Cryptologic May Lose Betfair

Gaming software developer CryptoLogic has said it may lose one of its poker-software customers - Betfair, which wants to bring its core products in-house.

Shares of CryptoLogic, which develops and licenses Internet gambling software, fell before recovering a bit late in the morning on the Toronto Stock Exchange. On Nasdaq, it fell $5.26, or 22 percent, to $18.62.

CryptoLogic said it is still in talks with Betfair and that no definite decision has been made.

It said Betfair could establish its own poker room and terminate its contract with WagerLogic, CryptoLogic's licensing subsidiary, which pulls in around 30 percent of the company's sales.

"If Betfair were to leave the central poker room, it is not expected to affect CryptoLogic's 2005 results," the company said in a statement.

However, it said the loss of Betfair "could have a material affect on 2006 earnings if this revenue is not replicated with growth from other existing and potential new licensees."

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 percent of their poker business, you could be looking at a 10 percent 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 percent impact on earnings. Even if you assume it's as profitable, or even more profitable, I think the market has kind of overreacted here."

For the second quarter, internet poker accounted for 30 percent of CryptoLogic's revenue, while casino software contributed 60 percent.