PartyGaming’s (PRTY.L on Yahoo), the British company which runs Partypoker.com, IPO is amazing not only because of its size and valuation but also because it teaches us a lot about the new world in which we live. PartyGaming raised over $1.8 billion, the majority of which will be spit between the four owners. Talk about an online bet that paid of handsomely.
The company, which was founded in 2000, is estimated to hit 2006 EARNINGS of $900 MILLION and is being valued today at $8.5 billion. Why only 10x earnings for such a fast growing company? BECAUSE ONLINE GAMBLING IS STILL ILLEGAL IN THE UNITED STATES WHERE PARTYGAMING DERIVES 90% OF ITS REVENUES.
The amazing thing is that the US Congress has not even broached the subject and thus is unable to do anything about online gambling. From the WSJ –
While Internet gaming is considered illegal by the U.S. Justice Department, at least one federal court in the U.S. has rejected part of the department’s legal argument. That’s left online gambling, along with handling payments for gaming sites, in a sort of legal limbo. As a result, major U.S. Internet companies and casino operators have shied away from the business.
Because the US government has taken no action on the issue, four UK based entrepreneurs are walking away with $450 million each. The US Congress should have acted on this issue years ago so that either 1) no one could get rich off of Internet gambling in the US; or 2) only US companies could get rich off of Internet gambling in the US. By doing nothing on this controversial issue, Congress has created the worst of both worlds – gambling may or may not be legal and no one in the US is making money running these companies.
As stupid as it sounds, the PartyGaming IPO also should teach us a lesson about the new economy, biotechnology and capitalism. First, if you haven’t already caught on, there are no "borders" anymore. The Internet is probably the most liberating force for capitalism and democracy ever created. That’s why the Chinese government tries so hard to limit it.
Second, if our Government doesn’t get on the ball, the US will lose a lot more than a couple of billion in tax revenue from online poker. The US government needs to understand the new "borderless" world especially as it relates to technology and biotechnology. The best and the brightest minds in the world, who all understand and use the power of the Internet, have already stopped coming to the US because of the difficulty of obtaining visas.
If the US closes its borders to legal immigration by students, professionals and academics, the only immigrants we will end up with is migrant workers from Mexico. And as it relates to biotechnology, all aspects of important biotech research related to stem cells will be done overseas if the US seeks to limit such activity. This is not a matter of ethics or religion…the research will happen with or without the US. So the US can either allow it and thus regulate it, or we can let the rest of the world do it for us.
So party hard, today, PartyGaming founders! You took the US capitalistic system by the throat and wrangled $2 billion from its pockets without ever opening a business here. And to everyone else, especially Congress, you better learn to party in the new world because otherwise the US will lose a lot more than a game of poker.