Online Gambling Hedges Its U.S. Bets

By Kate Norton
http://www.businessweek.com/globalbiz/content/aug2006/gb20060821_544446.htm?campaign_id=rss_null

Under attack in the States, some online gambling sites are merging and looking for growth elsewhere. Despite the odds, others are staying
The U.S. Congress has yet to pass the pending legislation cracking down on Internet gambling. But in the meantime, the Justice Dept. has cast a much deeper freeze over the business with its July arrest of BetOnSports Chief Executive David Carruthers.

Now, under pursuit of U.S. legal authorities, European online gaming companies are scrambling to reduce their exposure in the U.S. and find new markets in Europe and Asia. Industry insiders say the trend could signal the start of a major wave of consolidation. Earlier this month, PartyGaming, the world's biggest Web poker company, spent $131 million to buy Bulgarian-based Gamebookers, a sports betting business focused on Continental Europe.

According to Aug. 21 news reports, Gibraltar-based PartyGaming is also the top candidate to bag rival Victor Chandler, which has no U.S. exposure. The potential loss of their U.S. markets is devastating for online gaming companies. Last year Americans gambled about $5.9 billion online—around half the global total. Some companies garner an even bigger chunk of revenues with U.S. players.

PartyGaming, for instance, scored about 85% of its nearly $1 billion in 2005 sales in the U.S.

BIG BACKLASH. But companies are now facing up to the possibility that they'll lose their fight with Washington. The Justice Dept. is pursuing leading online gambling executives and even putting pressure on media to drop online gambling advertisements