SPORTINGBET and Leisure & Gaming have received approaches for their US-facing businesses. This should have come as no surprise. In the wake of the decision by the US Government to ban online gambling transactions, the industry was adamant that, far from stopping internet gambling, the move would simply drive the business underground. As one senior executive said at the time: “The happiest person about this ban will be Don Corleone.”
By the time that President Bush signs off the ban on Friday lunchtime and it becomes law, it is a fair bet that every publicly quoted internet gambling company will have sold or closed down its US-facing operation. Those businesses that are being sold will fetch little or no money, but at least the vendors will have saved jobs and, by implication, redundancy costs.
Yet if Senator Bill Frist thought that, by forcing the Bill through, he would be protecting his fellow Tennesseans from the evils of internet gambling, yesterday’s news shows how mistaken he was. Instead of being able to play poker or have a bet on a college football game on a website owned by a public company adhering to strict standards of conduct and financial probity, his constituents will be entrusting their money to faceless private companies based in offshore locations such as the British Virgin Islands.
If the new generation of internet gambling companies refuse to pay out winnings, there is nothing that American punters will be able to do about it. More importantly, because their ownership structures will be opaque, they will have no reputations to protect and there will be nothing to prevent them preying on the young and the vulnerable — the very people that the likes of Senator Frist have cited in their lobbying ahead for the controversial Bill.
Some have suggested that the new law has been cleverly designed in that it targets the banks, credit companies and other financial institutions. It is true that American corporations will make every effort to avoid having anything to do with internet gambling transactions. But foreign banks are not all going to be so compliant. And there are computer engineers developing software that will fool a bank into thinking that a US bet has been placed on a computer located overseas.
The national prohibition of alcohol in 1920s America — the “noble experiment” — was designed to reduce crime and corruption, solve social problems and improve health and hygiene in America. Instead, American thirsts were slaked and the Mob prospered.
Jim Leach, the Iowa Republican, championed the Unlawful Internet Gambling Enforcement Act of 2006. “Religious leaders of all denominations and faiths are seeing gambling problems erode family values,” he said.
Once again in America, it seems that God is helping Mammon: Mr Leach’s law promises to spawn another underground industry to serve Americans living under the new Prohibition.
Hard lesson
JOHN HARGREAVES’ offer to buy Matalan was greeted yesterday with the tired resignation that accompanies a closing down sale. The best that the board could say was that his offer was “fair”.
In fact, there has been nothing fair about the way that Mr Hargreaves has treated minority investors in the company. He is offering 200p per share, a 20 per cent discount to the 250p he was looking for when he was minded to sell a few months ago. But Mr Hargreaves has had the board in a headlock. He argued that he did not need to pay a premium to control the company, as he already held 53 per cent of the stock. He offered to buy it, but refused to sell. He did not run it, but he did not get out of the way to allow a new chief executive to put in place a strategy.
The board’s non-executive directors insist that if the shareholders reject Mr Hargreaves offer, they have a “Plan B”. They don’t say what it is. And it is hard to see how they would be able to put in place an effective new chairman or advance a sale over the head of Mr Hargreaves, given his controlling interest in the business.
Of course, investors who backed Mr Hargreaves when Matalan first joined the London stock market at 59p in 1998 have done well. But in the two years after that it behaved like a tech stock, soaring in value past £7 a share. People who bought at the peak will find little comfort in the fact that the deal represents a 20 per cent premium to the price just before his offer.
Still, the non-executive directors have done the best of a bad job. When Mr Hargreaves played for more time last month, investors did not have much faith in a deal coming to fruition. The board was patient. It was also insistent on Mr Hargreaves sticking to a fully financed 200p offer. If Mr Hargreaves had walked, the stock price would have fallen further.
Mr Hargreaves is a walking advertisement against investing in public companies controlled by their founders. If he ever seeks to return Matalan to the market, investors should treat him as rudely as he treated them.
I spy strangers
IN THE old days, spies had successful second careers in the City. You were never quite sure of their previous lives, but you could generally assume that they had been on our side.
Victor, the 3rd Lord Rothschild, played an important role in British wartime Intelligence before distinguishing himself at the helm of the family bank. Lord Cuckney was always said to be well-connected, but also made his name as a financier at Lazards and as the ultimate cool head in a hot place, acting as government troubleshooter at the Crown Agents, Mersey Docks and over the Westland affair. Dame Stella Rimington left Intelligence and became a director of M&S and BG Group.
Now, it seems, London is opening up to retired espionage officers of all persuasions. Andrei Kostin, who was stationed at the Soviet Embassy in London in the 1980s and was considered by many to be KGB, is planning to open the European headquarters of Vneshtorgbank in London. The investment banker who came in from the cold.
MORE than a few companies are drifting to Dublin, and yesterday the OECD helped to explain why. UK taxes on incomes and profits as a percentage of GDP rose to 14.3 per cent in 2005 from 13.2 per cent in 2004. Total tax revenue as a percentage of GDP was 37.2 per cent, up from 35 per cent a decade earlier. In Ireland the tax burden has got lighter. Personal and corporate taxes last year slipped to 11.7 per cent from 11.8 per cent. Total tax revenue as a percentage of GDP was 30.5 per cent, by comparison with 32.5 per cent in 1995.
james.harding@thetimes.co.uk
