Internet gambling firms in freefall

Online gambling companies are scrambling to find loopholes in new legislation aimed at outlawing bets by American internet users after more than £3bn was yesterday wiped off their valuation on the London stock market.

Some of the biggest names in global internet gaming are poised to abandon their lucrative business in the US as soon as President George Bush signs off shock legislation that will cripple the $6bn internet gambling industry. PartyGaming and 888 intend to stop accepting bets from US-based customers as soon as the bill is signed in the next two weeks.

PartyGaming was the biggest casualty of the gaming bloodbath on the London market, losing almost £2bn of its market capitalisation after its shares crashed 58 per cent to 45p. Sportingbet saw two-thirds, or £500m, wiped off its valuation, while 888 lost 26 per cent of its value, or £128m.

Mitch Garber, the chief executive of PartyGaming, said the new law, if signed, would make it "practically impossible" to provide US customers with access to its sites. Exiting the US meant its financial performance would fall "significantly" short of City expectations. 888, which makes half of its profits in the US, and Sportingbet issued similar warnings.

Under the proposed law, which was rushed through late on Friday before Congress went into recess ahead of the US mid-term elections next month, it will become illegal for gaming companies to take any money on bets made over the internet in the US.

The legislation, pushed through in the Senate by its Republican leader, Bill Frist, was tagged on to an unrelated bill on port security. "As the first piece of Federal legislation dealing explicitly with internet gaming, it does make clear that the US government intends to stop the flow of funds from Americans to online gaming operators through criminal sanction," PartyGaming, which makes three-quarters of its revenues from the US, said. This was in direct opposition to the line spun by the poker giant when it floated on the stock market two years ago, sparking an online gaming bubble that has now burst.

Lobby groups and City analysts expressed scepticism that the law would be enforceable. Frank Fahrenkopf, president of the American Gaming Association (AGA), which represents bricks and mortar gambling businesses in the US, said he did not believe the legislation would be enough to enforce a ban on online gaming. "Money always has a habit of finding its way to where it wants to go," he said.

John Anderson, 888's chief executive, said: "It's a shame for the American consumer. This will just drive it underground. Look what happened with Prohibition."

Sportingbet said it intends to lobby the World Trade Organisation to find out whether the legislation would "violate" US commitments under the general agreement of trade and services struck recently. The UK group said it was "unclear" how the US Treasury and Federal Reserve, which will have 270 days to decide how to crack down on internet gamblers, might enforce the bill against non-US corporates.

One senior executive said it was possible that groups representing US banking interests could lobby to get non-credit card payments, such as money transfers via Western Union, exempted on the grounds that it would not be practical to identify the use of the proceeds. Only credit card companies use a coding system that identifies internet gambling transactions. Another executive said it was possible cash bets could be exempted from the legislation.

UK companies linked to the internet gambling sector also suffered. NETeller, which processes payments, lost 61 per cent of its value, or around £260m, while Playtech, a software provider, was worth £220m less at the market close, valuing it at £310m.