Financial Times
LONDON — With its red telephone boxes, British bobbies on the beat and quaint period charm, Gibraltar is the last place you would expect to find a fast-expanding Internet industry.
Gibraltar, after all, is where Nelson launched his campaign to defeat the Franco-Spanish fleet at Trafalgar in 1805.
Two hundred years later the tax haven has become a hub for the international online gaming industry and home to such companies as 888.com, Party Gaming and the online casino operations of Ladbrokes & Coral, the British bookmakers.
With 888.com and Party Gaming, two of the largest operators in the sector, eyeing initial public offerings on the London market, a spotlight has been shone on what is still a nascent industry.
Sitting in his office in a building that also houses Ladbrokes & Coral, John Anderson, chief executive of 888.com, says 2005 could be the year online gaming grabs the attention of public investors.
The company is 75% controlled by two pairs of brothers, including Israelis Avi and Aharon Shaked, and has appointed CSFB to prepare a flotation that could value the group at up to 1.6 billion pounds ($3 billion).
Party Gaming, meanwhile, has appointed Dresdner Kleinwort Wasserstein and Investec to run a strategic review that could also lead to an IPO.
U.S. banks had shied away from the Party Gaming advisory role on concerns about the legality of online gaming in the U.S., where Party Gaming and 888.com have millions of customers. The appointment of CSFB by 888.com is therefore being seen as a milestone for the industry because of the bank`s size and U.S. exposure.
Online sports betting is illegal in the U.S. although interpretations differ when it comes to Internet poker and casino games, such as blackjack.
Anderson says previous legal cases have established that online gaming is not illegal. "There have been several attempts at bringing in bills in the U.S. [to kill online gaming] and they have all failed," he said.
It may not be illegal, but the absence of online gaming businesses located in the U.S. suggests that other operators do not share Anderson`s confidence. Three years ago Eliot Spitzer, the New York attorney general, put pressure on Citigroup Inc., which resulted in the bank ceasing its processing of payments relating to transactions on online gaming sites.
Meanwhile, the U.S. Department of Justice has warned companies not to take advertising from online gaming groups.
Anderson, though, is undeterred. "I don`t have any fear at the moment because what I`m doing is not illegal. I`m taking bets from people in the U.S. through my server in Gibraltar. We are very sure of our position [in the U.S.]. It`s the biggest gaming market in the world and Internet penetration there is very high. It`s a no-brainer for me."
The CSFB appointment sends an important message, he adds. "It says a lot about us that a … U.S. bank is getting involved. It says that in the U.K. especially, where the gambling act has been passed, that this is now an institutionally accepted industry."
As Internet penetration has risen in Europe and the U.S., so has the number of 888.com`s registered member accounts. In 2002 it had 2.7 million registered members. This rose to 10 million in 2003 and had risen to 13 million last year.
"At any point in time we have an average of 6,000 people playing," Anderson said.
Unlike Party Gaming, which is weighted toward poker, 888.com makes 80% of its money from casino games, such as blackjack. Anderson says it is in the company`s interest that players do not lose all their money.
"What I don`t want is someone who drops $250 in an hour," he said. "If that happens we write to them and tell them they`re not playing the right way. It`s not because I`m a nice guy. You make more money that way."
He declines to give profit figures for 888.com, but analysts estimate that the business could be generating annual profit of about 100 million pounds.
With online gaming being such a highly cash-generative business, some in the industry have questioned whether 888.com needs to float. Anderson says a float would generate other benefits.
"In this industry you get more customers if you are trusted, and if you are a [public limited company] you will be trusted more than if you`re a private company. Suppliers will get you better deals and you can increase your top and bottom line," he said.
He hopes to make a recommendation to 888.com`s shareholders on whether to pursue a float "as soon as possible. All options are open to us. We are an accepted business now, which is how it always should have been."
