Wednesday, September 27, 2006

Software developer CryptoLogic Inc. is relocating its head office to a more
"friendly" environment in Ireland, highlighting a growing moral divide
between North America and Europe over Internet gambling. The Toronto-based
company, which makes software that Internet gambling sites run on, yesterday
said it will move its head office -- including top executives, human
resources, business development and investor relations -- to Dublin in
January. The company's chief executive, Lewis Rose, is not relocating for
"family reasons" and will step down once a replacement is found. Chief
information officer Stephen Taylor is moving . The Dublin office will start
with a staff of about 10, eventually growing to about 20, the company said.
The majority of Cryptologic's Toronto staff of 250, including its software
development team, will stay put. The company will list on London's
Alternative Investment Market, and maintain its Toronto and Nasdaq listings.
Mr. Rose said the main driver of the move was a desire to be closer to
customers. About two-thirds of CryptoLogic's customers are international,
with about 60% of those in the United Kingdom and Europe. "If you follow the
logic, it's a logical, practical step. It makes sense to be in the same time
zone," he said. But he also said CryptoLogic -- whose $104-million in 2005
revenue makes it Canada's fourth-largest application software firm -- wanted
to move to a "gaming-friendly environment."

The climate for Internet gambling in North America has turned sour lately.
The U.S. House of Representatives in July passed a bill to expand the 1961
Wire Act, which bans gambling over the telephone, to include the Internet.
The Senate is expected to move on the bill before it recesses on Oct. 9 for
mid-term elections.

Authorities have also carried out a high-profile crackdown over the past few
months with arrests in U.S. airports of several British gambling operator
executives.

The arrests cast a pall over the industry, causing Britain's Continent 8
Technologies PLC -- 40% owned by the Mohawks in Kahnawake, Que. -- to cancel
its initial public offering last month.

"There's no question the U.S. has created a situation of uncertainty," Mr.
Rose said.

On Friday, French authorities detained Manfred Bodner and Norbert
Teufelberger, the co-CEOs of Austrian betting firm bwin.com Interactive
Entertainment AG.

The difference, analysts pointed out, is the French arrests were not for
moral reasons, but for alleged violations of the state-granted Internet
gambling monopoly of Francaise des Jeux.

The European Commission is investigating whether these monopolies are
violating the rights of commercial gambling site operators to run their
businesses across the European Union.

In Europe, it's therefore a case of protectionism rather than morality,
analysts said.

Europe -- and particularly the U.K. -- is proving to be a panacea for the
sector by going in the opposite direction to the United States. Starting
next year, the U.K. will license, regulate and tax online gambling, making
it "the centre of the universe for online gaming," Mr. Rose said.

Canada has taken a more-European approach in that Internet gambling is
allowed, but only provinces and territories have the right to run such Web
sites. That has created a grey area for would-be commercial operators and
technology providers such as CryptoLogic.