Net Bet Blog

Gaming VC (GVC) provided an upbeat set of KPIs today. Shares were up in early trades.

No more news on the rumoured management buyout supported by a large institution (all rumours). Progress on this is slower than expected - perhaps some credit crunch related issues are kicking in here.

The good news on German numbers may in part be a result of the German legislation (ironically). Without advertising the incumbents (that include GVC) are not subject to the competitive pressures that the big boys could exert. GVC are big in Germany and word of mouth and a good reputation (via their magazine) may well keep them there.

GVC remain on a remarkably low rating with a massive yield of over 20%. Still a strong buy in my opinion and with a takeover bonus on the horizon.

Back to the news:

Gaming VC says H1 revenues up 15 pct [ADVFN]

LONDON (Thomson Financial) - Gaming VC Holdings S.A. said first-half
revenues rose 15 percent year-on-year amid trading that slightly beat its
expectations.

The European online gaming company attributed the improvement in the six
months to June 30 to its resilience in the German casino business. It also said
it recruited 13 percent more funded accounts during the period.

Compared to the second half of 2007, revenue is 23 percent higher and there
have been 5 percent more funded accounts recruited.

"I am confident that growth will continue as we diversify our services and
expand our reach into new international territories," said chief executive
Kenneth Alexander.

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Apologies for the lack of posts - the real world of exam marking has a habit of intruding at the most inconvenient time. There is much to catch up on in posts to come this week.

We begin with a look at Gaming VC's employment of anti-fraud software. This is a minor piece of news but is posted to allow me to point out yet again GVC's recent share price rise (touching £2.70 today).

With takeover rumours abound, a settlement of the court case with Fort Knox and with a large active institution taking a 29% stake that GVC's days as an AIM listed company are numbered.

There is mileage left in the share price on current ratings in my opinion.

Gaming VC Puts Odds in Its Favor by Choosing Ethoca's Anti-Fraud Community to Manage Online Fraud Risk [marketwire]

NEWS FACTS:

-- Ethoca, the leader in collaborative fraud management, today announced that Gaming VC -- a leading European online casino and poker provider -- has selected Ethoca's global collaborative anti-fraud community.

-- Ethoca will support Gaming VC's expansion into new geographic markets without increasing its fraud-related operational expenses.

-- Gaming VC's selection of Ethoca makes it the most recent company in a rapidly accelerating trend within the global gaming industry to join Ethoca's community of online businesses collaborating to defeat fraud, which includes such gaming leaders as Ladbrokes, William Hill, 32Red, bwin, 888, Stan James and Boylesports.

-- Gaming VC is one of Europe's leading online casinos. Its wholly owned Casino Club business unit has 58,000 active customers and more than 100,000 registered users.

-- In response to growing opportunities worldwide, Gaming VC is pursuing a strategy to diversify into new territories outside its core German-speaking markets.

The tidbits from the piece for GVC investors in the continued emphasis on its geographical diversification and large user base.

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How many years will it take for governments to realise that regulation just doesn't work.

GamingLawEU do a good job of summarising the economic disaster that is the last 4 years of regulation in Germany. What is interesting are the economic losses you might not first expect - those to the actual monopoly that the regulations were intended to protect.

With Germany facing GVC up over 7% today I wonder if the publication of this article was partially to blame (for this good news for GVC holders). BWIN holders and other EU betting sites such as SBT and PRTY will find this summary of interest.

The writing style is odd to say the least and as always with posts on this site make little sense on first reading. I suspect law is something that does not translate well.

Germany: A turbulent regulatory framework [GamingLawEU]

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Less than four months later, a report on the State Treaty on Gambling in the newspaper Kieler Nachrichten was fittingly titled “Gambling: Is the State the loser?”. This is because even now a massive reduction in gambling turnover for the first quarter of 2008 must be recorded for the state-run providers. The news met with a divided response among the members of the parliamentary parties in government. “What we feared would happen is now actually happening”, declared the member of parliament for the CDU, Hans-Jörn Arp, who had been fighting vehemently against the State Treaty. For the Chairman of the State’s FDP parliamentary party, Wolfgang Kubicki, it is a “financial catastrophe”.

On the figures:

Gross earnings of the gambling houses are down 10 per cent, Oddset’s turnover collapsed by up to 50 per cent. For the KENO-bet, the reduction amounted to 30 per cent, Lotto on Wednesday and on Saturday each had to record losses of approx. 11 per cent of their turnover. Thus, altogether about 8 million Euro of turnover have been lost since January”, said Mr. Kubicki after inspecting the parliamentary query (Drucksache 16/2007) at the end of April 2008.

