Originally published on September 24, 2001
Casino City Times

Michael (‘Mike’) Aymong talks about milestones and quarterly goals. World Gaming three achievements described as milestone.

Mike Aymong, CEO, World Gaming

Michael Aymong CEO, World Gaming

Michael (‘Mike’) Aymong likes to talk about milestones, and quarterly goals. Since he took over as chief executive of Starnet Communications International, now World Gaming plc, on April 9, three achievements can be described as milestones in the company’s history, and he’s got very specific goals for the coming quarters.
Aymong, 36, previously served as executive vice president of marketing, sales and customer service at GT Group Telecom, a publicly traded Canadian provider of telecommunications services. Before that, he held executive positions at MetroNet Communications and Telus Advanced Communications.

The first milestone came on May 29, when the old Starnet officially became World Gaming, still a public company but incorporated in the United Kingdom rather than in Delaware. The stock is registered with the Securities and Exchange Commission as American Depositary Receipts, which are negotiable U.S. securities representing a non-U.S. company’s equity.

Prices are quoted in U.S. dollars, and the stock is still listed on NASDAQ’s over-the-counter market, under the new symbol WGMGY.

The transition to a UK corporation had been in the works since well before Aymong’s arrival. The change was announced in October, but seemed to take forever for shareholders to approve.

The company said at the time that “the United Kingdom provides us a more stable and predictable business and financial environment.” It also said that the UK was a friendlier place for a company in the online gaming business, and that the move would accelerate expansion into Europe and Asia.

Aymong said the transition took a long time because it was “a complex, arduous deal.” It cost the company about $800,000 in legal, banking and other fees, he said.

Late in August, World Gaming followed up by announcing that its corporate headquarters had relocated to London. Since August 1999, Starnet/World Gaming has move its home base twice: from Vancouver, British Columbia, to St. John’s, Antigua, and now, to London.

The second milestone was settlement of shareholder suits that had arisen in the aftermath of the disastrous Aug. 20, 1999, raid on Starnet’s headquarters, which at the time was in Vancouver. Royal Canadian Mounted Police and local police agencies hauled away thousands of documents and 75 or 80 computers, saying they were looking into possible violations of laws against pornography and gambling.

The raid began on a Friday morning, and as the news spread, the company’s stock price tanked. In one day, it lost 69 percent of its value, closing at $4.06. For much of 1999, Starnet had been a high-flyer among tech stocks. Its shares traded at an all-time high of $29 on July 6 of that year.

A rash of shareholder lawsuits followed the raid, with allegations that Starnet had issued misleading statements about its business and concealed potential liabilities. Some shareholders also alleged that insiders at Starnet had unfairly profited by selling stock when the price was high and when they had access to adverse information.

Settlements with Shareholders and the RCMP

The suits were consolidated in a class-action case in U.S. federal court in Delaware. This summer, on June 22, World Gaming announced a settlement under which plaintiffs would receive 1.05 million shares of stock in World Gaming, with a guaranteed minimum value of $1.05 million, plus payment of costs not to exceed $50,000 and payment of administrative expenses not to exceed $50,000.

Aymong, of course, was thrilled to see the shareholder case settled. But he was especially pleased that the plaintiffs had agreed to accept stock rather than cash. He called this “a strong vote of confidence in World Gaming and its current business direction,” and “a signal to the marketplace.”

Aymong said he was personally involved in settling the shareholder case, and in the settlement of another matter that had been an albatross for the company since the raid. That was the conclusion of the long investigation by the RCMP, which had begun 18 months before the raid.

On Aug. 17, three days short of the second anniversary of the raid, Starnet pled guilty to one count of “keeping a device for gambling or betting,” under the Criminal Code of Canada. No past or present officers or directors of the company were charged, and there were no pornography charges. (Starnet had begun as an operator of Internet porn sites, using the cash from that business to fund its research and development of gaming software. It sold that division in April 2000.)

The company was fined CDN$100,000, plus a $15,000 “victim surchage.” It also agreed to forfeit US$3.925 million. While that was one of the largest corporate financial penalties in Canadian history, the settlement actually helped World Gaming’s cash flow. That’s because about US$7.6 million had been frozen under court order since a few days after the raid. The balance of the frozen funds are being returned to the company.

Aymong called the settlement “a watershed day in the history of Starnet, now World Gaming. This is nothing but positive. This is a big load off our back.”

“We wanted to put this behind us,” he told RGT Online. “Basically we pay the fine, move on with life, and operate the company legitimately. Now we’re going to cooperate, collaborate and work with the Canadian government on legislation and taxation to benefit the consumers and the public in general.”

