SOURCE: Financial Times UK

(London, England) — PartyGaming, the internet gambling group, on Monday said it had initiated talks with the U.S. justice authorities as analysts speculated that the U.S. government may be preparing to relax last year’s clampdown on online betting.

However, the company said it could not yet assess “the likelihood of any particular outcome of these discussions”.

888 Holdings, another internet gaming group, was considering making a statement later in the day about its position.

The talks come as pressure builds in the U.S. for reform of earlier legislation banning internet gambling.

Analysts speculated that the talks suggested PartyGaming thought it could come to an agreement with the U.S. Department of Justice to end the uncertainty which has clouded the industry over the legal position of online gaming in the U.S. since the introduction of the Unlawful Internet Gambling Enforcement Act in October.

“Why would PartyGaming do this unless it believed it had a very high chance of a favourable outcome?” said one analyst.

Analysts pointed to rival Sportingbet’s deal with the State of Louisiana in March when warrants for Peter Dicks were dropped and the company made a reported payment of $400,000 to settle the case against its former chairman.

They said they thought PartyGaming would expect to be reasonably confident of being able to agree a financial settlement that would not be too onerous.

There appears to have been a change in sentiment in the U.S. since last October when the government passed the Unlawful Internet Gambling Enforcement Act which outlawed online gambling. Since then there have been fears that online gambling rather than stopping has gone underground.

PartyGaming stopped any U.S. based customers having access to its website when the act was passed but there is still uncertainty over the legal position on online gaming before the Act was passed, a risk PartyGaming highlighted in its prospectus when it floated two years ago.

When the Act was passed, PartyGaming lost three-quarters of its customers who were U.S.-based and its share price plunged along with those of other companies in the sector.

Richard Carter, analyst at Numis Securities, said in a note to clients, “there now appears a willingness on behalf of the U.S. Attorney’s Office to settle and draw a line under the uncertainty caused by recent DoJ actions towards online gaming companies that participated in the U.S. prior to the enactment of the UIEGA”.

There has been some recovery in share prices in recent months as speculation mounted that the mood in the U.S. was changing. Partygaming shares, which slumped to 25½p following the U.S. ban, have recovered in recent months. On Monday morning fell 0.5 per cent to 41p.

The uncertainty has made PartyGaming unattractive to potential bidders, but if it were removed, analysts said, an approach could come from companies such as MGM or Harrah’s. Alternatively, a recovery in PartyGaming’s share price might allow it to make bids for other companies as the sector consolidates.

Also if the U.S. did change the law to allow online gambling again, a settlement with the Department of Justice would permit PartyGaming to return to the market.