The insanity of having to block internet access to local products because of addiction problems is laughable as Germany are continuing to play happily on Maltese and other sites meaning the state lotteries are losing even more. Sheer stupidity.

As the internet offers up until recently were blocked in Bavaria and most of the other Federal States in 2007, the lottery administration calculates that turnover will be down by approx. 50 million Euro for the last year. According to the Court of Auditor’s estimate, this alone would lead to reduced income (net proceeds and lottery tax) for the State of Bavaria amounting to 20 million Euro. A few days ago, Lotto Bayern resumed its offers through the internet. The justification provided in this context of the alleged fight against addiction will not be very credible against this background.

The article concludes:

Conclusion

The first 100 days of the State Treaty on Gambling have been disillusioning for the advocates of the gambling monopoly. This is because in reality we are rather seeing the beginning of the end of this short-lived law. We may even see BWin banners in the Allianz Arena during the next Bundesliga season, instead of lottery “information” provided by the state.

This eventuality was entirely predictable. Where were the economists when this law was passed?

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We have been following the Gaming VC situation carefully on this blog. A recent takeover approach was not mentioned in the recent results.

Now we see why - it appears that there is going to be an activist investor sponsored MBO. This is no surprise and a trawl of my previous posts raised this possibility.

Now, from a business perspective this makes absolute sense. GVC will be freed from excessive regulation, could re-enter the US and expand rapidly with the red tape associated with a listing.

But what of the poor shareholder (not so poor after a more than 100% rise in the share price recently)?

GC has been massively undervalued for a while now and only recently has the market woken up to this fact. Even so, given the low PE and large yield GVC is still cheap.

The problem as I have stated before is that it is looking increasingly likely that £3 to £3.50 will be enough to close the deal and take GVC private.

THe market sets the price and the management get a good deal. It means the existing shareholders need to fight hard to a good price. I expect they will not have the stomach for the fight and £3 might be enough (still a good premium on today's £2.20 price).

We await developments with interest.

Chief Executive ‘To Lead MBO’ At Gaming VC

Scott Longley, 02/05/2008
GamblingCompliance Ltd.

With the current chief executive at Gaming VC set to lead an activist shareholder-backed takeover bid for the company, it appears likely that the online operator could set upon a path of aggressive expansion freed from some of the regulatory concerns that have dogged the company to date.

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GVC holdings have had a magnificent run in recent months up over 100% from less than £1 to a peak of £2.60 (now around £2.30). Regular readers will know that we have been a strong supporter of this AIM stock due simply to its massive undervaluation on any measure you want to come up with and diminishing regulatory risk and ludicrously high yield.

This undervaluation did not go unnoticed by some astute institutional investors who have been hoovering up stock and I suspect recently approached GVC with a view to taking over the company (and almost certainly taking it private).

This would be bad for current shareholders in my view and the stock is still worth on fundamentals alone over £4 in my opinion (Not investment advice DYOR). My suspicion is that the takeover approach is unwanted by the current management but their lack of substantial holdings means this was always a risk.

Final Results [ADVFN]

Highlights
* Gross profit increased 9.5% to Euro32.2 million (2006: Euro29.4 million);
* Operating profit up* 28.1% to Euro17.3 million (2006: Euro13.5 million);
* Net revenues were up 5.2% to Euro42.7 million (2006: Euro40.6 million);
* Maltese gaming licences acquired, reducing regulatory risk in the European Union;
* Successful diversification, having acquired a sports betting licence;
* Recommended final dividend of Euro0.20 (c£0.16) (2006:Euro0.19 (£0.13)).

*before exceptional items and share option charge

Commenting on the results, Kenneth Alexander, Chief Executive of Gaming VC,
said: "I am delighted with the performance of the Group during 2007 with record
profitability delivered during the year. It has been a year of transformation
and change in strategic direction. Acquiring our European licences and
diversifying into new products and markets leaves the Group in a much stronger
position moving forward. I am confident that Gaming VC is now well placed to
continue its successful growth story."

The KPI figures are also impressive.

KPI update

So where now for the share price? With many ex-directors cleared out by Audley buying there is little to stop this gapping up to £3. The big unknown is how takeover talks are progressing. What do the other large shareholders want to be taken out. I suspect £3.50 will be enough to complete the deal.

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GVC Holdings (GVC) a favourite of this blog and covered extensively has been the subject of a bid approach.

Gaming VC Holdings S.A.

("Gaming VC" or "the Company")

Preliminary Approach

The Board of Directors of Gaming VC Holdings S.A. ("Gaming VC" or the "Company")
announces that it has received a preliminary approach which may or may not lead
to an offer being made for the entire issued and to be issued share capital of
the Company.

