Few online gambling stocks have been spared the effects of the recent worldwide market jitters, but Bwin.party seems to be bearing up worse than most. Even Betfair, which hit a record low of its own just last Friday, has posted modest gains this week. The European Commission’s expected condemnation of Germany’s punitive draft gaming law was supposed to give Pwin a nudge up the charts, but what upward momentum there was was modest, and didn’t last.

Beyond dealing with shareholder rage, what are the internal effects of such downturns on a public company? For one thing, it can give key executives a case of the wandering eye. If a significant portion of an exec’s compensation comes in the form of stock options, the exec has an incentive to stick around a while to realize their true benefits. If the stock is currently trading below the value when the options were issued, then the options have no value, unless the exec is willing to hang around until they’re (hopefully) back in the black at some point. But when a stock is off as far as Pwin’s, it could take some time for that ground to be regained, which allows an exec to consider other, more lucrative possibilities elsewhere.

Depleted share value also carries with it the potential for involuntary changes in the upper ranks. Much like an underperforming football team firing its manager, corner office occupants are prone to having their executive washroom keys revoked rather unceremoniously when their company hits a sustained rough patch. The reappointment of Pwin’s top execs, including co-CEO Norbert Teufelberger, was given a near unanimous thumbs-up at Pwin’s last AGM in June, but will shareholders still feel the love if their portfolios continue to slide?

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Further downward pressure was applied by BancoEspirto Santo de Investimento’s new target of 630p. Analyst Alistair Macdonald also cited lack of growth as the source of Betfair’s problems, and warned that the company’s plan to remedy the situation could backfire. “Betfair’s updated growth strategy is effectively turning into a conventional bookmaker over time, diluting the original exchange proposition. In addition, we are concerned by the possible exchange liquidity impact of increasing commission charges for highest value customers.”

This commission increase is scheduled to kick in July 18. As many as 500 whales whose lifetime profits top £250k and bet in over 250 markets will face charges of up to 60% of gross win. Betfair claims to essentially break even on their whale wagers, but that handling their technical demands takes profits away from other sectors. “Betfair believes that the implementation of the adjusted charge will provide the business with fair compensation for the service it provides to those impacted customers, who currently pay a rate of commissions and charges that does not reflect the benefit they gain from the Betfair ecosystem.”

But as Alistair the analyst noted, the Betfair ecosystem is slowly morphing into a conventional bookmaker via the expansion of its fixed-odds offering (‘risk-based products’ in ecosystem-speak). That could pose problematic, not to mention a tad hypocritical, as Betfair has previously argued that its exchange model set it apart from trad bookmakers, and thus it should be taxed more favorably.

The emphasis on fixed-odds wagers reinforces the growing meme surrounding Betfair that they’re last year’s model; bereft of new ideas, like if Apple had followed up the iPod with a portable 8-track tape player. (Look it up, kids.) The meme is perhaps a tad harsh. Undoubtedly, Betfair has a lot of very bright people on its payroll, many of whom would be eminently capable of righting the ship if their hands weren’t so tightly bound.

In 2009, CEO David Yu was asked about a potential IPO, prompting him to caution that “there are pros and cons of being public.” Among other things, Betfair claimed that going public would give the company “the flexibility to react to a developing and consolidating online betting and gaming industry.” Betfair clearly envisioned going on a shopping spree of symbiotic companies, paying with shares instead of cash. But with the stock trading at half its IPO value, the early investors holding the £13 shares won’t stand for a further dilution of their holdings. So new opportunities for growth can’t simply be bought over the counter.

Nor can they be achieved via an expansion into Asia, the planet’s biggest betting market. Among the IPO cons of which Yu warned, the shareholder agreements that preclude Betfair from establishing a presence in Asia loom largest. And with no Asian strategy in the works, the company will likely never achieve the new growth it so desperately craves. David Yu has already deployed his ejection seat, meaning Betfair will have a new CEO by October. Unless he/she arrives holding a secret blueprint for a new iPod, or the money to take the company private again, his/her tenure will likely be a bumpy one.

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Current market reports have shown that shares in Bwin Interactive Entertainment AG and PartyGaming Plc, fell 16 percent in London trading after German states’ prime ministers proposed a 16.67 percent tax on sports betting.

The significance of this drop can’t be ignored, it’s the most significant drop since the U.S. dropped the UIGEA on everyone and banned financial institutions from completing Internet- gambling financial transactions in 2006. Among many other operators, PartyGaming was hit hard.

In all honesty, it would have been hard to expect that Germany was going to be so ridiculous with their tax regime on the industry. According to the Saxony-Anhalt state government website , Germany plans to introduce a 16.67 percent levy on sports bets when it opens its sports-gambling market to private companies in 2012. With rates like that they might as well keep the damn thing closed!

According to David Jennings an analyst with Dublin-based Davy, cited in Bloomberg, this levy hits bwin&party right where it hurts the most, considering the company derives 23 percent of its pro-forma revenue from Germany, with approximately half of it coming from sports. It doesn’t take a genius to realize this type of licensing regime could severely hamper bwin and party from making money in the German market along with other operators.

Bloomberg reported comments from John Shepherd, a spokesman for bwin.party via telephone, “There is still a long way to go, and we are confident in the end Germany will comply with European Union law and implement a commercially viable licensing regime.”

Surely Bwin.party are hoping that happens sooner than later as shares fell 31.5 pence to 166.4 pence, giving the company a market value of 1.4 billion pounds.

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After floating on the stock market, there’s been more than enough chance for the financial-based press to have a dig at them. Today is no exception.

Yesterday saw Betfair’s shares close down 34p at 937½p, the lowest that they have dipped since opening at around 1400p when they initially floated back in October. They reason for the fall is because US investment bank Morgan Stanley, who headed the original floatation with Goldman Sachs, revised their estimates on Betfair’s financial performance.

Morgan Stanley are mainly worried about effect new regulations could have on the business commenting that it may have a “significant impact on the group’s growth and profitability.”

“The 36% drop in the shares in the last two months looks steep, but new information at the interim results leaves us nervous about current trading trends (and further snow will not have helped), and we think the business will need to deliver a few solid quarters to restore investor confidence,” wrote Morgan Stanley analysts in The Telegraph.

Meanwhile the Independent was speculating as to what was going on with Betfair’s Twitter account. On their website they are very puzzled by Betfair’s latest tweet saying: “I look to the skies. Another eagle will be here soon,” followed by a retort from the author saying, “What on earth is going on?”

Well the account’s either been highjacked by a Philadelphia Eagles fan or they really have hired some oddball agency to manage their marketing strategy.

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