US online gaming moves are anything but a sure-fire bet

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US online gaming moves are anything but a sure-fire bet

From The Times May 12, 2009
US online gaming moves are anything but a sure-fire bet. Dominic Walsh: Tempus

The Bill introduced last week by Barney Frank, chairman of the US House of Representatives Financial Services Committee, has been greeted as the first step in the inevitable dismantling of the laws introduced in October 2006 banning internet gambling. It has put some impetus behind the share prices of the likes of PartyGaming, Sportingbet and 888 – but investors banking on the ban being repealed quickly and the London-listed operators hitting the jackpot as licences are doled out would do well to tread cautiously.

Although Mr Frank is pushing for a vote before the August break, it is by no means certain to be passed. The anti-gambling lobby in the United States is powerful and reversing the online gambling ban is unlikely to be top of the agenda for the Obama Administration, which has more pressing issues to sort out.

Yet even if Mr Frank gets his Bill passed – there are suggestions that he could piggyback it on an unrelated economic stimulus package Bill – it could be 18 months before it becomes law and there is no certainty that overseas operators will get licences. Although the recent landmark settlement between PartyGaming and the US authorities allowed the group to avoid prosecution, its admission for the first time that, before October 2006, it targeted American citizens, resulting in the processing of transactions that were “contrary to certain US laws”, is hardly calculated to qualify it for a licence on the ground of probity. Moreover, only one of the group’s four founding shareholders has negotiated individual settlements and there is no sign of the other three wanting to do so.

Both Sportingbet and 888 are still negotiating separate settlements, but are likely to have to make similar admissions of limited guilt to that by PartyGaming (although Sportingbet’s situation is complicated by its involvement in sports betting).

The Frank proposals are also a long way from a free-for-all. James Hollins, an analyst at Daniel Stewart, reckons that the Bill is designed to allow individual states and Indian tribes to implement their own licences, granting a “carve-out” to states that do not want their citizens to have internet gambling.

Even if Mr Frank’s Bill sails through, it is hard to envisage that the protectionism that is central to internet gambling bans all over the world will evaporate suddenly. Nevada gaming revenues have just recorded their fifteenth consecutive monthly fall and the big Las Vegas operators, such as MGM Mirage and Harrah’s Entertainment, are unlikely to sit idly by as a lucrative new source of revenue is handed to overseas companies.

They may choose to tap into their expertise by acquiring the likes of PartyGaming, although their dire finances look ill-equipped to lead industry consolidation. The most likely scenario is that the Las Vegas operators will rush to sign licensing deals with overseas companies to gain access to the technology and operating know-how that they lack.

TUI Travel

It is a measure of how far the travel industry has come that the markets have taken swine flu in their stride. Fears of a Sars-like disaster have been quickly dispelled as the big tour operators have used their flexible business models to switch capacity from Mexico to other long-haul destinations. TUI Travel, the Thomson and First Choice operator, said yesterday that bookings to Jamaica were up 30 per cent in the past two weeks, with Egypt up 23 per cent and the Dominican Republic up 19 per cent.

In a reassuring trading update ahead of next week’s half-year results, TUI Travel said that it had completed its winter programme in line with expectations, with reduced capacity leaving it with fewer holidays to sell, meaning stronger pricing in the late bookings market. Capacity cuts have also helped its summer programme pricing, with average UK selling prices up 10 per cent. With consumers having more money in their pockets thanks to lower mortgage and household bills, trading has picked up, with volumes in the past eight weeks down 11 per cent against a cumulative decline of 17 per cent.

The main doubt about TUI Travel is the intentions of TUI AG, its German 51 per cent shareholder, which has talked about taking it private or swapping its debt for its continental assets. The uncertainty is unhelpful, but does not detract from the improving trading outlook. Hold.

RM Group

RM Group, the educational software and services provider, won top marks for its homework yesterday. On the face of it, broadly flat half-year pretax profits of about £200,000 hardly constitute a top-of-the-class performance, but what the market liked was the 21 per cent rise in sales to £141.9 million – comfortably ahead of expectations.

There was also soothing news in the accompanying trading update. Computrac, its recently acquired American business, appears to be proving successful, while the Oxfordshire-based company is still winning new contracts.

The question mark, however, is how orders will hold up once the axe is taken to UK public spending, some of which is likely to hit education. It is one reason why the shares have missed out on the recent rally.

RM’s case for the defence is that its forward order book, which rose from £410 million at the end of September to £425 million at the end of March, should provide plenty of forward visibility. There is, management argues, momentum.

Brokers are forecasting earnings per share of about 13.9p for the current year. That puts the shares, up 9¼p at 151¼p yesterday, on a multiple of almost 11 times expected earnings. That’s probably about right for a largely defensive stock with some reasonable growth prospects.