Further announcements will be made as and when appropriate. In the meantime,
shareholders are advised to take no action in respect of the preliminary
approach.

My guess is that Audley Capital and their new activist shareholder is looking to take GVC private. The alternative is that BWIN or one of the other large Germany based companies will buy the company.

GVC, even at £2.50, is still very cheap on PE and yield grounds.

The final price could well be over £3 without breaking a sweat.

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The protective and clearly illegal Inter-state regulation in Germany is now on the ropes. Loopholes are being exploited and the vast majority of websites and online casino and poker sites are running as normal.

This is good news for all the companies we cover. One example is GVC Holdings that has seen its share price double in recent months from £1 to £2 a share.

German Online Casino Looks To Loophole in Internet Gambling Ban [GamingLaw.EU]

A Casinos Austria-owned online casino will soon begin to offer its games to residents in the German state of Lower Saxony following a court victory last week, despite the general prohibition on internet gambling in Germany under the Interstate Treaty which came into force in January 2008. The Treaty’s draconian provisions may mean the internet casino is short-lived, but its very existence could further undermine the already maligned Treaty, say legal experts.

Rainer Chrubassik, managing director of Casinos Austria’s Spielbanken Niedersachsen GmbH (SNG), says that SNG has begun preparations for the launch of a full suite of online casino games following the decision by the Higher Administrative Court of Luneberg last Thursday. The court rejected an attempt by the state of Lower Saxony to appeal a decision issued in August of last year which upheld SNG’s right to offer internet casino gambling in the state.

The article continues with a quick summary of the background to the interstate treaty.

The Interstate Treaty establishes a general prohibition on the use of the internet for all forms of gambling in Germany (except horserace betting) but was not at issue in the SNG hearings as the Luneberg court received Lower Saxony’s reasoning before the treaty came into effect, says Claus Hambach, founding partner of Munich-based law firm Hambach and Hambach.

Therefore, it remains possible that Lower Saxony could launch new proceedings against the online casino website, he said. Alternatively, the court may decide that it has already issued a definitive ruling on the SNG case and refuse to hear a new challenge.

“It is hard to predict what will happen as offering an online casino definitely breaches the wording of the Interstate Treaty, but SNG could not be subject to criminal law as it is in possession of a valid state licence,” Hambach told GamblingCompliance.

The article concludes with the sort of language all sensible commentators have been spouting ever since the equally insane US ban on internet gambling.

“It is impossible to implement a ban on internet gaming sites. The clock cannot be turned back on the reality of the internet,” he said. “Only licensed internet gaming sites can meet regulatory channeling requirements and prevent players from turning to illegal, unregulated sites. [SNG] are committed to these requirements.”

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We follow the German online regulatory set up very carefully on this blog due to its impact on the share price of companies such as BWIN, GVC and others.

The following story is a bit of a surprise but shows that a more regulated system is clearly the way Germany and the rest of Germany will follow. This is good news for the whole sector.

5 YEAR GERMAN ONLINE GAMBLING DEAL FOR CHARTWELL [Online Casinos]

One of the German states will soon have an online casino operation up and running. Calgary-based online gambling software developer Chartwell Technology has revealed that it has been successful in clinching a deal with Spielbanken Niedersachsen GmbH (SNG), the exclusive Lower Saxony state licensed and regulated casino operator, for an online gaming system.

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The advent of the German online casino project will be watched with interest by the European Commission, which has been pressuring Germany and 9 other EU members to open up their online gambling industries to private companies both within the country and in other EU nations.

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An excellent article over on GamingLaw.EU concerning the current state of regulation in Germany and BWIN's current position.

BWIN are one of Europe's most aggressive online companies who are taking the fight to the courts seemingly at every opportunity.

I highlight just a couple of the more interesting paragraphs. There are clearly implications for other companies "big in Germany" such as Casino Club and Poker Kings (GVC).

It is possible to read this article as either positive or negative and the whole German regulatory framework remains complex. I am no nearer fully understanding how the inter-state treaty impacts on companies operating under licences from, for example, Malta or Gibraltar.

BWIN are sticking it out and so, apparently, are GVC. This is good news for shareholders in the short term but as BWIN acknowledge there may be future fines to contend with.

Bwin Bullish Despite Westlotto Court Setback [GamingLaw.EU]

The Federal Court of Justice ruled on Friday that Bwin could not delay enforcement of the action brought by state-owned lottery operator Westlotto in 2004. In September 2007 a court in Cologne upheld Westlotto’s unfair competition action against the Bwin.com website, effectively authorizing Westlotto to claim compensation from Bwin if it continued to “illegally’’ operate and advertise its Gibraltar-licensed online gambling services in Germany.

