Unanswered questions about the present and future legal status of Internet gambling in the United States are having a serious impact on Internet gambling companies that have plans to go public. One such company, PartyGaming, recently announced its plans to float on the London Stock Exchange with a valuation of 5.5 billion British pounds, but they may end up having to delay the flotation or put it off entirely. PartyGaming, a Gibraltar based company and owner of one of the world’s largest online poker sites, is owned by four people who were supposed to share the anticipated one billion pounds derived from a successful flotation. The plan was for the owners of PartyGaming, who created the company five years ago, to sell 23 percent of the firm at the time of the flotation, however all of this is in question now that analysts at blue-chip institutions in the U.S., who were expected to buy shares in PartyGaming, are showing signs of cold feet. Fears that U.S. government policy, which considers all online gambling illegal under the U.S. Wire Act, may harm PartyGaming’s flotation, were enough to make the analysts grow weary about automatically backing PartyGaming and, instead, start looking for assurances that the company won’t be negatively affected. One analyst said: “The key point is will US institutions back this? We don’t know. It is on a knife edge as far as I can see.” Yet another analyst from a major US bank remarked: “We will take a deep breath about whether we want to back this. We have to weigh up how much further there is to run on the Internet gambling growth story, whether the background of its management is a credibility issue but most importantly, the legal status of its core business in its core market.”

PartyGaming derives ninety percent of its revenue from online poker players in the United States even though the activity is illegal there. There are no Internet gambling companies based in the US. The firms are based either in the Caribbean or in Gibraltar. While not all states prohibit online gambling, numerous states do have anti betting laws that may apply to online poker as well.

The mounting concern among the blue-chip institutions in the US regarding the whole legal question is the primary reason that Investec Securities decided to quit its role as co-banking advisor to PartyGaming last month. After PartyGaming’s prospectus is published by the end of next week, we will no doubt witness attempts by the company to win back the support of the US blue-chip institutions.

Other Internet gambling companies, such as Cassava, which owns poker site 888.com, will be monitoring events very carefully, as they also announced their plans to go public later this year.