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Party Gaming In Negotiations With DOJ

Business, 2007-06-19, by TwoGun

Party Gaming, the company that owns Party Poker, is in negotiations with the United States Department of Justice (DOJ) due to its past acceptance of American customers.

Prior to the passage of the UIGEA, Party accepted US real-money players since it believed it was legal to do so. However, the DOJ has taken a broad stance against online gambling, both before and after the passage of the UIGEA.

One likely reason Party is pursuing these negotiations is that a positive outcome would clear its path to becoming an attractive acquisition target. More companies would be interested in acquiring Party Gaming if its relations with the DOJ were improved.

A similar situation to this occurred with Sporting News, an American media company that publishes several sports magazines. Beginning in the spring of 2000, the magazine accepted advertisements from online sports betting companies. In June of 2003, the company, along with numerous other media firms, received a notice from the DOJ which stated the DOJ's disapproval with online gambling advertisements. Nonetheless, Sporting News carried the advertisements for another six months prior to establishing a policy of not accepting online gambling advertisements.

In January of 2006, Sporting News went up for sale. In order to make itself a more attractive acquisition target, it contacted the DOJ to negotiate a settlement over its past acceptance of sports betting advertisements. While Sporting News was not in any imminent legal risk, it did not want the issue to stall the sale of the company.

The two parties agreed to a $7.2 million settlement. Four million was paid as a fine to the DOJ, and the remaining $3.2 million was to be used to "educate" Americans about online gambling and dissuade them from participating. The $7.2 million figure was likely a large fraction of Sporting News's revenues from online gambling companies. How much Party Gaming would be willing to part with in exchange for legal assurances remains to be seen.

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