Bwin has chosen to appeal the decision to Germany’s highest civil court (the Federal Court of Justice), but that same court on Friday decided that Westlotto was entitled to enforce the earlier judgments ahead of the Federal Court reaching a final verdict on the case’s merits.

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The question now is whether Westlotto will indeed seek to enforce the anti-competition suit before it is upheld in the federal court. Under German competition law, it may be possible for Bwin to claim compensation from Westlotto if the lottery operator seeks enforcement of a court decision which is later overturned by the Federal Court of Justice, said Claus Hambach, founding partner of Munich-based law firm Hambach and Hambach.

“The ball is now in Westlotto’s court,” Bwin spokesman Kevin O’Neal told GamblingCompliance. “These enforcement orders would have to be sent by Westlotto to the company’s offices in Gibraltar and this is not something we expect to happen overnight.”

O’Neal said that the Westlotto proceedings relate only to the Bwin.com domain name operated under the Gibraltar licence. Bwin’s German subsidiary – www.bwin.de – which has an old East German sport betting licence is not affected.

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Furthermore, the company claims that the treaty violates the principles of EU law and believes that its Gibraltar licence should entitle the company to offer online gambling services throughout the European Union.

According to O’Neal, the company therefore has no intention of closing either of the two websites for German customers – regardless of the previous decisions of the Cologne court.

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O’Neal cites a number of legal doubts surrounding the new gambling treaty. The European Commission has already launched infringement proceedings against the Interstate Gambling Treaty and a number of German sports betting cases are also pending before the European Court of Justice. Recent court cases in Germany have also found in favour of private betting operators, he said

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The more I research BWIN the more I am convinced that it is going to be a major player in European consolidation. The management and competent and aggressive with an eye for a marketing opportunity.

Clearly Sportingbet (SBT) are in their sites but I would imagine smaller players such as GVC (Spain/Germany/Italy) and LNG (Italy) would be possible targets that could be snapped up for loose change.

SOLID Q4 AND FULL YEAR RESULTS FROM BWIN [Online Casinos]

Record gross gaming revenues were up 24.9 percent to Euro 102.3 million (Q4 2006: Euro 81.9 million) and sports betting gross gaming revenue soared 30.2 percent to Euro 59.5 million (Q4 2006: Euro 45.7 million) with a sports betting margin of 9.6 percent.

Poker revenue was also well up by 26.7 percent to Euro 21.8 million (Q4 2006: Euro 17.2 million) and record net gaming revenues were recorded - up 28.3 percent to Euro 89.4 million (Q4 2006: Euro 69.7 million)

The company reported that its European growth in members was a record for the industry, with 894 000 active and 234 000 new active real-money customers in fiscal 2007.

Full year numbers showed a similar success story, with gross gaming revenues of Euro 350.5 million: up 21.4 percent (FY 2006: Euro 288.6 million) and record sports betting gross gaming revenue: up 19.0 percent to Euro 191.9 million (FY 2006: Euro 161.2 million) with sports betting margins of 8.7 percent.

Full year Poker revenue rose 38.6 percent to Euro 82.3 million (FY 2006: Euro 59.4 million) and Net gaming revenues were 25.9 percent to Euro 309.7 million (FY 2006: Euro 246.0 million) Over the full year membership figures were 1,6 million active and 798 000 new active real-money customers.

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As a blog that follows EU regulation in relation to quoted companies.

One of the main issues with EU regulation concerns the implementation of the inter-state treaty in Germany and its effect on the online gaming market. Paddy Power for example have closed down their German facing site. BWIN have some German licences and are forever in the courts. GVC Holdings on the other hand shifted all their servers to their Maltese licence and migrated all players.

It is therefore of interest to see that a record price of a ".de" website name has just been paid for Casino.de. This, as the buyers states, could end up being a real bargain. I bet there are many others that wish they could have got in on this act.

The site at present looks rather amateurish and needs an overhaul unless sites of this quality are still able to earn back their costs relatively quickly.

NOTE: the buyer of this site is the owner of online-casinos who wrote the article. Online-casinos is good for news but again needs a major overhaul. It is hard to believe the make much money from their affiliate links but perhaps I am wrong especially if allows them to afford the German site. Clearly it is not possible to know the viewing figures for online-casinos or the number of employers - unless they would care to comment on this site.

