PartyGaming offering gives the online gaming site a $9 billion-plus market cap, making it London’s biggest IPO in five years

June 27, 2005

PartyGaming shares soared during their debut on the London Stock Exchange on Monday, giving the online poker site a market cap of more than $9 billion in what was the LSE’s biggest IPO in five years.

Reflecting Internet gambling’s surging popularity and profits, PartyGaming, which owns the PartyPoker site, priced at 116 pence ($2.12) per share and traded as high as 132 pence per share.

That dealt the Gibraltar-based outfit, which now trades as “PRTY,” an estimated market value of about £5 billion ($9.1 billion), securing the company a spot in the prestigious FTSE 100 index of the United Kingdom’s top companies.

PartyGaming’s public offering represents the success of the growing online gambling market, which is largely fueled by American players. But because of U.S. regulations, American investors were leery of getting a piece of the action that netted the company’s founders and investors a lot of cash.

This year’s online gambling market is currently estimated to bring in $10 billion. PartyGaming says that the vast majority, up to 80 to 90 percent of its players, are Americans.

But for now U.S. companies and investors aren’t likely to see any profits. Various U.S. state and federal regulations either ban online gambling entirely, or make the law so unclear that U.S. investors avoid online gambling companies like the plague.

Meanwhile, the PartyGaming offering brought its four founders–two Americans, including former online porn entrepreneur Ruth Parasol and her husband Russ DeLeon; and two Indians, Anurag Dikshit and Vikrant Bhargava–billions.

Mr. Dikshit will gain around $720 million from the IPO, while Mr. Bhargava will grab around $200 million. Ms. Parasol and Mr. DeLeon will take around $370 million each. All founders are thought to be under 35 years old.

Legal Wrangling

The offering represents an odd situation: Because of the U.S. laws, the company’s founders could be arrested upon entrance into the United States, but they are the latest millionaires on London’s public markets.

Unlike the U.S., the U.K. has revised its gambling and online gambling laws to regulate the industry, creating transparency and giving the government tax revenue from companies. Online sports betting has been a booming business in the U.K. for years. In April, online poker became fully legal and regulated.

Though the recent law means PartyGaming is fully legal in the U.K., the company is still based in Gibraltar because the law is only months old, and because the company doesn’t have to pay British corporate tax rates.

PartyGaming’s flotation was run by big investment firm Dresdner Kleinwort Wasserstein, which brings some legitimacy to the online gambling industry.

“Today there is a lot less of a cowboy mentality in the Internet gambling industry than there was five years ago,” said Ebbe Groes, CEO of startup gambling site Betbrain.com.

The offering also indicates that the U.K. and other countries will likely ignore the conflicting U.S. laws governing online gambling. A recent World Trade Organization ruling examining the U.S. position determined that the U.S. could attempt to ban Antiguan online gambling services only if the U.S. cleaned up its own conflicting laws.

Mark Mendel, a lawyer representing Antigua in the WTO case, says that the IPO represents another sign that U.S. law on this subject will increasingly be ignored.