Tuesday, October 24, 2006

Sportingbet has warned that the US is encouraging the creation of a black market through its online betting ban, after announcing it is taking a hit of £210m on the sale of its business Stateside. Announcing its annual results this morning, the UK-based firm said its profits had risen by 75% to £71.5m, but that next year's conditions will be very different following the legislation's approval by president Bush last week. Of the £303.3m in gross profit Sportingbet generated in the year to the end of July, £196.7m came from US-based users, which the firm said made up 56% of its customer base. Last Friday the company sold its US operations to an Antiguan company for just $1. It now says it is focusing on Europe and the rest of the world. Nigel Payne, Sportingbet's executive director, said there was "little sign" that governments would embrace its call for international online gambling rules. "The Board has continued to lobby for the adoption of consistent and transparent policies promoting the benefit of proper regulation. "However this year has seen a fragmentation of the Group's efforts, with many governments compromising this policy for various motives, be they fiscal protectionism or political gain." Passed through Congress in September, the US' ban requires banks, credit card companies and other 'financial transaction providers' to block internet bet payments. Sportingbet said the act defines 'unlawful internet gambling' as that which is 'unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received or otherwise made'.

The company said this definition was "somewhat ambiguous", adding that the legislation would "serve only to drive the industry underground and compromise the 'social responsibility' objective that is stated as the driving force behind the legislation."

It also said that following the closure of its Paradise Poker business to US customers, its remaining customers may also migrate to 'black market' services.

"Following the significant fall in total customers now able to play at Paradise Poker, this revenue may potentially be at risk if significant numbers of these customers now seek larger, more liquid "black market" poker rooms. The Group will have a better idea of whether this will have a material impact or not as the year unfolds."

Beyond the exceptional costs of £200m associated with its exit from the US, Sportingbet said it would have to pay out £10m for restructuring, including possible redundancies among its workforce of 350 staff. It previously had 850 employees.