April 7 (Bloomberg) -- Bwin.party digital entertainment Plc fell for a second day after prime ministers representing 15 German states proposed a 16.67 percent tax on sports-betting stakes, a step that one analyst called a “shocking decision.”
The company, formed out of a March 31 combination of PartyGaming Plc and Bwin Interactive Entertainment AG, said it will challenge the draft law, which it says would make the German market unworkable and don’t meet European Union law.
Bwin.party dropped 15 percent to 142 pence at the 4:30 p.m. close in London after declining 16 percent yesterday. Under the German state proposals, most during-game sports betting would be banned, along with television advertising. Online casino games would only be allowed for operators with land-based casinos. Ratification is set for June 9.
“We believe what is being considered is contrary to EU law,” Co-Chief Executive Jim Ryan said on a conference call with analysts. “On that basis, we will continue to operate.”
Co-Chief Executive Norbert Teufelberger said existing German rules were called “incoherent and incompliant” with EU law in September by the European Court of Justice.
If the other German states pass the rules as proposed, bwin.party will consider offering online gambling from the German state of Schleswig-Holstein, which is weighing licensing rules that would comply, he said.
“We believe the chaos will continue,” he said. “We believe the legal battle will continue.”
Ryan said the company believes it is “unlikely” bwin.party would have to pull out of the German market, which represented 23 percent of sales for the company last year.
The proposed tax would be nearly twice the 8.5 percent tax which makes sports betting in France “very difficult” for operators, according to Espirito Santo analysts Alistair Macdonald and Geetanjali Sharma.
Roberta Ciaccia, an analyst with Exane BNP Paribas, said the “shocking decision from Germany” could become less onerous as EU officials review the plans, and the Internet gambling companies lobby for a tax on gross profit rather than bets. She has an “underperform” recommendation on bwin.party.
“It may well be that what has been put forward is ultimately watered down or found to be non-compliant with EU law,” Nick Batram, an analyst with Peel Hunt, wrote in a note to investors today. “However, in the short term, it is likely to cast a shadow over the bwin.party share price.” He moved his recommendation on the stock to “hold” from “buy.”
“It’s our firm belief we’re at the beginning of the journey, not the end,” Ryan told the analysts. “This draft law will evolve over the coming months.”
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