Web gaming shares leap after U-turn on US ban

Gambling sites set to cash in as Department of Justice says betting laws should be relaxed

Shares in online gambling companies soared yesterday after news that the US's draconian internet poker laws are to be relaxed.

Party Poker owner Bwin.PartyGaming, up 30 per cent to 156.69p, and 888 Holdings, which rose 9 per cent to 39.25p, are expected to be the big winners from a Department of Justice (DoJ) opinion that online gambling should be allowed for non-sports bets. This was announced late on Friday and could be followed by federal legislation.

The Gibraltar-based companies were hit by a US clampdown on online gambling under the 2006 Unlawful Internet Gaming Enforcement Act, with PartyGaming accepting a $105m (£68m) fine to avoid prosecution for its nine years of stateside operation. The move also led to a number of plea bargains and prosecutions of online gambling executives.

However, it was always unclear whether the legislation and the earlier Wire Act applied to internet gambling outside of sport. British companies have recently beefed up their ties with the US in anticipation that poker-playing President Barack Obama would resurrect the market.

Although rivals such as Betfair and Sportingbet are also eyeing up a market believed to be worth $3bn to $5bn, PartyGaming and 888 are considered to own the technology needed to cope with the flood of new players that would enter their games. Up to 100,000 people can gamble at the same time – PartyPoker, PartyGaming's flagship site, was handling 32 bets a second before blocking wagers from the US in 2006.

The companies also have their old register of players stateside, vital in an industry where marketing plays a central role in attracting punters. This might, though, have the effect of turning 888 into a takeover target for US firms looking for the technology to compete.

A leisure sector corporate financier said: "PartyGaming is probably a bit big [to buy] in this market, but this should put 888 on the radar screen."

A sector analyst added that 888 was now "potentially quite attractive" to predators given it has been trading at well under 40p until yesterday's surge. Panmure Gordon has a target price of 60p, while some believe the stock should be closer to 70p or even 80p.

Andrew Gellatly, editorial director at data provider GamblingCompliance, argued that "it seems that the DoJ was acting in bad faith" when it fined firms in the wake of the 2006 act. However, sources close to PartyGaming dismissed the idea that the group could get any of its money back.

Stephen Burn, chief executive at Betfair US, said that the change will legitmise a large part of the market that is already operating illegally. "This announcement from the DoJ... is a serious about-turn. It looks like this will open up things like the lottery, poker, casino games and bingo," he said.

Executives accused

Anurag Dikshit

Indian co-founder of PartyGaming. Admitted US gambling offences in 2008; agreed $300m settlement.

Gary Kaplan

American founder of BetonSports. Sentenced to four years in 2009 for running illegal offshore betting.

David Carruthers

British CEO of BetonSports. Sentenced to 33 months after agreeing to testify against Kaplan.

Brent Beckley

American co-founder of Absolute Poker. Jailed this month after anFBI-led swoop on card-playing sites.