Financing for growth in the gaming gambling sector worldwide.

PRIVATE EQUITY vs. PUBLIC MARKET FINANCING

report prepared by Mark Mckeown

Above picture, Speakers on the night: (Right to left), Mellisa Blau, Executive in Residence, Global leisure partners, Gareth Wong, Founder of GamBond, and Gambit special interest group, Charles Walker, MD, JPM International and Archie Watt, Director, KPMG.

SENIOR GAMING PROFESSIONALS TACKLED ISSUES RELATED TO RAISING FINANCE IN GAMING AT THE JULY 2007 GAMBIT GAMING FORUM

GAMBIT MEETING JULY FORUM RECAP

VENUE: CASS BUSINESS SCHOOL, LONDON – 18 JULY 2007

PUBLIC EQUITY vs. PRIVATE FINANCING OPTIONS DEBATED

-Report Prepared by Mark McKeown of Paymedia Ltd.

Moderated by Gaming Industry Expert Gareth Wong, the July Gambit Forum brought together a diverse panel of industry veterans to examine issues related to how to best secure equity and onward financing in the fast moving and evolving On-Line Gambling sector. The well-balanced and insightful panel included Charles Walker, Managing Director of JPM International, Melissa Blau, Director at Global Leisure Partners and Archie Watt, Director at KPMG.

Charles Walker, Managing Director of JPM Group, kicked off the evening by taking the audience through the history of the JPM business from its inception in 1972 where by the 1980’s it had become the leading pub fruit machine manufacturer in the United Kingdom through a phased sale to Whitbread in the early 1990’s, an acquisition of JPM by Sega Corp in 1996 for £28m and then most recently a MBO by its three Directors, financed by directors’ funds, loans from Sega and asset sales.

He explained how the company had evolved from fundamentally a slot machine manufacturing business into a developer of compelling Amusement with Prizes (AWP) and Skill with Prizes (SWP) products that offer players the opportunity to win cash prizes. JPM games can be found on JPM's own terminals, third-party terminals and interactive channels.

He detailed for the audience JPM’s approach to its funding options and laid out the pros and cons to seeking financing via Angels, Private Equity, Trade and via Public Markets. Although many corporate executives view private equity as a last resort, as expensive capital that should be tapped only by companies that don't have access to presumably cheaper public equity, Charles suggested that the reality of private equity, however, is more complex, and potentially quite rewarding, for both shareholders and management particularly in a sector like On-Line Gaming where American investors are currently very skittish.

Melissa Blau of Global Leisure Partners provided the audience with some very interesting insights and perspectives from her 12+ years of work providing financial, strategic and business advice to companies in the media, technology and leisure sectors. She detailed for the audience some of her experiences from having worked on both sides of the “Financial Fence”, most recently as CFO of St. Minver, a Gibraltar based white label operator of online casino, poker and bingo products and as a General Partner and founding member of Constellation Ventures, a Bear Stearns venture capital fund with over $450 million under its management.

In examining the biggest challenges that new ventures face in the On-Line Gaming Sector in raising capital, Melissa stressed that the industry as a whole must take it upon itself to go through the due diligence process and make their business practices more clear to potential investors. The requirement to be more open is particularly important and relevant following the recent legislative moves in the United States that have stymied many ventures from gaining financing based upon the current legal uncertainties surrounding the sector.

Ms. Blau also spoke to why there has not been more convergence between offline and online business in the On-Line Gaming Sector. She cited the self-interest of the big executives in the off-line sector who she felt were being too risk averse and lacking creativity in implementing strategies that could significantly grow the on-line components of their businesses.

Archie Watt, Director at KPMG anchored the panel with his perspectives and unique experiences of having been involved in the on-line gaming sector for the past six years. Mr. Watt has seen the industry evolve from effectively its beginnings through its peaks in 2005-6 and its retrenchment following the implementation of UIGEA (the Unlawful Internet Gambling Enforcement Act).

During this period, Archie has worked closely with many of the industry’s largest operators including PartyGaming, 888 and Playtech, being heavily involved in their flotation processes. He was also a fundamental part of the team that advised Sportingbet on their acquisition of Paradise Poker.

Despite the relatively long amount of time that Mr. Watt has been involved with the sector, he stressed that the On-Line Gaming industry was still in its infancy. He called for the establishment of clear and comparable KPI’s (Key Performance Indicators) that would provide the kind of benchmarking that investors would require in order to perform their due diligence. He stated that the City still viewed the On-Line Gaming sector as a black art and that if that was going to change Directors in the sector were going to have to make it much clearer to investors what they were actually buying.

A lively Question and Answer session ensued with Gareth Wong leading the debate on such issues as whether there is an invisible line of market cap or size for the sector and what impact the upcoming changes to the law regarding Gambling Advertising will have on the On-Line Gaming sector.

The evening finished with a lively networking session over wine and cheese.

Further Networking after the event:

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Speaker Profiles:

Archie Watt is a director in KPMG's IT Advisory section in London. He has been involved in the online gaming sector for the past six years and has seen it though it's beginning to the peak period of 2005/06 and the subsequent retrenchment post-UIGEA. During this period Archie has worked closely with many of the industry's largest operators including PartyGaming, 888 and Playtech, being heavily involved in their flotation processes. Archie was also a fundamental part of the team that advised Sportingbet on their acquisition of Paradise Poker and he has been involved in a number of other recent transactions.

Melissa Blau at Global Leisure Partners, she has been working with early stage companies for over 10 years. Most recently, she was the CFO of St. Minver, a Gibraltar based white label operator of online casino, poker and bingo. Previously, Melissa Blau consulted for numerous start-up companies in the media, real estate & telecom industries. In her position, she provided financial, strategic and business advice acting as an external CFO. Prior to that, Melissa Blau was a General Partner and founding member of Constellation Ventures, a Bear Stearns venture capital fund with over $450 million under management, dedicated to the media and technology sector. Prior to that, she was Manager of Strategic Planning & Business Development at Viacom Interactive, and went over to launch Simon & Schuster Online as head of Business Development. Melissa Blau started her career in Investment Banking at Oppenheimer & Co., Inc. where she worked in the Leisure & Gaming Group advising numerous companies on public financings and mergers & acquisitions.

Melissa Blau holds a B.S. from the Wharton Business School, University of Pennsylvania and an MBA from Harvard University where she wrote her thesis on “Online Gaming” (1995).

Charles Walker, MD, JPM International. Charles is responsible for Sales, Marketing, Partnerships and Product Development. Charles launched the global Internet portal Lycos in the UK in 1998, helping to take the European operation to a $5.4bn market capitalisation. Charles has held a variety of senior international management roles within the Telecoms, Call centre and Internet sectors, after an earlier career as a broadcast journalist for the BBC. Before joining JPM, Charles was Senior Vice President Business Development of Servista, the telecoms and energy provider, with clients including the Post Office, Lloyds TSB and Tesco. He came to Servista from SN Brussels Airlines where as Vice President responsible for Sales, Charles managed a global sales and customer service team of 160 headquartered in Brussels. Charles has a Masters Degree in Management from London Business School, where he is a Sloan Fellow, and a Bachelors degree in Economics from the London School of Economics.

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