PartyGaming agrees $105 million U.S. settlement

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Shares surge as long-running talks are finally concluded
LONDON (MarketWatch) -- Shares in U.K. online gambling firm PartyGaming jumped over 14% Tuesday after it agreed a long-awaited non-prosecution deal with U.S. authorities that will cost the group $105 million.
The online poker and casino operator said it will pay the cash in semi-annual installments through 2012, starting with a $5 million payment on April 10.
The deal with the U.S. Attorney's Office for the Southern District of New York relates to the period from 1997 to October 2006, when PartyGaming allowed U.S. customers to gamble through its sites.
The firm closed down its U.S. operations in late 2006 after new prohibitions on online gambling were introduced, but has been in negotiations with authorities ever since over the legality of its earlier business.
"'The resolution of our position with the U.S. authorities marks an important day for PartyGaming. It has been a long and complex process but we have reached an amicable solution," said CEO Jim Ryan.
"We are now well-placed to seize organic as well as strategic opportunities that previously were beyond our reach," he added.
Shares in the group jumped around 14% in early London trading, pulling other gambling stocks higher. The stock, however, is still around 75% below its September 2006 level, before the surprise legislation was introduced.
Shares in 888 Holdings rose 11.4% and Sportingbet climbed 12.7%.
Co-founder Anurag Dikshit agreed to hand over $300 million in a separate case late last year and PartyGaming said at the time that it expected its settlement to be "significantly lower."
Revenue drops
Separately Tuesday the group said its first-quarter revenue fell 22% from a year earlier to $100.1 million due to the sharp rise in the value of the dollar and a drop in the average daily number of players using its sites.
Compared to the final quarter of 2008, average daily revenue edged up 2% and the number of new customers increased 19% to around 199,000.
The settlement with U.S. authorities will result in a charge to discontinued operations of $100 million to $105 million in the group's first-half results. The firm added it has no outstanding loans and has around $216.7 million in cash against client liabilities of $125.5 million.
Source, Wall Street Journal, By Simon Kennedy, MarketWatch, April 7, 2009

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PartyGaming Non-Prosecution Agreement Concluded with the US Authorities
Further to previous announcements, the Company announces that it has entered into a Non-
Prosecution Agreement with the US Attorney’s Office for the Southern District of New York (the ‘USAO’).
Under the terms of the Non-Prosecution Agreement, the USAO will not prosecute PartyGaming Plc or any of its subsidiaries (collectively, ’PartyGaming’ or the ‘Group’) for providing internet gambling services to customers in the US prior to the enactment of the Unlawful Internet Gambling Enforcement Act (‘UIGEA’) on 13 October 2006. As part of the agreement, the Company has accepted a Statement of Facts regarding its business activities prior to the enactment of the UIGEA and has agreed to pay $105 million, payable in semiannual installments over a period ending on 30 September 2012. Such payments will be made from the Group’s existing financial resources.
Summary of key terms of the agreement
• The Company has agreed to pay a total of $105 million, payable as follows:
o 10 April 2009 - $5m
o 30 September 2009 - $10m
o 31 March 2010 - $15m
o 30 September 2010 - $15m
o 31 March 2011 - $15m
o 30 September 2011 - $15m
o 31 March 2012 - $15m
o 30 September 2012 - $15m
• The Company has entered into a Statement of Facts regarding its activities prior to 13 October 2006. Key elements of the agreement and factual background are as follows:
o From 1997 until 13 October 2006, PartyGaming offered internet gaming to players located in the US, including real-money poker and casino gaming. On 13 October, 2006, the day the UIGEA was enacted, the Group voluntarily exited the US market.
o Prior to 13 October 2006, certain of the US customer transactions intended for PartyGaming that were processed by third parties, and other gaming and payment-related activity, were contrary to certain US laws.
o PartyGaming has agreed to maintain, with respect to its operations, a restriction preventing internet gambling services from being provided to customers in the US in violation of the prevailing law of the US or any jurisdiction within the US.
o If requested by PartyGaming, the USAO will bring the co-operation and remedial actions of PartyGaming to the attention of other licensing and regulatory authorities.
Source: PartyGaming

