The internet gambling sector is up the creek. A law passed by right-wing Republican presidential hopeful Bill Frist in the US last weekend caught the industry on the hop. Pandering to the religious wing of the Republican party, Frist’s ruling effectively makes it illegal for online gambling firms to take credit-card money from US citizens. It sent shares crashing though the floor. For shareholders, it is catastrophic.
But for many founders of internet gaming firms, the surprise news scarcely mattered. After all, they have already made hundreds of millions of pounds through listing their businesses on the London Stock Exchange. And if there’s one man that the bosses of online internet gambling companies owe their fortunes to, it is Chris Treneman, managing director of corporate finance at Dresdner Kleinwort.
The City was wary when the creators of internet gambling firms wanted to cash in their holdings by raising money in London. They feared that American law enforcers would clamp down on the sector and harm their reputation. US firms in particular steered clear of most corporate work in the sector, making life rather difficult for the internet companies.
But Treneman and DK seemingly did not share this wariness. Of the three major online gaming flotations, Treneman, 45, was central to two – Sportingbet.com, and the daddy of them all: PartyGaming. He has been involved in the sector since it started in 1999, raising at least GBP 1.2bn from investors, and helping the German bank to rake in tens of millions of pounds in fees.
Treneman led the flotation of Sportingbet and advised the firm on all its subsequent transactions. It was this experience that ultimately won him work for PartyGaming, though in a roundabout way. When the world’s biggest internet gambling outfit decided to float, it wanted to use Deutsche Bank. But the German institution refused principally, it is understood, over the legal status of gambling in the US. PartyGaming then turned to Rothschilds, but it also passed. It was only then that PartyGaming went to DK and Treneman. (A spokesman for PartyGaming says: ‚It’s natural that companies see a lot of banks before they make a decision.‘)
Treneman, who has been described as ‚the antithesis of flamboyance‘, helped PartyGaming’s four founders share more than GBP 1bn last year in what was then the biggest City listing for five years. He continues to be the broker for PartyGaming, but this has forced DK to quit as broker of Sportingbet.com because of a possible conflict of interest. However, Treneman’s team at DK also advised Betandwin on its recent merger with Ongame.
Asked to justify his involvement in a sector that many other banks refused to touch, Treneman declined to comment.
Enthusiastic brokers apart, the listing of internet companies could not have happened without City grandees, vital to investor confidence, willing to sit on their boards. Chief among them is Brian Larcombe, the deputy chairman of PartyGaming, who joined the firm just before its flotation. He has been chief executive of quoted venture capital firm 3i, is a former chairman of the British Venture Capital Association and non-executive director of a host of quoted firms, including Smith and Nephew and F&C Asset Management. Another high-profile PartyGaming non-executive is Nigel Kenny, who was a finance director at Standard Chartered bank.
The second-largest player, 888, went down the same path by selecting as its chairman Richard Kilsby, an experienced City figure. Currently a director of Collins Stewart Tullett, he was a former executive director of the London Stock Exchange, managing director of Bankers Trust and vice-chairman of Charterhouse Bank.
888 wanted a bulge-bracket firm to lead its float last year. It appeared that Credit Suisse First Boston would be that firm, but it didn’t happen. Instead, HSBC stepped in.
Other City institutions that have profited from the surge in internet gambling include Numis Securities, which brought Empire Online and online payment system firm Fire One to market. Two years ago, Evolution Securities floated BetonSport, whose chief executive, David Carruthers, was recently charged with breaking the US Wire Act.
Every internet flotation came with lengthy warnings about possible curbs from the US authorities, but this did not stop PartyGaming’s surge into the FTSE top 100, where its shares are tracked by pension funds.
But one founder of a major internet gambling firm told The Observer last week: ‚I sold a lot of shares earlier this year. I’ve lost GBP 70m on paper, but I can afford to ride this out.‘
Some believe that the law only affects credit card transactions in the US, and online firms are exploring the possibility of using Canada as a payment centre. But the plan does not sound robust enough to encourage investors to buy shares in gambling companies that trade on the net. Worse is that many countries may follow the American authorities by stopping them trading altogether. And there are already fears that the US ruling by Bill Frist, the Senate’s majority leader and 2008 presidential hopeful, will drive 20 million American poker players underground.
Prohibition may pave the way for a regulated American internet gambling industry. But this will take years and be too late for the thousands of investors who have lost their shirts backing these companies.