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04 April 2011

PartyGaming and bwin merge to become bwin.party digital entertainment; Eyes on U.S, by Greg Tingle - 4th April 2011

Bwin.party became the world’s biggest listed online gambling company on Thursday.

They are keen to enter the U.S market, but how long will it take them? US competitors are also making political and media noise, but the question begs... who is in the best position at the moment, and who will get the first significant deals in place to deliver true wins - wins... for the online gaming company, land based casino, and the players.

Bwin.party digital entertainment traded on the London Stock Exchange following the merger of Bwin, the Austria-based sportsbook giant, and Gibraltar based PartyGaming, looking to once again return to its former position as number one online poker firm (players) in the world. It's going to be wait and see as to where bwin.party settle on the FTSE 100, but many experts are expecting them to do very well.

The merger was talked about for almost three years, but only now is it a reality.

"It was a rollercoaster," says Jim Ryan, PartyGaming chief executive who shares the top in bwin.party with bwin’s Norbert Teufelberger. "(There were) issues to do with valuation, issues to do with structure."

Both firms were "industry dinosaurs" say Teufelberger, with multitude of strengths and weaknesses. PartyGaming had poker, better cost control and more ties to the United States, where it actually dominated until the US legal crackdown back in 2006 which forced out several European operators. Bwin had sports betting, brand-building smarts, strong sports sponsorship deals and knew all of the European markets better than Party.

One of the key goals of the merger was to create scale to compete more effectively. Media and gaming analysts forecast 2011 revenues of the new entity at €841m ($1.2bn, £739m). The firm, which will yield €55m in synergies, advised pro forma earnings before interest, tax, depreciation and amortisation for 2010 were €171m. That's a far cry below the €196m forecast last year, after Bwin last week reported a 77% dip in earnings before tax and interest because of merger-related technology expenses.

Still, on the European stage, that Bwin.party are about two to three times bigger than its nearest listed online rivals: William Hill and Ladbrokes.

PartyGaming has found competition from private operators from PokerStars and Full Tilt, both of who have very mixed reputations with players. Party does not have that problem, and players are a big part of the key to success. The competitors have pretty much dominated the unregulated US poker market since Party­Gaming left the region, have also taken a chuck of the market in the regulated European territories.

By merging poker liquidities... i.e. combining the number of poker players and the amounts staked, Ryan aims to insulate better its PartyPoker brand from PokerStars and Full Tilt’s position on Europe. Party also has the established World Poker Tour brand, with strong media tie ins and a U.S ace in the hole with legalities, since it charges a subscription model to play.

Ryan said "I don’t know that there’s any competitor out there who has a scale to attack and be successful in each of those markets over the course of the next couple of years. This is what this merger does for us."

Bwin.party expects to be at the forefront as European markets are liberalised. But it is to the US that many eyes in the sector are watching. US politicians at federal and state level have drawn up draft bills for the long-awaited regulation of online gambling.

Bwin.party has contributed ideas on tax models for the US and is talking to the entities that run American football, baseball and basketball, most longstanding opponents of sports betting. Many analysts believe any online gambling legislation will be weighted in favour of US operators. European entities’ best hope would be to form joint ventures with US companies to capture a slice of the US market. Many news reports last month said Party did get b2b deals in place with a number of U.S land based casinos, but its understood that this has not been proven at this stage.

US companies are already positioning themselves. Wynn Resorts, the Las Vegas casino operator, and PokerStars last week announced a "strategic relationship", a move that some analysts say could make it more difficult for European operators to gain noticeable US market share. Having said that, PokerStars has a very mixed reputation, so Party might have a few aces up its sleeve, and knowing them, they do.

Reports on Thursday hinted that Full Tilt was due to announce a partnership with the owners of Station Casinos. Full Tilt has also have a number of allegations leveled against them like poker robots, unfair systems, late or non payers, and so it goes on. Party doesn't have the same heat on them.

Ryan interprets the recent online casino talks with U.S land based casinos as a positive catalyst for regulation across America - not a threat to Bwin.party’s master plane.

*the writer has conducted b2b with a number of the companies featured in the article.

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