PartyGaming and 888 US Profits Under Threat

Media rumors are flying that online gambling companies PartyGaming and 888 talks with the US Department of Justice are not going well, and that Justice officials may be considering going after the profits both companies gleaned from US customers prior to their withdrawal from the US market last year.

Following the passing of the Unlawful Internet Gambling Enforcement Act (UIGEA) into law late last year, publicly traded online gambling giants PartyGaming and 888 immediately withdrew from the US market. Their main competitors PokerStars, Full Tilt Poker and Bodog remained in the US market, quickly snapping up market share previously held by PartyPoker and 888's Pacific Poker.

PartyGaming and 888 had to drastically downgrade profit forecasts for 2007 as a result of their decision to give up on the lucrative US market, which accounted for as much as two-third's of their revenue. The two companies lost billions of dollars in potential profit, and were forced to wear high restructuring costs, whilst their competitors simply continued on trading in the US.

Online gaming payment processor NETeller reached an agreement with US Justice officials last month, agreeing to forfeit $136 million in profits and committing to no longer provide services to any US residents.

Earlier this year, after a possible merger between 888 and Ladbrokes was torpedoed by legal uncertainty, both PartyGaming and 888 voluntarily contacted US Justice officials in an attempt to clarify their legal position in respect to their previous involvement in the US market. Media reports are speculating that talks between the two online gambling companies and the US DoJ are not going well.

The British financial news site ThisIsMoney.co.uk speculated that the US DoJ could try to recoup all profits made by PartyGaming and 888 in the United States prior to their withdrawal, estimating that PartyGaming and 888 could be looking at fines up to $900 million and $120 million, respectively.

It is highly unlikely that either company would be prepared to pay such large penalties, with some kind of settlement a far more likely result. Uncertainty as to the final result of negotiations has pushed PartyGaming's share price to record lows, closing at 25.75p overnight.

PartyGaming is expected to release interim financial results on 29 August.

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