The announcement that WagerLogic, a subsidiary of the online gambling software developer, was likely to lose one of its major clients in early 2006, caused the stock\’s price to fall sharply by 22%.
While CryptoLogic did not disclose what percentage of its poker sales Betfair represents, it anticipated that it will have a significant effect on its 2006 profits if Betfair terminates the contract.
Betfair has advised of its intention to bring the development of online poker technology in-house as to establish its own poker room.
David Shore, an analyst with Desjardins Securities, said the market overreacted to the news.
“They haven\’t said how big Betfair is relative to their poker business, but if you assume it\’s 25 per cent of their poker business, you could be looking at a 10 per cent revenue hit,” he said.
“We believe that the casino business is more profitable than the poker business. So under that scenario, that would be less than 10 per cent impact on earnings.”
Shore added that the the risk of losing other licensees is low.
Greg Harris, an analyst with Canaccord Capital, disagreed.
“The uncertainty of contract renewal will be ever-present for CryptoLogic and other gaming software vendors,” he said
“Betfair may intend to or has already acquired an existing poker network.”
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