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Saturday, September 09, 2006

Weekend Edition: Cryptologic Stock Defies Arrests of Online Gambling Executives

"Amazing how a company does well when its potential customer base keeps
getting arrested in the U.S.

Cryptologic (CRYP) shows it is doing well even when its customer base and potential customer base faces potential arrest in the US.

The US is still cracking down on online gambling site operators it feels are taking US citizen funds. The chairman of UK-based gambling firm Sportingbet is due to appear in court on Thursday after he was detained by US authorities. US authorities consider most forms of Internet gaming and gambling as illegal, assuming they haven't been approved and sanctioned by local, state, and federal governments.

This arrest of 64-year old Peter Dicks follows the July detention of the then-head of BetOnSports David Carruthers on racketeering charges. For these guys to be hit with racketeering when they are acting legally inside their own borders and illegally in another country sets up an interesting legal precedent. It also makes you think what on God's earth would make ANY employee of an online gambling company ever set foot on US soil.

The announcement of the suspension and halt of Sportingbet shares caused investors to sell with a "shoot first and ask questions later" mentality in other gambling stocks. In London trading today, shares in Partypoker fell by 11 per cent before recovering and shares in 888 Holdings slid over 15% per cent on this news. Sportingbet has recently announced it was in merger talks with a smaller rival called World gaming for some 56+ million Pounds.

This is also what has hit Cryptologic (CRYP) today, with shares having been down as much as 4+% before recovering to -1.1% at $25.20. Oddly enough, CRYP has actually gone almost straight up since the first arrest of a foreign national running gaming sites. The shares were $20.00 and under around that time and now trade at $25.20. Cryptologic is located in Totonto, Canada and engages in developing and supplying online gaming software on the Internet casino and poker markets of the global online gaming industry. It also provides licensing, e-cash management, and customer support services for its Internet gaming software to third-party gaming operators. It even has Playboy as the new partner for that poker site. In early August Cryptologic offerred the following guidance: For Q3 2006, CryptoLogic forecasts revenue of $26.5-$27.0 million and earnings of $6.6-$7.0 million, or $0.48-$0.51 per diluted share. These estimates reflect the fact that Q3 is typically the softest quarter for Internet gaming, as players spend less time online during summer months. Also, licensees' poker room activity may decline between July 28 and August 10 when serious players are focused on the main event of the game's premier land-based tournament, the World Series of Poker.

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