RJH writes...

PartyGaming (PRTY) released strong interim results this morning which have been overshadowed by the arrest of a second gaming executive, Sportingbet's Non Executive Chairman Peter Dicks, in the early hours. An initial hearing will be held for him at 09h00 US eastern and 14h00 UK time.

PRTY is exposed, theoretically, to the United States 1961 Wire Act under which Mr Dicks, like Mr Carruthers of Betonsports before him, has been detained. 'Theoretically' only because the US 5th Court of Appeal ruling in 2002 that the 1961 Act does not apply to online bets on games of chance like PRTY's online poker rooms (as opposed to sporting events) has not been tested in the US Supreme Court.

Rather, the threat of new anti-gaming legislation is what looms over PRTY. Although this scribe sees that outcome as improbable (hard to table an anti-gambling law ahead of other Senate priorities, strong pro-gambling lobby, chances of passing legislation governing moral conduct doubtful) it is possible and would crush PRTY given that 75% its revenues come from United States. Political moods do change, hence the group's furious non-US acquisition activity.

Whatever its chances of making the books, the legislative threat from the US is not going to diminish: there has only been one year since 1999 when proposed anti-gambling legislation has not been framed (last year). And as inviting to investors is the potential opportunity to buy PRTY on these threats (or maybe even shortly after Mr Dick's hearing) owning the equity would not be stress free.

But with great growth, ferocious cash cow characteristics (negative working capital), a market leading position and cheap equity yielding 5% many will take the gamble and, like a brave (or is it caught-in-the-headlights?) quarterback, stay in the pocket.

Unlike the scrambling and heavy selling in June and July by the founders, Chairman, Chief Executive, Finance Director (entire stake), and General Counsel / Company Secretary.

Postscript: There is more nuance to the legislative threat from the US than this post sets out. Several US states have laws specifically aimed at casino games run via the net. How these can be used by prosecutors to charge individuals beyond state lines is entirely unclear. The NY Times has this article covering some of the ground.

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