Riding the “unstoppable wave of poker popularity”. Every day, 1.8 million players – more than 70 percent from the United States – throw their chips into the virtual pots of the Internet
An article in Newsweek highlights the intense investor interest in online gaming in general and poker in particular this week
The article reports that due to extensive media coverage, especially on television of celebrity and professional poker tournaments, poker is now the third most-watched televised sport on cable TV – subservient only to car racing and football.
Business in the roughly 300 major virtual poker halls of the Net is booming, says the author and in late June, five-year-old PartyGaming, based on the tiny European peninsula of Gibraltar, was among the first to take a crucial step for any ambitious dot-com: it went public on the London Stock Exchange, where its stock has since shot up 40 percent.
Newsweek says that other poker dot-coms are now lining up to follow suit and big American investment funds are throwing in their chips and investing. Only the U.S. casino giants are left on the sidelines, banned from the action because of one remarkable fact: despite its success, online poker is technically illegal in America, according to the U.S. Department of Justice.
Still, as Web poker booms, the Feds aren’t doing much to stifle the party. “Everybody is comfortable that the U.S. government is not going to take any enforcement action,” says Las Vegas lawyer Anthony Cabot.
The article goes on to explain the tax, legal and operational intricacies of offshore operations vis-a-vis the United States that enable companies with mainly American players to “…ride the seemingly unstoppable wave of poker popularity. Every day, 1.8 million players-more than 70 percent from the United States-throw their chips into the virtual pots of the Internet, according to tracking firm PokerPulse.com.”
Research firm Christiansen Capital Advisors says online-poker revenues have grown from $82.7 million in 2001 to $2.4 billion today – and projects the amount to double once again by 2005.
The PartyGaming IPO in June offered a peek into the fortunes being amassed by the online poker start-ups. Its prospectus revealed that the company’s profits more than tripled to $349 million in the last year, and it had virtually no debt. While concern over legal issues initially drove the IPO price down, the offering was three times oversubscribed, despite being off-limits to U.S. investors.
“This isn’t like the dot-com opportunities of the past,” says Nigel Parson, a research analyst at Williams de Broe in London. “This spews out cash like you’ve never seen.”
The popularity and success of online poker hasn’t changed any minds in Washington. The federal government argues that Internet gambling violates three federal antigambling laws, including the 1961 Wire Act. A Justice Department official, who was able to speak frankly with NEWSWEEK on condition his name not be used, noted that while Internet gambling is against U.S. law, prosecutors have greater priorities, such as combating terrorism and drugs. “We give what resources we can to it, but it’s hard to keep up with,” he says.
Newsweek says that his sort of approach “…makes playing or hosting poker games on the Web a little like going a few miles over the highway speed limit. It’s technically illegal, but everyone does it and you probably won’t get in trouble.”
Illustrating the popularity of online poker playing, the article points out that at the last World Series of Poker in Las Vegas, nearly two thirds of the 5,619 players qualified in online competitions. Executives of the offshore poker sites, many of whom were in town for the tournament, seemed untroubled by any potential penalties for their illicit vocation.
Online poker ads have returned to magazines, TV and the Internet, even though the Justice Department *asked* media companies in 2003 to stop taking them. The poker dot-coms have devised a simple workaround: they advertise their “educational” dot-net sites (such as PartyPoker.net), where players use imaginary money, then leave it to their customers to find the real wagering. This year, two offshore poker sites, Full Tilt Poker and UltimateBet, have even used their dot-net affiliates to sponsor entire shows on Fox Sports.
Even Wall Street can’t stand being left out of this high-stakes game. Goldman Sachs and Morgan Stanley are reportedly working on the forthcoming IPO in England of Betfair, which helps gamblers place wagers against each other on everything from sports to politics (Betfair does not currently take wagers from U.S. citizens). Big investment funds are also snapping up shares of the Web gambling companies. Fidelity, Goldman Sachs and Blue Ridge Capital-all American firms-are three of the top five institutional investors in the U.K.-based sports-wagering site Sportingbet.com, which trades on the London exchange.