EX-PARTYGAMING BOSS GO TO HARRAH’S ONLINE

Mitch Garber finds a new home as Harrah’s prepares for U.S. Internet gambling

Industry observers are speculating that the beginning of a new era in U.S. online gambling may be in sight following the appointment of ex-Party Gaming group CEO Mitch Garber as head of the Internet operations and World Series of Poker division at the giant land casino company Harrah’s Entertainment this week.

The Sunday Times reported over the holiday weekend that the gaming giant is spinning these businesses out into a newly-created entity, which may presage the possibility of Harrah’s making acquisitions in the online gaming sector. It could also be a manifestation of the apparent interest which Harrah’s has displayed in supporting legalised and regulated online gambling in the United States, regarded by many as an inceasingly strong possibility as America’s land gambling giants battle severe losses due to the recession.

Harrah’s Entertainment CEO Gary Loveman sees online poker’s legalisation as a strong possibility in the United States following the election of the Democrats to power. Loveman is on record as saying he sees good prospects for online poker in any initial liberalisation of US laws as House Financial Services Committee chairman, Barney Frank, prepares to launch his latest attack on the UIGEA in the House of Representatives later this month (see previous InfoPowa reports).

Harrah’s, like most other land gambling companies, is suffering extreme business pressure as the recession bites ever deeper.

If Harrah’s does make a move online as legislative conditions improve, it will not be the first US giant to involve itself in Internet gambling.

Back in September 2001 MGM Mirage set up an online gambling operation powered by Wagerworks and licensed in the Isle of Man. Unfortunately, the untenable legal situation in the US constrained its activities in the world’s largest Internet gambling market and the operation closed in June 2003. But in the process it established the viability of such a project, and the technology - even back then - that could be deployed to protect minors and minimise money laundering or fraud attacks.

“We set out to prove that online casino gaming could be implemented with the same high standards of regulatory integrity as land-based operations,” said Terry Lanni, then Chairman and CEO of MGM Mirage.

“We were successful in demonstrating a working model that provided the proper checks for jurisdictional control, age verification and the necessary security and responsible gaming measures required to function in a regulated market,” he added.

At the time MGM Mirage confined its activities to jurisdictions in which online wagering was permitted and did not accept customers from the United States and other jurisdictions which do not permit such activities.

“Unfortunately, even in light of a successful working model, the legal and political climate in the U.S. and several countries around the world remains unclear”, said Lanni in winding up the project. “The fact is that millions of U.S. citizens currently participate in online gaming in an unregulated environment. We believe that a more sound and realistic public policy would be to regulate the activity and hold operators to the highest standards of probity and integrity. MGM Mirage Online has clearly established that the regulatory model works.”

The company recorded a loss from discontinued operations of approximately $5 million, net of tax, in the second quarter related primarily to (1) unrecoverable costs of software and hardware utilised in the operation, (2) second quarter operating losses of MGM Mirage Online, and (3) tax benefits related to the above items and to prior period operating losses.

“We have proven critics wrong who said that online gaming could never be properly regulated,” Lanni reported. “We simply have to wait for the political climate to change and reality to set in,” he concluded at the time.