Abigail Townsend : The writing's on the wall for US betting websites

Arrest of executive is only the start in a country ill at ease with gaming
Click to follow
The Independent Online

So it has finally happened. US authorities - which always had distinct views about the legality of online betting - struck at the London-listed BetonSports last week. Its chief executive, David Carruthers, was taken into custody and an arrest warrant was issued for its founder. Back home, its shares were suspended and the bulk of its sites closed.

BetonSports could do little more. But the rest of the City was going into overdrive. The first flurry of notes from analysts were generally gloomy, and no one escaped the sell-off as nervy investors fretted over who could be next. The biggest focus was on PartyGaming and Sportingbet, both of which have large exposures to the US.

Yet a modicum of calm had been restored by the end of the week, and this was in no small part down to the companies themselves. On Friday, PartyGaming's chief executive, Mitch Garber, revealed a 49 per cent rise in second-quarter revenues, to $319.3m (£171.7m); who in the City can resist that sort of hike, even against a risky backdrop?

But Mr Garber also addressed analysts, and it was some performance. He downplayed any potential knock-on effects of the indictment against BetonSports, pointing out that, yes, PartyGaming had many a US punter, but no, it did not take sports bets, which is what nearly all of the charges against its rival relate too. He also stressed that the company would continue with its plans to expand overseas, and even branch out into sports betting - just not in the US.

And so, while PartyGaming's shares ended the week down against Monday's starting position, at least they were moving upwards once more.

But the City would be foolish to dismiss its fears on the back of some strong numbers and a smooth presentation to analysts. Because, as the NatWest Three will testify, when the Department of Justice has scented its prey, it is not wont to drop it. America has always had an uneasy, moral attitude towards gambling, whether in casinos or online. As an industry, it is restricted and closely legislated, and officials clamp down on misdemeanours quickly. New laws are being introduced to close loopholes in the Wire Act - in other words, to cover all online gambling, not just sports books.

So the American market has always been the ultimate gamble for the online sector. On one hand, it is crammed with punters who - evidently not sharing their politicians' scruples - want to part with their cash. On the other, its legality has always been grey, with the signs pointing to it becoming more uncomfortably black and white.

The gambling companies have tried to get round this, primarily by being based offshore. But what if we end up with a situation where the US authorities become so aggressive that no chief executive dare set foot in his biggest market? The writing has always been on the wall, it's just that the companies have managed to get away with it. I dare say they will continue to for some time yet. But last week's events prove one thing, and one thing only: it won't be forever, no matter how upbeat Mr Garber is.

Sixty years young

An interesting debate is growing around Lord Browne, BP's respected chief executive. Merrill Lynch wants him to stay. Some investors do too. Others are not so sure. With his retirement not scheduled for 18 months, it's also going to be a debate that gets louder.

But one of the more interesting issues here is not Lord Browne so much as the need for flexibility. I don't have to list all the new rules and laws that have come in since Enron, WorldCom et al. In a nutshell, the American markets were caught napping and reacted harshly. The UK also responded by tightening corporate governance.

I'm not for one second advocating that old men who do their companies no good be allowed to stay on indefinitely. But how's about making sure it is the best person who does the job, regardless of age and rules.

a.townsend@independent.co.uk

Comments