Gambling Fire Sale Begins Sportingbet sells U.S. business to private investors for a buck. October 13, 2006 The dealing is done for Sportingbet, a United Kingdom-based online gambling firm that announced it has sold its U.S. operations for $1.00, only hours before U.S. President George W. Bush is expected to sign a bill outlawing gambling on the Internet. Sportingbet said it sold its U.S. sports betting and casino businesses to Jazette Enterprises Limited (JEL) for cash consideration of $1.00. The deal allows Sportingbet to unload $13.2 million in debt on Antigua-based JEL, which is run by current managers of Sportingbet and is privately financed. Sportingbet’s U.S. operations employed 500 people. According to Sportingbet’s statement, JEL intends to preserve “the operational structure to all material extent.” “The sale… prevents significant closure costs, which would have been both expensive and time-consuming,” said Andrew McIver, Sportingbet’s chief executive designate. “It also preserves the employment of those of our colleagues who have worked so hard to build the U.S. operations into the highly profitable business it is today.” - ADVERTISEMENT - Had the firm not sold its U.S. operations, it would have incurred closure and severance costs of about $14 million. That would have brought the company’s overall cost of closing its U.S. business to $27.2 million. Public versus Private Operating as a private entity instead of a public company will give JEL, or any online gambling operation, much-needed flexibility. “They will be able to get more done and compete better,” said Christopher Costigan, president of Gambling911.com, a gambling research and marketing firm. “As public companies, gambling firms had to go through a lot of red tape and pleasing shareholders, and the people in this industry are not about red tape.” “As private companies they are going to have the wherewithal to get around the obstacles set up by U.S. law,” he said. Online gambling firms that continue taking bets in the United States will have to seek alternative means of financial settlement outside of the main banks, since U.S. law makes it illegal for banks and other financial institutions to transact funds generated from online gambling. In a severe blow to the industry, Barclays and Royal Bank of Scotland are expected to instruct their corporate customers to not transact funds generated from online gambling in the U.S. Other banks outside the U.S. are expected to follow suit. But finding alternative means of settlement could be an expensive process for the firms seeking to continue doing business in the U.S. “They will get burned a few times, but that is the price they may have to pay, at least in the initial stages,” Mr. Costigan said. “That’s the nature of the beast.” The Cut and the Deal In its agreement with Sportingbet, JEL agreed not to take bets from non-U.S. bettors for two years, and to limit its base of operations to the Americas for a period of three years. Sportingbet retained information on its non-U.S. resident customers registered with its U.S. operations and will attempt to migrate those customers to its non-U.S. operations. The JEL deal is contingent on the president signing the Unlawful Internet Gambling Enforcement Act of 2006, which is expected to happen at midday on Friday. If the act is not signed into law, JEL will be paid $500,000 and ownership of the assets intended for sale will again become the property of Sportingbet. If the sale goes through, Sportingbet’s operations will be made up of its European casino, sports, and poker businesses, along with its Australian sports-wagering business and the non-U.S. business generated by Paradise Poker, its online poker business. U.S. residents will still be able to play games on Paradise Poker, but for education and fun only, not for money. “We are saddened to have to dispose of such a fantastic business as a result of political actions in the U.S. Congress,” Mr. McIver said. “Sportingbet will now focus on developing its business in other key markets of the world.”