RECORD PRICE PAID FOR GERMAN ONLINE GAMBLING DOMAIN [Online-casinos]

The Danish internet company Balslev Media paid what is believed to be a record price for a German online gambling Internet domain this week when it acquired Casino.de for Euro 400 000 (US $591 000).

According to the new owner of Casino.de, the domain name acquisition was a bargain: ”The value of this particular domain consists of several things," said Balslev Media chief Jan Balslev.

"First, it’s the perfect brand name - it’s short and it describes exactly what we do. Furthermore, many people will find our website even if they don’t know anything about us through direct traffic, which is acquired when people type in a keyword domain name in their browser and find a service provider without searching for it first. Finally, the high price indicates the popularity of online casino and poker gambling on the Web.”

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Paddy Power (PAP) released final results today. There were rumours of a William Hill, Paddy Power merger. This makes sense given PAPs excellent foray into the online sector. The PAP management have shown themselves to be excellent marketeers and were fleet of foot when it came to online gaming.

Of note: PAP have suspended their German language site pending regulatory uncertainty.

Here are the highlights:

Highlights:

- Operating profit growth of 59% to Euro72.1m;

- Online gross win growth of 41%, including gaming gross win growth of 44%;

- Continued trading profitability in our UK Retail business compared to
a loss of Euro6.0m in 2006;

- Operating profit growth of 57% in our Irish Retail business;

- Operating profit growth of 36% and 7% in our online and telephone
businesses respectively;

- Expanding UK Retail estate into Manchester and Glasgow with an expectation
to at least double the size of our estate over the next three years;

- Continued investment to drive future growth including:
o the introduction of online financial spread betting, online Spanish
language betting and sports risk management businesses;

o the addition of 18 shops in Ireland, 10 new openings and eight
acquisitions;

- Significantly increased cash returns to shareholders to Euro73m in 2007
from Euro11m in 2006 through both dividends and share buybacks;

- Last, but not least, a favourable run of sporting results.

Commenting on the results Patrick Kennedy, Chief Executive, Paddy Power plc said:

"We have grown our business very substantially in 2007. Pre-tax profits have
grown by 53% to Euro75.8 million, with strong growth in every division. Particular
highlights included the 57% profit growth in Irish Retail, 44% growth in online
gaming gross win and the turnaround of our UK Retail business. Furthermore, we
have conducted a detailed review of the UK retail market, and will open shops in
Glasgow and Manchester as well as in London this year.

The outlook for Paddy Power remains strong, underpinned by our momentum and our
strong market positions. We are confident in our prospects for 2008 and
beyond."

Here is what PAP have to say about German regulation (relevant to GVC, BWIN and others).

From a negative perspective, in December 2007 the German state legislatures voted through a new gaming treaty,effective 1 January 2008, extending the state monopolies and making internet betting and gaming activity illegal.

The market in Germany is consequently in a state of flux as the interaction of
European law and its new domestic law remains to be resolved. This creates a
series both of commercial and legal uncertainties in providing internet-based
services in the country. Having assessed these uncertainties (along with the
importance of Germany within our overall market for German speakers), we have
concluded that the balance of commercial risk and reward is not favourable in
the short term and have suspended our German language website. This decision
does not give rise to any material closure costs or impact on our expected
profits over the next number of years.

Finally, their online division:

Our online channel generates gaming revenues from casino, games, poker, bingo and financial spread betting. Revenue from these sources, representing the
operator's 'hold' or commission income, increased by 44% to Euro40.7m. This was
driven by a very strong performance in Casino and Games, aided by particularly
strong growth in Poker in the first quarter and all gaming in the summer with
the absence of the distractions for players in 2007 of the World Cup and
sunshine!

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After nearly a year of selling, non-executive director of Gaming VC (owners of CasinoClub)has finally disposed of his 7.13% of the company.

May 7th 2007 - sells 280,000 leaving 2,220,000 (7.13%)

May 25th 2007 - sells 155,000 leaving 2065,000 (6.63%)

July 13th 2007 - sells 315,000 leaving 1,750,000 (5.62)

October 25th 2007 - sells 750,000 leaving 1,000,000 (3.21%)

February 25th 2007 - sells 1,000,000 leaving NONE (0%).

During this time the share price has done very little and has traded in a pretty tight range between £1 and £1.60 but usually between £1.20 and £1.40. Willis is nothing but consistent in his sales of GVC shares.

Clearly, if he had sold in May of 2006 he would have made over £4 a share.

That is one overhang gone, one to go following the news that ex-CEO Steve Barlow sold 500,000 shares, cutting his stake to about 1.952 mln shares or 6.27%.

