GROUP 7 P R A K H A R R AT H E E 2012PGPRAK031 V I K R AM S I N G H S H E K H AWAT 2012PGPRAK039 PAR T H S AM I N 2012PGPRAK029

PARTYGAMING IPO
90s VCs investing majorly in dot.com companies herd mentality. All short term investments in overvalued businesses Bubble burst in 2000 - VCs become wary PartyGaming launches 2005 IPO on LSE valued at Pound 4.64 Billion (biggest UK flotation for 5 years) PartyGaming had become famous through PartyPoker in America had more than 50% SoM and 2004 Revenue of $552 million

QUESTIONABLE BEGINNINGS
Online Gambling illegal under US Dept. Of Justice PartyGaming assets outside US jurisdiction Questions asked of LSE and Ibanks Shares rose 11% on first day of trade oversubscribed offer

Ruth Parasol founded PartyGaming previously ran telephone sex line business and online pornography business cashed in before crackdown

CASINO REVENUE MODEL

Judgement and Chance based games Chance games revenue a) Percentage of stake as payout (after accounting for profit) BINGO b) Long term house win based on probabilities Roulette Judgement games revenue - Percent of Pot POKER (American Teen Patti)

THE GAMBLING MARKET

Ethical issues - Legalization due to inability to prevent collect tax level of legalization and products available vary from region to region US gambling legislation based on state level discretion By 1999 31 states had some form of casino gambling 51 billion market in 1997 7.47% CAGR from 1982-97 Major problems entering BRICK AND MORTAR Casino industry regulatory controls, scale benefits, strong brands, heavy capital investment

GAMBLING ON THE INTERNET

Low investment 1997 30% adults with access to the internet, $2.4 billion spent online in 2007 Due to regulations firms based themselves in offshore locations 1997 Starluck Casino by Parasol software licensed from third party marketed extensively Top 5 gambling website paid out commission to other sites for banner ads based on amount gambled By December 1998 Paid out $500000 in commission

 1998 - $919.1 million revenue, 14 million users Barriers to entry low but gaining trust tough

iGlobalMedia gambling sites, portals for ads, marketing services, sales of gambling software
Anurag Dikshit (42% owner) and Vikrant Bhargava (Marketing Director) - PartyGaming 2005 Poker not popular low profitability, coordinating demand, space (traditional casinos)

WHY ONLINE POKER

No stakes Low Stakes High Stakes Convenience, no travel, no intimidation, simulplay Paradise Poker (not easy to use) PartyPoker Liquidity require competitors percent of pot business model Mike Sexton (BRAND) - $22 buy for $1 million prize masses Transparency live final round Kathy Liebert

PartyPoker lost $500K extensive media coverage

2002 6000 players, 20% SoM, $9.7 million revenue

THE POKER BOOM

Boom in 2003 coverage of WPT, holecam, expert commentary (Sexton), PartyPoker 50% SoM (used Travel Channel and Sexton) Satellite tourneys - THE MONEYMAKER EFFECT - $40 to $2.5 Mil Craze to achieve the dream

THE PARTYPOKER STORY

Marketing BLITZ TV and online ads, direct mail, radio, print, keyword purchase on search engines ad spend $1.6 mil $31.6 mil from 2002 to 2004 4000 affiliates like Starluck generate 28% revenue

Acquisition fee , referral and bonus payments

Poker platform on rent for share of revenue PartyPoker Million - $7 mil prize, monthly tourneys $1 mil prize, weekly tourneys $350K Almost 90% revenue from US market

ONLINE VS TRADITIONAL
Tech infrastructure allowed 80000 simultaneous players 40 times capacity of largest poker venue in the world Low capital expenditure Extremely scalable Offer significantly higher tourney prize money Lox Cost labor intensive ops India; Gibraltar tax haven; operating margin of 60%

CHALLENGES
Security extortion threats, liquidity Trust auditing, manipulation, bots, collusion reliance on playing patterns and history Market Saturation and Competition Legal jurisdiction of customer vs jurisdiction of server; Sports betting vs Gambling

FURTHER ISSUES
Payment processors such as Citi, AMEX, PayPal withdraw Yahoo not advertising online casinos PartyPoker.net (teaching or advertising?) liquor India Issues?? Silver Lining Entry Barrier No new sites could attract critical mass

THE ROYAL FLUSH - FLOTATION

New management team Legal issues

Corporate Governance issues 4 non exec directors participating in share issue not independent Jackson & The Higgs Code
Why Float? no capex required investment opportunity for owners? Lack of confidence in future? Shares peaked at 50% above float price within 2 months favorable market response Share price volatile 30% fall in 05 vulnerable to sentiment very risky investment

THE AMBUSH
Execs of UK Listed firms arrested while at US airports crackdown laws prohibiting online gambling

New legislations (Safe Port Act + The Unlawful Internet Gambling Enforcement Act) PartyGaming could not cater to US customers
PartyGaming loses 58% share value Widespread protests horseracing, lotteries etc allowed Re routing funds through foreign banks and Ewallets

THE FUTURE
New Markets 16% PartyGaming revenue from outside US in 05 vs 53% of global gambling revenues from non US markets; Challenges local knowledge, competitors Further products under Umbrella Brand Backgammon (middle east) shared purse

Acquisitions in related gambling markets Gamebookers

Unorganized private players

THE BIG QUESTION?

Is it possible to capture this ENORMOUS US market given that a GAMBLER will always be a GAMBLER..