The Fall of PartyGaming

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Case Details:

Case Code : ITSY056
Case Length : 15 Pages
Period : 1999-2006
Pub Date : 2007
Teaching Note :Not Available
Organization : PartyGaming
Industry : Online Gambling
Countries : US/UK

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Gambling is a serious addiction that undermines the family, dashes dreams, and frays the fabric of society. Congress has grappled with this issue for 10 years, and during that time we've watched this shadow industry explode...Although we can't monitor every online gambler or regulate offshore gambling, we can police the financial institutions that disregard our laws."¹

- Bill First, a Senate Member, in October 2006.

"In many countries, including the United States, the group's activities are considered to be illegal by the relevant authorities....PartyGaming and its directors rely on the apparent unwillingness or inability of regulators generally to bring actions against businesses with no physical presence in the country concerned."²

- PartyGaming's Prospectus, June 2005.

Introduction

On October 13, 2006, the US President George W. Bush (Bush) signed an anti-gambling legislation called the Unlawful Internet Gambling Enforcement Act (UIGEA) that prohibited US financial institutions from indulging in any kind of financial transaction relating to online gambling. The legislation dealt a severe blow to online gambling companies for whom US customers were a major source of revenue.

Following the legislation, PartyGaming Plc. (PartyGaming), a leading online gambling company, announced that it would stop taking bets from its customers in the US. Before the legislation was passed, PartyGaming's online poker website PartyPoker.com had been considered to be the largest online poker site.

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After the Act came into force, the site lost 80% of its customers; and its expected revenue loss was US$ 250 million. PartyGaming, a Gibraltar-based company, started its business of online gambling in the late 1990s.

In 2001, it launched PartyPoker.com. Within a short time, PartyPoker became a huge hit, mainly among customers in the US. In 2003 and 2005, the company launched gambling sites like PartyBingo and PartyCasino respectively. PartyBingo offered online bingo³ games while PartyCasino offered various types of popular casino games. Besides the US, the company also operated in a number of European and Asian countries. In June 2005, PartyGaming's shares were listed on the London Stock Exchange (LSE) with a whopping market capitalization of GBP 4.6 billion. The company issued its shares at a price of GBP 116 per share. It was also enlisted in the FTSE 100 Index.⁴

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1] Lianne Elias, "US Congress Passes Anti-Internet Gambling Legislation," www.pokerlistings.com, October 02, 2006.

2] Kurt Eichenwald, "US Frets Over Online Gambling," www.taipeitimes.com, June 26, 2005.

3] Bingo is a game of chance that is played with cards. While in the US and the UK it is called bingo, the same game is called housie in New Zealand and Australia.

4] The FTSE, founded in 1995, is an independent company owned by The Financial Times and the London Stock Exchange. It provides a share index of the 100 most highly capitalized companies listed on the London Stock Exchange.

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