Questions:

1. Will Steve Barlow continue to sell his stake down to zero?

2. Why did Willis sell and why is Barlow selling when the prospects for GVC appear on the surface to be rosy?

3. Who bought the Willis shares? Which institution?

Dr Robert Willis, Chief Financial Officer (35)
Robert was CIO of Computer People Inc., a company with revenues of $US 135 million. He led Alpine Computer Systems, Inc., a start-up business with revenues of $US 35 million, through years of growth in the Inc. 500 and orchestrated the $US 25 million strategic merger of Alpine with Delphi Group plc and secured $US 20 million of growth capital. Continuing as President of Alpine, as a part of Delphi, Robert executed the development and expansion of Alpine’s outsourcing and managed services offerings and served in executive roles, including board director of Delphi’s US holdings. Robert is currently a President and Managing Member of Hickory Hills Advisors LLC, a venture capital fund, managing a portfolio of early stage companies. Robert also sits on the Board of Trustees of AimNet Solutions Inc., Pinnacle Realty Corporation, Vert Inc. and Newbury College in Boston, Massachusetts

GVC also run the recommended PokerKings.

Cliff D'Arcy, a financial journalist, has taken a 3% stake in beleaguered small cap gaming company Leisure and Gaming (LNG).

Cliff, also known as Cliffyburger on the bulletin boards, has been a long time bull of LNG seeing it as an undervalued gaming play. At a cost of a little over £100,000 Cliff has got his name in lights.

Leisure & Gaming says Cliff d'Arcy holds 3 pct of co

LONDON (Thomson Financial) - Leisure & Gaming PLC said Cliff d'Arcy has an
interest in 2.55 mln shares, representing 3.00 pct of the company's issued share
capital.

We have covered LNG at length in this blog, the latest being the rumours of a takeover approach perhaps from GVC or one of the big land based bookies looking to get a foothold in Italy. Corals, Hills or Ladbrokes could be in the frame.

Is Cliff D'Arcy's 3% stake good news or bad news? A big buyer is rarely bad news but these purchases appear to be based more on hope than fundamentals.

One to watch.



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Hambach & Hambach today released news regarding EU legislation in Germany.

This effects companies such as BWIN and GVC (Aim quoted) - see Poker banner below.

This article is still not entirely clear and may require reading two times BUT I suspect this is good news and may explain recent rises in the share price of GVC.

Commentary - Hambach & Hambach: New Decision by the BGH (German Federal Court of Justice) on Betting Law: Legal History or U-Turn?

Munich 14 Feb. 2008: Today, the I. Zivilsenat (first division for civil matters) at the Bundesgerichtshof (German Federal Court of Justice) dismissed in four cases action filed by state-run gambling providers (among others Westlotto) against private sports betting providers holding GDR and EU licences (among others bwin). In its press release, the BGH headlined: “Old cases of offering and operating sports bets do not constitute a violation of competition”. Initial press reports state that “the flood of law suits against providers of sports bets was thrown out on Thursday by the Bundesgerichtshof (BGH)”.

In its 2004 decision, the previous instance, the OLG (Higher Regional Court) of Hamburg had made reference to the so-called “Schöner Wetten“ decision of the BGH and had stated in the headnote:

“The only basis for the evaluation of the question of a violation of competition is the lack of a domestic licence. The question as to whether the applicable provisions of the laws of the respective Federal State are unobjectionable under European law and/or whether the process of issuing licences is actually being conducted free of discrimination, is not decisive, at least from the point of view of competition law. (Court’s headnote).”

Now, in its most recent press release dated 14 Feb. 2008, the BGH states as follows:

“(…) the previous instances had held that the prohibition of illegal gambling, enforced by penalties, does not violate European Community law nor German Constitutional Law. (...) The Bundesgerichtshof has not assented to this evaluation. The landmark decision by the Bundesverfassungsgericht (Federal Constitutional Court) dated 28 March 2006 (1 BvR 1054/01) is said to mean that the state betting monopoly in Germany, in the legal and actual form it had taken during the decisive period of time before 28 March 2006, represented a disproportionate interference with the freedom of profession of persons interested in professional activities of this kind, this therefore being inconsistent with Art. 12 paragraph 1 GG (Grundgesetz – German Constitution). At the same time, it represented an unjustified restriction of the freedom of establishment and the free movement of services guaranteed under Art. 43 and 49 EC. Due to the state betting monopoly’s inconsistency with the Constitution and with Community law during the period of time before the judgment of the Bundesverfassungsgericht on 28 March 2006, Section 284 StGB (Strafgesetzbuch – German Criminal Code) could not be applied to the offering of sports bets in the cases to be decided here, where acts carried out in the years 2003 to 2005 are to be considered (so-called “old cases”).”

