PartyGaming annual profits slide 56%

PartyGaming, Plc. released a preliminary announcement of its 2006 profit results today. The report shows that the online gaming company saw a 56% drop in annual profits compared to its results in 2005.

In 2005, the company had a total after-tax profit of $293.2 million. In 2006, that had dropped to $128.4 million.

The drop is a result of PartyGaming pulling out of the United States after the Unlawful Internet Gambling Enforcement Act (UIGEA) was signed into law in October.

PartyGaming CEO Mitch Garber said in a video interview he felt the company's move to leave business in the United States was the right one, as he believes the new law makes it clear that taking bets from U.S. citizens is illegal.

"Whilst the decision to stop accepting customers from the U.S. was a bitter blow for our business, our continuing operations have grown strongly from the lows reached in November 2006, benefiting from the rapid reorganization of our business and the acceleration of our efforts in international territories," he said.

When PartyGaming, which owns PartyPoker.com, pulled out of the United States, three-quarters of its business was wiped out and the company took a $250 million hit in reorganization costs.

According to Martin Weigold, PartyGaming Group Finance Director, the UIGEA also resulted in a loss of high-yield players to other sites and a $100 million reduction in client-liability balance as players withdrew funds.

Since October, though, the company has seen a return of many high-roller players as well as lots of new sign-ups.

"They've actually been very strong," Weigold said. "In the fourth quarter, we were averaging around 1,700 non-U.S. sign-ups per day, and in the four weeks ending Feb. 25, 2007, they've increased to over 2,400 per day."

That increase has also resulted in gross revenues in those four weeks averaging about $1.3 million per day. Also on a positive note, despite the UIGEA and loss of U.S. players, the company's gaming revenue increased nearly 12% in 2006.

PartyGaming has had to change quickly to adapt to the changing online poker and gambling industry the past few months, but Garber said their strategy is just to continue with what they're doing.

"We're going to keep doing what made us successful in the first place - a great affiliate network," he said.

Garber continued saying, "We're going to have our brand, hopefully, become better known in countries where it may be lesser known today, and try to imitate our success in countries where today we do enjoy a great brand equity and we do have a large number of sign-ups."

Part of the plan is to focus on improving what the company is already offering its customers rather than adding more features in the coming year.

"I think we have a lot more mileage to gain out of making what we have better and serve our customers in those areas," Garber said.

The group is also focusing on markets in Europe, the Middle East, Asia and Africa to expand its player base. A recent hiccup in the plan was the company pulling out of France where the government is cracking down on offshore gambling operators.

"While regulatory uncertainty continues in some territories, our continuing operations are in excellent shape, and we have made a solid start to 2007," Garber said in a statement in the preliminary results.

He expanded on that in an online interview saying PartyGaming will be at the forefront of complying with regulatory frameworks around the world and be entrepreneurial at the same time.

"I think the worst is behind us," Garber said. "We suffered a very big hit, and now we're a very new company. But the new company we are is better than any other company in the sector."

Despite the positive outlook of the company's execs, the 56% drop in revenue sparked another drop in PartyGaming's share prices today as well.

After floating at 116p in June 2005, the stocks dropped another 2% again today, taking them down to 35.7p.

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