Although offering to consult with the Canadian government, the chief executive admitted that Canadian officials have not indicated any interest in hearing from World Gaming.

“They haven’t phoned us up and said, ‘Hey, we’re interested in your opinion,’ Aymong said. “But we’re going to phone them and ask them if we can work with them.”

An End to the Musical Chairs?

So on Aymong’s watch, milestones have already been achieved that eluded his predecessors. And there were plenty of predecessors. The company’s top management has changed several times since the August 1999 raid. Things got so crazy that at one point, three new directors were announced and two weeks later, two of the three had resigned.

Aymong is determined that the musical chairs will end, and he talks about recruiting “a tier one management team.”

“We have an entirely new management team with a strong background in building and operating world-class technology companies,” he said.

In July, two key positions were filled: David Pasieka was appointed chief operating officer, and Rodney Davis was appointed chief financial officer.

Pasieka, who had been acting COO for two months, was senior vice president for application hosting and IT at 724 Solutions before joining World Gaming. He also spent nine years at Bell Canada.

Davis’ financial background has ranged from auditing to mergers and acquisitions to public market financings. Previously, he was chief financial officer of MGI Software and vice president of corporate development of Maxxcom.

Last week, World Gaming appointed David Fleming vice president of product development. Fleming has experience in e-commerce and has most recently worked with companies that develop wireless solutions.

One major executive slot that remains open is vice president of marketing. Aymong wants to fill that position by the fourth quarter. Marketing is the only function that clients have to do for themselves, but Aymong wants the company to develop its own marketing arm.

“We want to control this from end-to-end,” he said.

New Headquarters, and New Offices around the World

The new London office will also serve as a regional marketing and sales office as World Gaming tries to expand into Europe, the Middle East and Africa. The company recently opened an office in Toronto, and plans to open an office in Buenos Aires, Argentina, by the fourth quarter.

By the first quarter of 2002, Aymong wants to have an office open in the Pacific Asia region. The only work now performed at the old Vancouver office is software development, which is handled by a subsidiary called Inphinity.

Late in July, World Gaming released version 3.2 of its gaming software. Originally called Beyond 2000, this upgrade had long been delayed. Aymong wants to see faster development of new software and has set a goal of an upgrade very 12 weeks.

Earlier this month, the company announced an agreement with Sona Innovations that World Gaming expects will lead to the launching of wireless applications for its most popular casino games and sports book software by the end of this year.

The company has hired eight new sales people during the summer, and plans on adding another 20 to its sales staff by the fourth quarter.

There are about 140 employees, most of them in Vancouver and St. John’s, Antigua. That means that the size of World Gaming, in number of employees, is getting close to the size of Starnet before the raid. In spring 1999, the company had 157 full-time employees.

Since the raid, in addition to the turnover at the very top levels, about 80 percent of middle management has changed, Aymong estimates, and about half of the programmers and clerical staff are new.

He said the company now does background checks, including criminal checks, on all employees as well as on all new licensees.

World Gaming has 22 active licensees, Aymong said, with another six customers who have signed up and are not yet active. He wants to add four new accounts by the end of the year, to meet his goal of 10 new licensees for the year.

In spring 1999, the company had 37 licensees. Some of these proved to be unsound financially, and the company said it tightened its requirements for licensees.

Aymong says he is “really pleased” about the Nevada law, passed in June, that could lead to that state’s licensing of Internet gaming. But, he warns, “the largest institutions who think it’s easy to run I-gaming are in for a big surprise. We’re experts in this.”

The Issue of “Border Control”

Nevada regulators have expressed concern about the adequacy of “border control” technology – whether online gaming sites can effectively prevent minors and people from jurisdictions where online gaming is illegal from accessing gaming sites. Aymong said World Gaming’s border control technology is “100 percent reliable” in preventing access by the average user, as opposed to a determined hacker. The company’s software for border control is a combination of software purchased from other firms and proprietary software developed within the company.

While World Gaming’s own casinos — Worldgaming.com and four sites aimed at the Asian market – don’t accept bets from North America, some of its licensees do. This summer, a World Gaming sublicensee was sued by the state of New Jersey for advertising its online gaming service on billboards in New Jersey, and for permitting minors to gamble at the site.

At the time, Aymong said it was “shocking” that the site, Royal Club Casino, was buying billboards. “By no means do we encourage or condone North American gambling (online),” he said.

In a recent interview, he said World Gaming cannot forbid its licensees from accepting bets from North Americans. “We encourage our licensees to operate within the laws,” he said. “We inform them of the law in their land. We’re not the police.”