This means that, while the BGH in the “Schöner Wetten” decision in 2004 expressly demanded a German betting licence in order to exclude the applicability of Section 284 StGB, it now abandons this principle and turns to Community law.

Thus, if the new state treaty on gambling also violated Community law, an EU licence would be sufficient to exclude the applicability of Section 284 StGB, and thus a violation of competition. And a lot speaks for this inconsistency with EU Community law:

In the letter to the German Federal Government initiating infringement proceedings against the German Federal Government, the EU Commission states among other points that Sections 284, 285 and 287 violate the free movement of services guaranteed under Art. 49 EC.

Furthermore, a violation of the German gambling monopoly against Art. 43, 49 EC is being examined by the European Court of Justice, after referral of this question to the ECJ by the VG (Administrative Court) of Schleswig in a decision achieved by the law firm Hambach & Hambach.

The new decision by the BGH has far-reaching significance beyond competition law and beyond the so-called “old cases“. The highest German court for civil matters unambiguously subjected the central provision of the entire gambling law to the priority of application of Community law. This also is of decisive importance for the legal situation under the new state treaty, a fact which has also been confirmed by the European Commission in its most recent letter.



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To start off our "rumour" season we being with an interesting little number from the Daily Express which writes:

MARKET REPORT: Vodafone (speculation it could bid for Tiscali; also suggestions
British Sky Broadcasting could be interested in Tiscali), Chaucer (vague bid
chatter), Shaftesbury (talk persists of corporate activity in the sector), FKI
(mounting speculation that Blackstone is about to trump a recent approach by
Melrose), Gaming VC often touted as a bid target, but some traders reckon it
could be on the lookout for an acquisition of its own; Leisure & Gaming seen as
a potential target)

RUMOUR WARNING - HIGH. Read at your own risk.

This is astonishing for a number of reasons. First, GVC and LNG are particular favourites of this blog and we have covered them many times (see labels for more).

I have posted in the past on both these events. (1) GVC does have a war chest of around £20-£25m for aquisitions (must be a banking arrangement). However, they also represent a tasty morsal themselves. They are growing rapidly in Spain and Russia and have a strong position in high spending Germany. They are also on a insane yield of something like 20-30%. Regulatory worries over Germany explain the low price. The word on the street is that the recent 1 million buys were American.

(2) LNG is, we know, in talks with potential buyers/partners. They also, we are led to believe, rejected an offer in excess of 13p late last year.

Now, LNG could also be considered very cheap given their Italian licences but the management appear to be rather poor (but perhaps improving). I personally see LNG as a good target. Good management could buy LNG cheap and turn it around with relatively little effort.

It will be interesting to see how this plays out but BOTH shares might see a run up in their share prices. GVC has had a good 40% increase in recent weeks but LNG remains close to all time lows. I believe that it may be hard to get hold of stock in any size in either company. GVC has a very low NMS (normal market size).

GVC is the owner of Casino Club (see top banner link). As part of the service this blog investigates and tests affiliate offerings. GVC's is "good" and on the way to being "excellent". LNG's in next to useless and gets "poor".

Here is GVC's BEST PERFORMING banner. GVC are a professional outfit make no mistake about that. Read carefully.



These are GVC's other offerings:









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It appears that the EU has finally decided to act against the anti-gaming, monopoly protecting ant-gaming legislation in Germany and Sweden.

Whilst it is tempting to say "about time too" and I actually pleasantly surprised at the relative swiftness of thier action especially regarding Germany where the inter-state legislation was only passed at the start of this month.

Germany still has two months to respond to EU requests so this will still be a long and drawn out process. However, as long as the pressure continues to ratchet upwards share prices should follow.

GVC and BWIN stand to gain the most from German compliance with EU law. GVC has already rebounded 30-40% in recent weeks from a low of low 80's to its current price of around £1.26.

EU executive targets Germany, Sweden over gaming [Guardian]

BRUSSELS, Jan 31 (Reuters) - The European Commission opened legal action against Germany and Sweden on Thursday as part of wider efforts to crack down on hurdles to competition in the gambling sector.

EU Internal Market Commissioner Charlie McCreevy has asked Germany for information so that Brussels can assess whether a new treaty that came into force this month to ban online gambling in the country was in line with the bloc's rules on the free movement of services.

"Germany has two months in which to respond. The Commission hopes that the answers it receives will lead to an early and satisfactory resolution of the matter," the Commission said in a statement. In particular, the Commission is looking at the treaty's total prohibition of games of chance on the Internet, especially sports betting, at advertising restrictions on television, on the Internet or on jerseys or billboards, and the ban on financial institutions processing bet payments.
Germany's lottery group, Deutscher Lotto- und Totoblock, said it was confident of the outcome of the inquiry.