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PartyGaming Q1 revenue falls; reaches non-prosecution deal with US
Source: RTT Global Financial News, 4/7/2009
British online gaming company PartyGaming Plc, Tuesday, reported that fiscal 2009 first-quarter revenue declined, amid continued competitive pressures in poker, further strengthening of the US dollar, as well as a weak macroeconomic milieu. The company also said it has reached a legal settlement with the US authorities, who outlawed online gambling in 2006, by paying a charge of US$105 million. Currently, company shares are trading nearly 18% higher on the London Stock Exchange.
PartyGaming reported that first-quarter group revenue declined to US$100.1 million from US$128.9 million in the year-ago quarter primarily due to the significant strengthening of the US dollar compared to the euro, pound sterling, and Canadian dollar. Group revenue was also negatively impacted by continued competitive pressures in online poker, especially from US-facing sites, issues relating to its loyalty program, and the impact of the consumer slowdown.
The company reported first-quarter poker revenue of US$53.6 million, casino revenue of US$40.9 million, sports betting revenue of US$4.5 million, and bingo revenue of US$1.0 million, below last year quarter's poker revenue of US$80.7 million, casino revenue of US$42.3 million, sports betting revenue of US$4.7m, and bingo revenue of US$1.2 million.
But, on a quarter-over-quarter basis, the company reported a 2% higher consolidated average daily revenue of US$1.11 million for the first quarter. Daily net revenue in the fourth quarter of 2008 amounted to US$1.09 million. The company attributed the increase to the growth in casino and sports betting revenues.
Average daily net revenue in poker was down 1% quarter-over-quarter due to foreign exchange movements and competitive pressures from US-facing sites, and in bingo down 27% primarily due to the conclusion of Bingo Night Live in the prior quarter.
On the other hand, daily casino revenue rose by 5% over the previous quarter due to growth in both bet volume and hold, and sports betting daily revenue increased 19% due to growth in both bet volume and gross win margin.
In an interim management statement, the company further noted that despite the challenging business environment, the group has continued to add large numbers of new player sign-ups. Real money sign-ups in 2009 totaled 199,200, 16% above 2008's 171,800. However, due to competitive pressures in poker, the number of unique active players fell 12% year-over-year to 556,200 from 631,700 in 2008. Consolidated yield per active player day fell 5% to US$16.4 from prior-year quarter's US$17.3, reflecting the impact of currency movements as well as higher player retention costs due to increased competition.
With regard to its poker business, the company said it continued to sign-up large numbers of new players with group market share remaining robust. But, player yields declined year-on-year due to foreign exchange movements and increased competitive pressures that upped promotion-related costs.
The group further reported that clean earnings before income tax, depreciation, and amortization, or EBITDA, margins remain in-line with its full year 2008 performance and that its business-to-business strategy is well on track with agreements signed.
Commenting on its first-quarter performance, Chief Executive Officer Jim Ryan said, "We are maintaining our market share in poker and our B2B strategy continues to build with the addition of INTRALOT, one of the world's largest providers of lottery services to governments, to our Italian poker network, that is expected to launch later this quarter, as part of a long-term global agreement."
In a separate communiqué, PartyGaming announced its Non-Prosecution Agreement with the US Attorney's Office for the Southern District of New York, or USAO. As per the deal, USAO has agreed not to prosecute the group for the internet gambling services provided to US customers prior to the enactment of the Unlawful Internet Gambling Enforcement Act, or UIGEA, on October 13, 2006.
In a Statement of Facts regarding its business activities pre-UIGEA accepted by the group as part of its agreement, USAO points out that from 1997 onwards, the company offered internet gaming to U.S. players, including real-money poker and casino gaming. From October 2006 onwards, the group has voluntarily exited the US market. According to reports, with the acceptance of the statement of facts, the company has admitted for the first time the allegations of the US government leveled against it.
Regarding the agreement with the US government, Ryan noted, "It has been a long and complex process but we have reached an amicable solution with the USAO that makes commercial sense for our business and is in the best interests of shareholders."
Ryan added, "We are now well-placed to seize organic as well as strategic opportunities that previously were beyond our reach."
The company has also agreed upon a monetary compensation of US$105 million which is to be paid in eight semi-annual installments beginning April 2009 through September 2012. The company noted that the payment would be made from its existing financial resources. Consequently, PartyGaming expects to record a discontinued operations charge of US$100 million - US$105 million at the time of its six-month's interim results.
Looking ahead, Ryan stated, "Whilst the business environment remains challenging, our strong poker sign-ups together with the addition of 60 new games to our casino by the end of the first half, further B2B deals in the pipeline and our strong control of costs, mean we are well-placed to capitalise on our great products, great brands and strong cashflow."
PRTY.L is currently trading on the LSE at 257.50 pence, up 38.50, or 17.58%, on a volume of 928,177 shares.