The Big Four 789bet Gambling Software Providers

789bet

In Part Three of this four-part series, we focus on Canadian casino software pioneer CryptoLogic.

Click here for Part 1: Starnet Systems – From Porno to Pai Gow.

Click here for Part 2: Boss Media – Sweden’s iGaming Success.

In 1995, CryptoLogic was just an idea discussed between football tosses and golf swings in an abandoned Toronto warehouse. As fresh graduates, Mark and Andrew Rivkin knew they wanted to start a business but couldn’t decide which way to go. “One of the jokes was that we’d turn that warehouse into an indoor golf dome,” said Andrew, CryptoLogic President and CEO.

What they did was start what would become CryptoLogic Inc. Around the time the fledgling business was moving from the now-subleased warehouse to the Rivkin’s parents’ basement, Anatoly Plotkin joined the venture as Chief Technical Officer. With Plotkin’s 20 years experience in software development and design — including contracts for the Russian military — the Rivkin’s had the critical mass they needed to launch what has proven to be an industry-wide winner: the combination of Internet gaming software and secure online transaction management.

In CryptoLogic’s case the transaction management system — called E-cash — came first. After spending months searching unsuccessfully for investment partners, they just happened to stumble onto the Internet gaming idea. This combination — online 789bet casino and E-cash — snared them $500,000 in seed money and they were in business. Development on the first version of their gaming software began immediately. Then, in 1996, they inked their first licensee, play-tested the new software for a few months and, finally, opened for Real Money play. The response was instantaneous: real players gambling real dollars had money dropping into CryptoLogic’s bank account from day one.

It makes for a good story, but after four years of business the numbers make it real:

customers in 240 countries have performed more than 380 million online transactions through CryptoLogic’s E-cash system totaling more than US$4 billion.

CryptoLogic has 18 licensees operating over 40 branded casinos for a total user base in excess of 500,000, as of early 2000.

revenue growth in 1999 topped 40% and is expected to be in the 30-40% range for 2000.

now listed on the Toronto Stock Exchange (CRY) and Nasdaq (CRYP), CryptoLogic’s market capitalization sits well above US$200 million with just over 12 million common shares.

CRYP (Nasdaq) is currently US$19.50 and CRY (TSE) is CDN$29.00 but analysts expect it will go much higher: Sprott Securities (TO) gives CRY a Y2000 target of CDN$95; Pacific Growth Equities (SF) estimates US$50; Sidoti & Co. (NY) recently reiterated its target of US$37.

It’s no exaggeration to say that CryptoLogic has been conspicuously successful. Their licensees include the largest and most respected online casinos including The Sand of The Caribbean, InterCasino, William Hill and the once-great Kenny Rogers Casino which closed its doors to new customers earlier this year. (Nervous about U.S. gambling laws, Kenny Rogers Casino never accepted bets from American gamblers and as a result was not profitable.)

 

CryptoLogic’s E-cash system — capable of handling a wide range of secure financial transactions as well as the buying and selling of merchandise, the distribution of software and the transmission of information such as email — is currently being split off to a separate division and an IPO is expected this fall. The wholly-owned direct licensing division, Intertainet Overseas Licensing Limited (IOLL), works from its offices in Cyprus, far from the ongoing legal questions in North America.

 

CryptoLogic’s casino software is widely regarded as one of the best packages available but the intricacies of the E-cash system have often frustrated casino users. Deposits can be made freely, but first-time players cannot withdraw winnings from a CryptoLogic-powered casino until they receive a PIN number, which is sent through the regular postal service. The policy may discourage some players, but the company believes the end justifies the means. “Our fraud control measures have resulted in one of the lowest fraud rates, under 1%, well below industry norm,” said Nancy Chan-Palmateer, Director of Communications, arguing that the system allows them to “detect unauthorized transactions, verify physical address, limit access by minors, [and] assess credit card history.”

 

After the warm glow of CryptoLogic’s growth and success, the company’s recently announced second quarter results might come as a bit of a shock. Total revenue is almost flat compared to the same period last year and earnings per share have dropped 39% from US$1.21 to US$0.74. All this at a time when CryptoLogic’s competitors are posting 20-40% increases in revenue. Curious observers and investors alike may well be asking themselves “What’s up?”

 

Part of the explanation comes from CryptoLogic’s ongoing development efforts. Thus far in 2000 they’ve spent over US$6 million developing the latest version of their software, Version 4.0, which features virtual game floors, dealer and player avatars, multi-player games, tournaments and progressives, E-cash logs and additional language support. CryptoLogic reports that licensing had slowed while their new clients waited for the release which recently premiered at InterCasino, CryptoLogic’s flagship licensee.

 

In the bigger picture CryptoLogic is broadening its focus from signing online licensees to aligning themselves with land-based gaming companies. “In late 1999, we were the first to sign a major brand name organization, William Hill. So far in 2000, we have signed another five,” said Chan-Palmateer. Companies such as Jupiters Ltd in Australia, Christchurch Casinos Ltd of New Zealand, International Thunderbird of Brazil and a yet-to-be-named gaming company in Argentina with over 20 gaming facilities have joined William Hill in extending CryptoLogic’s gaming interests. “More than 97% of CryptoLogic’s total revenue is derived from ongoing licensing and support fees, creating a solid recurring revenue stream. [The] one-time licensing fee represents a very small percentage of our revenue,” said Chan-Palmateer.

 

While the second quarter results may have less sparkle than they might have hoped, the company is making no apologies. “We expect to return to stronger growth rates in 2001 as our newest land-based licensees go live and our existing licensees roll out CryptoLogic’s next generation software,” Chan-Palmateer added.

You Might Also Like