OT - Thought you all might appreciate this:
Starnet Shares Soar as Company Shifts From Porn to Gambling
Vancouver, British Columbia, May 11 (Bloomberg) -- Vice pays. And some vices pay
more than others, as Starnet Communications International Inc. has found.
The company, which had been primarily an operator of pornography sites on the
Internet, has seen its shares soar 24-fold in six months -- from just 3/8 in November to
9 5/16 -- as it shifts its focus to
gambling on the Internet.
The rise has come despite legal restrictions for online gambling that have prompted
Starnet to refuse bets from U.S. and Canadian residents and to set up its Internet casino
unit in the West Indies, out of the reach of U.S. legal authorities.
Starnet has said that even without North America's business, it expects millions of
people around the world to gamble on Internet sites that use its software. And gambling
-- unlike pornography -- will be viewed as a ''legitimate'' business that mutual funds,
pensions and other big-money institutions will eventually invest in, Chief Executive Mark
Dohlen said. ''There are very few things that will take advantage of the efficiencies of the
Internet like we will,'' Dohlen said. ''Theoretically, we put up 50 million slot machines
around the world.''
Wall Street has its doubts. Analysts for the big brokerages have largely ignored Starnet
and other Internet casino operators like GLC Ltd. U.S. institutional investors will
probably ignore them as well, at least until questions about the legality of gambling on
the Internet are resolved, said Jason Ader, a gaming analyst with Bear, Stearns & Co.
Still, Starnet has a market value of $223 million after its run-up over the past six months.
Shares of the Vancouver, British Columbia-based company are traded over the counter
in the U.S. Most of the buyers have been individual investors, according to Dohlen.
Gambling Ban
U.S. Senator Jon Kyl, an Arizona Republican, is pushing a bill that would ban most
forms of gambling on the Internet. And many attorneys believe current gambling
restrictions could be used to prosecute
bettors on the Internet, according to Anthony Cabot, an attorney with the Las Vegas
law firm of Lionel, Sawyer & Collins. U.S. and Canadian court decisions haven't
clarified the issue, he said.
Starnet's Dohlen said he avoids legal problems by refusing bets from U.S. and Canadian
residents. The U.S. Justice Department has expressed reluctance to prosecute
foreign-based companies for content they post on the Internet, Starnet has said in a
U.S. Securities & Exchange Commission filing. Its gambling unit is based in Antigua, the
West Indies.
Starnet is also facing a patent infringement lawsuit from closely held Home Gambling
Network Inc. Starnet said the suit has no merit because its system of computerized
games differs from Home Gambling's systems of live casino games that are broadcast on
the Internet.
Starnet operates its own online casino at www.worldgaming.net and other Web sites. It
also licenses software to run casino games and take bets on the Internet.
Profit from Licensing ''They're doing just a fantastic job licensing their software,'' said
Douglas Rogers, analyst with San Francisco-based RCG Research, which follows the
stocks of small
companies.
Starnet earned $1.24 million, or 5 cents a share, on revenue $6 million in the nine
months ending in January, compared with a loss of $897,434, or 4 cents, on revenue of
$2.24 million a year earlier.
Starnet hopes to attract institutional investors after it sells its pornographic Web sites. A
sale could happen this quarter, Dohlen said.
Starnet has used cash generated by the porn sites to pay for development of its
gambling sites. ''It's just been a cash cow we've been milking,'' Dohlen said. ''Now we
don't need it.''
Starnet also used the porn sites to develop technology that it now uses at its online
casinos, he said. A system it first used to broadcast shows from Vancouver-area strip
clubs, for example, is now used to broadcast horse races on the Internet.
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