PartyGaming deals a bad hand to poker rival Empire Online

Confidence in the online-poker market took another pummelling yesterday when Empire Online, which directs traffic to gambling businesses, said yesterday growth in the market was flat in the three months to the end of September.

Separate news from the world's largest online-poker site, PartyGaming, Empire's biggest customer, dealt the company a double blow. PartyGaming said it was distancing itself from Empire and other affiliate websites, known as skins, that run as a marketing front to deliver customers to its business.

The move by PartyGaming restricts the access skins have to its pool of customers and to some of its technology. Shares in Empire fell 34 per cent to 121p, well below its June float price of 175p a share.

Shares in PartyGaming, which staged a £5bn float this summer, also fell to a fresh low on comments from Empire about the state of growth in the industry. Its stock hit 71p yesterday, down more than 11 per cent on the day and down 40 per cent on its float price. Sportingbet, another rival in the sector which considered buying Empire, saw its shares dip nearly 7 per cent to 286p. 888, which listed on the stock market last month, saw its shares fall more than 11 per cent to 143p.

Players coming to PartyGaming's website direct will play on their private tables, with players signing up through Empire no longer allowed to play in the same games. New gambling products, such as blackjack and roulette, will not be available to Empire and others.

In response, Empire said its poker site, which will still be operated by PartyGaming, would remain one of the world's three largest online-poker rooms and would benefit from separate investment by PartyGaming. Analysts fear, however, that Empire and other skins will lose players. Empire's house broker, Numis, said: "This causes some near-term uncertainty surrounding Empire's player activity and yield per active player, given that the liquidity will be reduced."

Some in the industry predict that PartyGaming's skins will fight back against the move to squeeze them out of the picture, offering lower commission to players that stay with their sites. "PartyGaming could have cut off its nose to spite its face," one industry insider said yesterday.

The news on market growth rates overshadowed a rise in revenues and customer numbers at Empire. The number of new real-money players climbed 62 per cent to 53,148 in the third quarter, and the number of active players - those who played for real money in the past 90 days - more than doubled to 173,901. Operating profits jumped 43 per cent to $16.1m (£9.2m) and gaming sales advanced 73 per cent to $31.4m.

The sector has been hit since PartyGaming warned last month that revenue growth was slowing. Noam Lanir, the founder of Empire Online, said: "Our results demonstrate the strength of our core marketing skills."