Ladbrokes, the betting shop operator, will this week reveal whether it is to go ahead with plans to enter the potentially hazardous US online gambling market.
Chris Bell, Ladbrokes‘ chief executive, is understood to be keen to enter the US market. But the arrest there in July of David Carruthers, chief executive of rival BetonSports, on charges of racketeering, fraud and tax evasion, may have forced Bell to rethink his plans.
Online gambling, particularly on sporting events, is considered illegal by some in the US, although companies based outside the US take billions in dollars of bets from Americans every year.
Until earlier this year Ladbrokes was prevented from entering the US online market because it was part of Hilton, the hotels group which had interests in the US. The businesses split in March, giving Ladbrokes an opportunity to enter the world’s biggest gambling market.
Ladbrokes will update investors on its plans for the US on Thursday when it will issue its first results as an independent business. Punters betting on the World Cup should have provided a boost, making up for the earnings lost from 37 cancelled horse races at the start of the year.
Bell is expected to reveal pre-tax profits of GBP 120m for the first half of 2006, down from GBP 202m the year before after complex restructuring costs are taken into account. Earnings from the company’s core betting operations are believed to have risen to GBP 159m from GBP 144m the year before, according to UBS.
Julian Easthope, an analyst at UBS, said second-half results should benefit from the last few games of the World Cup, despite England’s early exit. „Online gambling and telephone high-rollers are the main growth drivers,“ he added.
Simon Champion, an analyst at Deutsche Bank, agreed that Ladbrokes would benefit from rising internet telephone betting revenues. But he warned: „In the e-gaming business, Ladbrokes‘ core markets, the UK and Scandinavia, could become increasingly competitive and European regulations could become stricter, restricting Ladbrokes‘ expansion potential.“
The prospect of restrictions in Europe makes the US a more important potential market for Ladbrokes, but the company will have to tiptoe around a legal minefield to get there.
Carruthers, who started his career as a Ladbrokes betting shop manager in Edinburgh, was arrested in July as he changed planes in Dallas en route from Britain to Costa Rica. A vocal critic of US restrictions on online gambling, he was sacked by BetonSports two weeks later as he sat in his prison cell in Texas.
Carruthers was released on bail of GBP 530,000 last week after a month in custody. He will have to live in a court-approved hotel in St Louis, Missouri, until his case is heard. In a further development, a US court extended the restraining order banning BetonSports from taking bets from US punters to the beginning of next month.