Morgan Stanley Research June monthly form guide

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Morgan StanleyOnline Gambling: Monthly Form Guide
June 11


May saw more legislative and enforcement activity in the US, while Europe Spain made significant progress towards a regulated online gambling market and French MPs made proposals to liberalise their regime. Rep. Joe Barton said he would introduce federal online poker legislation, and the American Gaming Association, which represents US land-based casinos, urged the government to regulate internet poker. Sen. Jon Kyl, who helped draft UIGEA and has been a staunch opponent of US online gambling, said he would consider legislation that allows internet poker. The US Attorney of Maryland seized the domains of 10 online gambling companies. Bradley Franzen, who was indicted alongside PokerStars and Full Tilt in last month’s prosecutions, agreed to plead guilty to money laundering, bank fraud and violation of UIGEA, and prosecutors said they would seek a lower sentence for him if he co-operated. At the State level, there was positive news in California, Iowa and Colorado. Spain’s parliament approved legislation that provides for a regulated online gambling market, and a committee of French MPs advocated changes to the law that would make the market more attractive to operators and players. In M&A news, increasing US interest in internet gambling assets was evidenced by slot manufacturer IGT’s bid for poker room Entraction for $115m, or 21x trailing EBITDA.

Poker Traffic update:

The biggest change in poker traffic during May was the continued decline in liquidity at Full Tilt. Full Tilt is yet to repay cash to US players, is in discussions to raise funds, and this appears to be affecting its reputation in Europe. PokerStars’ traffic decline has stabilized, although all of the operators saw a seasonal weakening in May. PartyPoker continues to see improved year on year declines since the indictments of the US-facing operators.

Morgan Stanley Research June monthly form guide

Source: Pokerscout, Morgan Stanley Research

Morgan Stanley Research June monthly form guide

Source: Pokerscout, Morgan Stanley Research

Ready to Roll:

We highlight some of the key forthcoming dates and events.

09/06/2011 – Leaders of German Lander to meet, likely to discuss online gambling

29/06/2011 – Betfair FY results

30/06/2011 – pre-close trading update

18/07/2011 – Deadline for EU comments on German proposals

19/07/2011 – William Hill IMS

Biggest Pot:
May’s biggest pot of $118,619 was well below average after April’s indictments. Esvedra was the winner, from Patrik Antonius, playing on Full Tilt Poker.

US Regulation and Prohibition:

Rep. Joe Barton, the Republican Congressman for Texas, is preparing online poker legislation. Rep. Barton has expressed hopes that the bill will be brought for hearings in the Energy and Commerce subcommittee on commerce, manufacturing and trade, on which he sits.

Bradley Franzen, one of the 11 individuals indicted on 15 April, agreed to pleas guilty to bank fraud, money laundering conspiracies and violations of the Unlawful Internet Gambling Enforcement Act. Mr Franzen is alleged to have helped online poker companies find payment processors. Prosecutors said they would ask for a reduced sentence if he co-operates.

Senator Jon Kyl, who helped to draft UIGEA, has said that he will ‘consider carefully’ federal legislation to allow online poker as long as bans on other forms of online gambling remain. Sen. Kyl has been one of the chief opponents of online gambling regulation.

The US Attorney of Maryland seized the domains of 10 US facing internet gambling businesses, and indicted them for operating an illegal gambling business and money laundering. The US Attorney set up an undercover payment processor as part of its efforts to gather evidence.

The American Gaming Association, which represents US land-based casinos, released a report urging Congress to regulate internet poker. The AGA estimated that internet poker would generate 10,000 jobs and $2bn in annual tax revenue in the US.

California Senator Lou Correa gave a speech in which he said that passing online poker legislation is one of the key priorities of the state senate. Sen. Correa said that the federal indictments of US-facing poker sites was a big opportunity for the state.

Colorado’s land-based casinos commissioned a study on online gambling, which concluded that the existing commercial casino industry could be at risk if it does not act on the opportunity.

Iowa signed into law a bill which will lead to a study on regulating internet poker. The measure also allows advanced deposit wagering on horse racing.

Caesar’s bought 51% of social games developer Playtika Ltd in a deal that valued the business at $80-90m. The company develops games for use on social websites like Facebook. Sales are reportedly around $1.2m a year.

Phil Ivey, a professional poker player sponsored by Full Tilt, said he would not play at the World Series of Poker, and sued the company to be released from his endorsement deal. Ivey said his ‘name and reputation have been dragged through the mud’ as a result of Full Tilt’s alleged ‘inactivity and indecision’. Full Tilt said it is ‘committed to making sure that US players are refunded as soon as possible’.

The US Department of Justice unfroze one Irish bank account belonging to Full Tilt, although US players have still not been refunded their account balances.

US slot manufacturer IGT made a bid for poker room Entraction valuing the business at $115m. The bid implies a valuation of 21x trailing EBITDA.

The St Petersburg Times wrote an interesting account of the rise and fall of Absolute Poker, one of the companies whose domain was seized under the April indictments.

European Developments:

Spain’s parliament approved legislation to regulate online gambling. There were no major changes to previous drafts, which had proposed a 25% gross profits tax. Detailed rules will follow when the new regulatory body has been set up.

Ahead of the national legislation coming into force, Casino Gran Madrid was awarded an online gambling licence by the Madrid regional government. The site could be online later this summer.

French MPs presented a report to parliament’s Finance Committee which included recommendations for enlarging the poker liquidity pool and the introduction of a larger variety of games. One of the authors of the report recommended that the turnover tax be replaced with a 20% gross profit tax.

Siegfried Kauder, chairman of the German Bundestag’s Justice Committee, said that the new inter-state gambling treaty being considered by the lander is unconstitutional and would face lefty legal tests for its ‘unacceptable’ restrictions on slot machines.

Schleswig-Holstein’s draft gambling law was approved by the European Commission. The bill will now return to the regional parliament for a second reading and final vote, which could take place before the end of June.

H2 Gambling Capital estimated that the German regulated market would only capture 7% of online gambling activity under the regulations proposed by 15 lander.

News from around the world:

The Australian government is conducting a review of the country’s Interactive Gambling Act. Senator Nick Xenophon criticized the police for not enforcing existing laws that prohibit online casinos from accepting bets from Australians.


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