World Gaming’s largest licensee, Sportingbet.com, takes wagers from North America. Sportingbet.com, which is based in Alderney, became the largest licensee of World Gaming this summer when it acquired Internet Opportunity Entertainment.

Internet Opportunity Entertainment was already World Gaming’s largest licensee. It claims 80,000 customers, and processed more than $1.3 billion in wagers during the last year. The company’s sites include Sportsbook.com, Wallstreet.com, Playersonly.com and Acescasino.com.

Aymong said he didn’t know who formerly owned Internet Opportunity Entertainment. Yet in May, before it was sold to Sportingbet.com, Internet Opportunity Entertainment’s affiliate converted a loan of $1.5 million to World Gaming into equity.

The affiliate, AIM Investments Ltd., received 2 million shares of stock in World Gaming, 5.85 percent of the total. AIM Investments is a Gibraltar corporation whose president is E.M. French.

For some time, Sportingbet.com had been looking for a partner to develop an online casino. It has its own sports book software, of course, but Aymong hopes to get Sportingbet.com interested in World Gaming’s sports book software, and work with that company on its casino. He also hopes to ride along with Sportingbet.com on its planned expansion into Asia.

Increased Revenue from Sports Betting

Aymong said World Gaming’s revenue is split almost evenly between casino games and sports betting. About 47 percent of the revenue comes from each source, he said, with another 3-5 percent from pari-mutuel wagering. The company will re-launch its pari-mutuel wagering service in the fourth quarter.

“The sports and race betting side is increasing,” Aymong said in a recent interview. “We have a very good casino product and a very good sports betting product. We need to get more content for our pari-mutuel product.”

The company has long wanted to develop a strong pari-mutuel business. In its annual report in April 1999, Starnet said, “Pari-mutuel wagering is the lowest maintenance form of sports wagering a company can offer.” Because bettors are wagering against themselves, the house faces no risk, and takes a commission of 10 to 20 percent, the company said.

World Gaming’s percentage of revenue from sports betting has increased sharply since the 1999 report, when it said that 68 percent of revenue came from casino games and only 32 percent from sports books.

At the time of that report, the company estimated its market share at 15 percent. Now, Aymong estimates market share at 12-13 percent, and he’s hoping to increase that by 2-3 percent this year.

Another goal that frustrated Aymong’s predecessors was to get the company’s stock listed on a major market. At the time of the August 1999 raid, Starnet had an application pending for a full Nasdaq listing.

This is on Aymong’s agenda as a milestone for the first quarter of next year. World Gaming will apply, he said, for listing one or two of the following exchanges: Nasdaq, the Toronto Stock Exchange, or the AIM market in London, which is roughly equivalent to Nasdaq.

Moving beyond the over-the-counter market is important because some institutional investors refuse to buy the stocks of companies that aren’t listed on a major market.

Tuesday morning, World Gaming plans to release its long-awaited financial results for fiscal 2001. That fiscal year ended April 30, 2001. “We’ve got some obviously pretty good news,” Aymong said last month.

Roller Coaster Ride for Stockholders – But Mostly Down

Investors need some good news. World Gaming’s stock never recovered from the terrific hit it took on the day of the police raid in August 1999. In fact, it’s fallen significantly since then.

From a close of $13.125 the night before the raid, the stock fell $9.06, to $4.06, on the day of the raid, and languished around that level for the rest of 1999. In early 2000, it rebounded, getting as high as $10 in February. But then it was downhill again, reaching a nadir of 31.25 cents in December 2000.

By this spring, the outlook for investors was more promising. The stock got as high as $2.25 in early June, but fell back during the summer. Today it was trading at 64 cents. It had fallen to 88 cents before the terrorist attacks in the U.S.

Aymong has a big personal stake in the stock’s performance. World Gaming granted him 1.2 million stock options that vest 60 days from the start of his employment in April, subject to a six-month hold upon exercise. The exercise prices on these is 31 cents.

He also received another 1.2 million stock options that vest over a nearly two-year period, at exercise prices ranging from about 78 cents to $8.25. In April 2003, he will receive 400,000 “bonus options” whose exercise price is determined by the stock’s close on March 31, 2003.

Aymong’s base salary is $350,000 per year. He is entitled to a “profit bonus” of up to 100 percent of his base salary, as determined by the company’s board of directors.

He also receives up to $2,000 a month for the lease of a luxury vehicle and a $4,000 monthly housing allowance. Aymong and his family live in New York City.