of 2002. Net income was $29 million, or 49 cents per diluted share, up from $19.1 million or 30 cents per diluted share last year.