Fairground raises online gaming stakes

The Isle of Man-based Fairground was established by the entrepreneur Evan Hoff as a cash shell specifically to invest in the online gaming sector. It floated late last year on the London Stock Exchange's Alternative Investment Market, and Spin Palace is its first acquisition.

The deal, which was agreed last month, will see the money paid in two tranches: $45.3m in cash and options up front, with the remainder paid if a series of financial targets are met by the end of this year.

The merger is the latest in a flurry of deals big and small in the fast-growing online gaming sector. 32Red agreed last week to pay £12.5m for Bet Direct, an operator of telephone and internet casinos as well as fixed-odds gambling.

This activity comes despite concern about the legality of online gaming in the US, where it is massively popular but technically illegal. PartyGaming, one of the sector's biggest players, saw millions wiped off its stock market value last year, following a much-hyped float, as analysts began to fret about its exposure to the US market.

Spin Palace runs the Ruby Fortune, which targets women, and Spin Palace Poker websites and recently merged with Piggs Casino, which is licensed by the Kahnawake Gaming Commission of Canada. The reverse merger must be approved by shareholders at an extraordinary meeting set for 12 June.

Most online gaming companies are based offshore. Under current English law, while it is legal to gamble online it is illegal to operate an online gaming company, though this will change when the Gambling Act, which is shaking up antiquated legislation, comes into force.

However, few expect gaming companies to rush onshore because of the potentially punitive level of taxation. The Treasury is considering lowering the rate operators would pay, but no one expects the Chancellor to slash them to the same levels that apply in the offshore tax havens.