"The European Court of Justice expressly allows gambling monopolies because of player protection. We are therefore confident that Germany's legal situation will withstand inquiry," said Friedhelm Repnik, head of the Baden-Wuerttemberg state lottery which coordinates the national lottery.

The European State Lotteries and Toto Association said the German treaty followed guidelines given by the country's constitutional court and fully in line with ECJ rulings.

"I am therefore confident that the ECJ -- should the Commission eventually decide to go to court -- will confirm the compatibility of the treaty with European law," the association's president, Winfried Wortmann said.

The Commission took legal action against Sweden to verify whether all national measures relating to poker games and tournaments are compatible with EU laws on the free movement of services.

Brussels also gave Stockholm two months to respond.

Sweden's finance ministry said the government had no immediate comment on the move and that it was already in the middle of a major review of its gaming policies and would present the results in December.

"Really we're taking a grip of the whole gaming area," ministry spokesman Markus Sjoqvist said.

The actions are part of a three-stage process that ends up in the European Court of Justice, which has powers to fine EU states and force them to change their laws.

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Whilst the stockmarket enters a potentially severe bear market with stockmarkets round the world experiencing record falls it is time to give a little thought to the position of online gaming stocks as part of a balanced portfolio.

In recent weeks gaming stocks have held up remarkably well. Why might that be?

The classic argument is that in market turmoil that there is run to safety (usually gold or bonds). However, within equities money tends to head to the so-called "defensive stocks". These might include utilities and cigarette manufacturers.

Many are now proposing that online gaming stocks now represent a good defensive stock. The argument being that:

1. Gambling is addictive (like fags) and therefore this is one of the last things consumers will cut back on.

2. If consumers are not going out to the pub or for so many meals that they are more likely to stay in and play the occasional hand of poker for entertainment. This is arguably very cheap entertainment.

3. In a recession people feel low and want to at least experience the thrill of potentially winning a large amount of money.

The counter arguments to the above and fairly straight-forward. Arguably, gambling is something consumers use extra disposable income on. When times are tough it is this sort of discretionary spending that is the first to be cut back on fairly easily. Food and heating comes first after all.

Overall, I believe shares such as 888, PRTY, SBT, 32RED should provide at least some element of safety in today's choppy markets.

For those that like risk, some of the smaller AIM stocks can still provide all the excitement you could want from owning a potential multi-bagger share. For example, LNG, BETB, GVC and others.

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Good news and bad news for GVC. This sale by former CEO Steve Barlows is not classified as a director sale which is good news. It is also good news that market makers were able to find a home for 500,000 shares although it appears it took them a little time. The bad news of course is that any sale hints that "they know something" and hence the sale.

The Company received notification on 21 January 2008 that, following the
disposal of 500,000 ordinary shares of Euro1.24 each in the Company ('Shares')
on 16 January 2008, Steve Barlows now has a holding of 1,951,927 Shares,
representing approximately 6.27% of the Company's issued ordinary share capital.

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Pokernews provide a decent summary of the current EU regulatory position with some mention of the German Interstate Treaty.

Of primary interest to the companies we follow in the blog we only report the information on Germany.

Online Gambling Access Brings European Legal Skirmishes [Pokernews]

The formal complaint filed by the European Gaming and Betting Association [EGBA] with the European Union last week is a direct challenge to the Daily tournaments recently passed 'German Interstate Treaty', a law banning virtually all forms of online gambling excepting horse racing. That law went into effect on January 1st but is expected to face legal challenges within Germany as well. EGBA, a not-for-profit association created by eight of Europe's largest online-gambling providers (PartyGaming, bwin Group, Unibet, bet-at-home.com, The Carmen Media Group, Expekt, Interwetten Gaming Ltd and digibet), assailed the new law in its complaint with the EU.

The EGBA noted in its complaint that the German Interstate Treaty was "in direct contravention of European law." The EGBA also stated that the new law was enacted despite standing EU objections over a like ban previously enacted by individual German states. The complaint noted that "[the law's] adoption shall not only restrict the activities of EU operators but directly challenges the Commission's clear position under the notification procedure itself."

The EGBA's Secretary General, Sigrid Ligné, put it even more directly: "The German Interstate Treaty is incompatible with EU law, and its adoption has left us with no other choice but to make a formal complaint to the EC. We urge the Commission now to fast track our complaint and launch infringement proceedings against Germany."

Here is the famous German site run so successfully by Gaming VC.



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