Poker float rush revives memories of dot-com bust

Is the market 'getting crazy' about card games on the internet? A £5.8bn flotation has experts 'sceptical', finds Clayton Hirst
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The Independent Online

The signs are ominous. An eight-year-old technology company announces plans to float on the London Stock Exchange. It has few assets to speak of, but has experienced a staggering 93 per cent leap in revenues over the past year.

The signs are ominous. An eight-year-old technology company announces plans to float on the London Stock Exchange. It has few assets to speak of, but has experienced a staggering 93 per cent leap in revenues over the past year.

And, when it lists at the end of the month, the company is expected to achieve a market value of £5.8bn, leapfrogging FTSE 100 stalwarts such as British Airways, Cable & Wireless and Marks & Spencer.

PartyGaming, based in Gibraltar, runs the PartyPoker website. It is nothing if not ambitious. Its chief executive, Richard Segal, said: "We want be the largest gaming company in the world." However, fears are growing that its float will pump hot air into an unsustainable bubble developing around online poker.

Behind PartyGaming, a clutch of other companies, such as 888, Empire Online and PokerRoom, are considering listing in London. They are taking advantage of the huge surge in the popularity of online poker. According to Ladbrokes, the amount of money staked per day on this version of the game has more than doubled over the past 12 months to £19.2m.

Online gambling represented just 3.9 per cent of the overall betting market last year. But, in a further parallel to the late-1990s technology bubble, investment banks are now making extraordinary predictions on the future of online poker.

Dresdner Kleinwort Wasserstein, the German bank which is acting as sponsor to the PartyGaming float, predicted in a report published last month that, in three years' time, online poker will have comfortably overtaken sports betting and other gambling on the internet.

Richard Holway, a director of technology research company Ovum who correctly called the top of the last technology boom, said a bubble is forming around online poker.

"The valuations are getting crazy. I am extremely sceptical about this sector. Yes, we need excitement in the stock market, but I wouldn't bet my pension scheme on companies like PartyGaming.

"However, given that it will become a FTSE 100 company then pension funds will have to invest, because of the fund rules," Mr Holway added.

"You have to remember that the reason so many pension schemes are in such a state today is that they invested so heavily in technology stocks in 1999 and 2000."

PartyGaming has hired Michael Jackson, the highly respected non-executive chairman of software company Sage, to be its own non-executive chairman. At Sage, Mr Jackson is paid a basic salary of £143,000 a year. At PartyGaming, he will be paid £500,000.

"There aren't many FTSE 100 chairman with such huge expertise in IT," said Mr Segal, explaining why his chairman is being paid such a handsome sum. But Mr Holway had a different take: "This is danger money. They are paying this because they need someone with his credibility."

Stockholm-based Poker-Room is another online company considering a flotation, possibly next year in London. Its chief executive, Patrik Selin, admitted: "There is a lot of hype around poker, driven in part by famous players such as [the Hollywood actor] Ben Affleck."

But, he added: "The big difference is that we are earning money; the dot-com companies of the 1990s had zero profits. Online poker is here to stay."

PartyGaming plans to use the money it raises from the float on establishing itself as the largest company in the sector.

Mr Segal said: "The market is highly fragmented and many of the companies are run by entrepreneurs. This is a big-margin business but it requires big spend. Last year we spent $100m on marketing alone.

"This is a business," he added, "where big is beautiful."

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