These may be dark days for the online gambling business, but you would never know that from talking to Calvin Ayre, the founder and president of Bodog Entertainment Group, the online sports book and casino. A recent crackdown on Internet gambling by U.S. regulators and lawmakers has seen several online casino executives thrown in jail and has plunged the industry into chaos. But none of that fazes Ayre, the 45-year old Saskatchewan-born entrepreneur who turned Bodog into one of the most recognizable Internet gambling brands. “The power of our model is now being realized as we are witnessing a surge in popularity in all of our digital entertainment properties — including gaming — and we don't see this changing,” he said in an e-mail interview from Bodog's headquarters in Antigua.
Both Bodog and Ayre have been flying high for the past year. In addition to growing its gambling business, the company has continued moves into mainstream entertainment with a record label, a poker TV show that aired on the Fox Sports Network in the U.S., and Bodog Fight, a pay-per-view extreme fighting competition. Ayre has also graced the covers of both this magazine and Forbes, where he proclaimed himself one of the latest additions to the exclusive billionaire's club. Of course, that boast was based on the value of Bodog before the U.S. authorities began cracking down and before the U.S. government enacted the Unlawful Internet Gambling Enforcement Act in September, effectively banning Internet gambling by making it illegal for U.S. financial institutions to process the Internet wagers of American citizens.
While some have called the new legislation unenforceable and riddled with loopholes, it has been enough to convince many Internet gaming companies and investors to fold their hands, sending the shares of publicly traded gambling operations into free fall. On Oct. 2, the first day of trading after the passage of the new U.S. law, shares of Gibraltar-based Party Gaming PLC — which runs PartyPoker.com and trades on the London Stock Exchange — plummeted from US$2.08 to US$0.87 per share. On the same day, 888 Holdings PLC shares dropped from US$2.86 to US$2.11, while Toronto-based Cryptologic (TSX: CRY), which produces software for the online gambling industry and recently announced it will be moving its headquarters to Ireland, fell from $24.63 to $19.
Whether online gambling is illegal in the U.S. boils down to a matter of interpretation. Prosecutors maintain that using the phone — or the Internet — to take bets from American gamblers is illegal. As a result, most publicly traded companies have said they will no longer do business in the lucrative U.S. market. But Ayre — and other private gaming companies — maintain that U.S. authorities have no jurisdiction over their business, since they operate in countries where online gambling is legal. What isn't in dispute is how devastating abandoning the U.S. market will be to online casinos. Party Gaming, for instance, reported that in the first six months of 2006, more than US$512 million, or 77% of its US$661 million in revenue, came from U.S. wagers. Gibraltar-based 888 Holdings PLC, operators of Casino on Net — one of the largest online casinos — reported that during the same period more than 52% of its US$165.3 million in revenue came from Americans.
Bodog has no plans to abandon the U.S. As a private company, it doesn't have to reveal its earnings, but Ayre says last year it processed a total of about US$7.3 billion in wagers — more than three times the volume from 2004. That translated into revenue of about US$210 million, with about a 26% margin to the bottom line. Ayre claims Bodog's revenues are on track to reach about $300 million this year. Before the crackdown, revenues like that would have made Bodog worth billions. During the height of investors' love affair with online gaming, many large Internet casinos were trading at 20 to 25 times their earnings, says Spencer Churchill, an analyst with Toronto-based Clarus Securities Inc. Now there are really no baseline metrics to value online gaming. “You really have to look at each company on a case-by-case basis, looking at their exposure to the U.S. market and the potential for growth in other markets,” he says.
How much Internet gaming companies are worth is now anyone's guess. London-based Sportingbet PLC — operators of ParadisePoker.com, one of the most popular online poker sites — announced in October that it was selling its U.S. business for a mere US$1 to a private company in Antigua. The difficulty valuing online gaming companies right now is one of the main reasons Ayre is not on our own Rich 100 this year. But the fact that the Internet gambling sector is in such disarray, doesn't mean that he isn't rich — or that the online gaming business is not profitable.
Ayre still refers to himself as a billionaire on the Bodog website and in the company's promotional materials. “In light of the recent growth in all of our digital entertainment properties, including gaming, music and television, I would now say that a conservative valuation of our company would be well over one billion,” he says.
Ayre has a point. Bodog is routinely rated as one of the most popular online gambling companies. Global gambling revenues have grown from about US$3 billion in 2001 to an estimated US$15.1 billion this year, according to Christiansen Capital Advisors, a Maine-based gaming consulting company. Before the U.S. ban on Internet gaming came into effect, those revenues were expected to grow to more than US$24 billion by 2010. “This industry isn't going away,” says Ken (“The Shrink”) Weitzner, a former psychiatrist who now tracks the sports book and online gaming industry with Eye On Gambling, his website based in Milton, Ont. “Good companies can make huge profits in this business.”
In the new regulatory regime, private companies — like Bodog — have an edge over their publicly traded competitors, says Weitzner. “Unlike private companies that can stay below the radar, the public companies are high profile and they have to report what they are doing to stockholders.” And as more and more publicly traded companies leave the U.S. market, those gamblers are migrating to the sites of private companies — like Bodog — that have opted to continue to do business in the U.S.
Bodog has already started to pick up business left behind by others. In October, it announced it was buying Betcorp Ltd., a publicly traded Australian-based company that operates a sports book and Internet casino licensed in Antigua, for a reported US$9 million. The new ban had forced Betcorp to shut its U.S. operations, but the company still operates in Europe. And more recently, Bodog announced in November it had taken over the U.S. customer accounts of Bowman's International Ltd., an Isle of Man-based sports book and casino that recently stopped accepting business from U.S. gamblers.
That doesn't mean that it's entirely business as usual for Calvin Ayre. For one thing, he won't be travelling to the United States anytime soon. The arrests earlier this year of Internet gaming executives Peter Dicks, the former chairman of Sportingbet, and David Carruthers, former CEO of Bet on Sports, have made travel to that country a high-risk proposition. “Given my high profile, I've always been aware of the perceived risks, considering the opinion of the online gaming industry by certain officials in the U.S. government,” Ayre says.
That's a blow to a man whose playboy image and wild celebrity-studded parties in such places as Hawaii, Las Vegas and Beverly Hills have become the cornerstone of Bodog's branding campaigns. However, it will take more than travel restrictions and regulatory wrangling to throw Bodog off its game. Given the global demand, odds are good that Calvin Ayre will continue on his winning streak.