Online gaming shares plummet as US lawmakers threaten clampdown

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Shares in online gaming groups with the majority of their customers in the US plummeted yesterday on fears that American lawmakers could finally clamp down on the industry.

The market was spooked by a warning on a gambling website that the Republican Senator Bob Goodlatte was preparing to present a new "prohibition bill" to the House of Representatives next week, amid suggestions that the fallout from Washington's recent lobbying scandal could aid its passage.

Online gambling companies are not allowed to operate in the US and base themselves offshore, but the authorities have so far failed to stop Americans using the sites.

The poker giant PartyGaming and fellow online gaming operator 888 were the biggest fallers on the London stock market. PartyGaming shares dropped nearly 4 per cent to 123.5p, while 888 was down 5 per cent to 187.75p. Shares in Sportingbet fell by 5 per cent to 387.25p. A spokesman for PartyGaming, which takes 80 per cent of its customers from the US, said: "We continue to monitor the situation in the US."

An estimated 8 million Americans logged on to gaming sites last year. Previous attempts to stamp out online gambling by Americans have run into the sand in either the House of Representatives or the Senate, but sponsors of new bills are becoming more optimistic. They hope to harness disquiet since the bribery scandal involving the lobbyist Jack Abramoff. As an adviser to eLottery, a technology firm, in 2000, Mr Abramoff had reportedly lobbied against a previous bill to clamp down on internet gambling.

One measure currently being championed would make it illegal to pay internet gambling sites with credit cards, wire services or other banking instruments - a move that would put additional pressure on the financial services industry to take action that could stamp out online gambling.

Once again, the US sports leagues have thrown their weight behind the bill, arguing that sports betting threatens "traditional American values" the team sports represent.

Mr Goodlatte, Republican congressman for Virginia, failed to push through prohibition legislation in November 2001 but is believed to be planning the introduction of a bill that would amend existing legislation to explicitly outlaw online gambling.

The latest threats to online gaming companies came as the Canadian company behind UltimateBet announced its debut on the Alternative Investment Market. Excapsa Software is raising £56.2m in the float that values the business at £214.2m. The shares start trading tomorrow at 110p.

Excapsa announced plans for a listing last summer at the height of the internet poker craze when PartyGaming floated and raised almost £1bn for its owners. Only two months later the shares crashed on fears that the online poker craze had started to wane, making it difficult for companies such as Excapsa to float, but they subsequently rallied again on evidence of further growth.

David Collins, at Berwin Leighton Paisner, who advises Excapsa, said: "The last thing you want to do is drive [online gaming] underground. The US would be far better at regulating it than prohibiting it. A country which espouses freedom of speech and choice ought not to be taking such a paternalistic stance in relation to online gaming."

The online gaming industry is pinning its hopes on a change of mood among US casino groups, which might prefer the option of starting their own online operations and would stop their lobbying against internet rivals.

Any further stock market impact from legislative moves in the US will be closely watched by the Australian company Betcorp, which said yesterday that it intends to list on AIM on 17 March.

A UK broker said internet gaming shares were hugely overvalued and any hint of a threat to the groups' important US clientele would hit the stocks. But he added: "I can't imagine the bill going through. Even if it did, I don't think it would make a lot of difference to their bottom line." The likes of PartyGaming have been signing up more players outside the US recently.