The sum of "more than £170 million ($313m)" has been quoted by two newspapers as the going price, but close observers of the online poker business reckon this is way too high.
Paradise Poker was on the market 12 months ago for $100 million, but could not find a buyer at that price. Since then, its market share has dropped, and it has fallen from first to fourth place among internet poker rooms.
If a deal went through, the acquisition would almost double the size of Sportingbet, whose shares are traded on the Alternative Investment Market at a market value of £229m ($421m).
The company announced last week that it was in "advanced discussions about a potential substantial acquisition of an online poker business". Sportingbet, founded in 1998 by bookmaker Mark Blandford, said its acquisition would be "significantly earnings enhancing", although it warned it was not certain a deal would be agreed.
It did not name the company it is buying, but it is believed that the target is Tropical Paradise, which operates the ParadisePoker.com website from Costa Rica. The site has been on a publicity drive in Britain this year and launched a series of advertisements featuring the model Caprice.
Sportingbet was recently named as the world’s leading online gambling operator by the industry journal, eGaming Review, which put it ahead of Ladbrokes and William Hill for online operations. It has postponed publication of its results, which were due last Tuesday, pending the outcome of the talks.
However, some investors have remained wary of the company because it does a large part of its business in America, where online sports betting is banned.
One industry insider commented. "This valuation of paradise would make new leaders Party Poker worth at least $2 billion. Somewhere, for some reason, the estimated value of Paradise has become over-inflated.
"I put Paradise Poker's profit as between £10m and £16m a year, which would present Sportingbet with a very expensive purchase at £170m. I believe that they are not taking sufficiently into account the time they will have to wait for payback. And new rooms, like PokerChamps, are coming a long with better and more up-to-date third generation software."
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Meanwhile, Sportingbet was forced offline early last Thursday by a digital extortionist. Both its site and Tote.com suffered simultaneous attacks, said U.K.-based web technicians Netcraft. The outages lasted more than 16 hours for Tote.com, but only minutes for Sportingbet.com.
Both sites are back up and running.
"Industries conducting large volumes of transactions are emerging as targets for a cottage industry of digital extortionists using distributed denial of service attacks," said Netcraft in a statement. "These attacks typically are preceded by a request for payment from parties who claim the ability to 'prevent' an imminent attack. If no payment is made, a DoS attack follows."
In March, 2004, a sustained campaign of DoS attacks was launched against Britain's top 20 gambling sites after extortion demands were met and rejected.
And, in July, Russian and British authorities, with the help of law enforcement agencies in Australia, the United States, Canada, and Estonia, arrested a trio of men on charges of running the blackmail operation.
Late Friday October 28, Sportingbet announced that it had agreed to buy e Paradise Poker for an initial payment of $297.5 million (£162.5 million).
"This more than doubles us in size," Chief Executive Nigel Payne told Reuters. "If we believed we were No. 1 before, then we certainly are today."
Its shares soared 9.9 percent by 9:15 a.m. to 127-1/2 pence, valuing the group at around 265 million pounds.
Sportingbet, which averages 8 bets a second, said sports bets were up 36 percent in the year to July 31, and its customers were up 30 percent to 1.2 million.
"Over the last 16 months, we have seen the number of customers, the number of bets taken, and the profits and cash generated reach record levels," said Payne.
Sportingbet SBT.L also announced pretax profit of 5.4 million pounds for the 16 months to July 31, compared to 1.4 million in the 12 months to March 31, 2003.
Payne estimated there were over 50 million poker players in the United States - where Paradise does 79 percent of its business - but that only 2 percent of U.S. players had converted to using the Internet.
"There's a great deal of growth yet to go," he said.
Paradise, which was launched in 1999 and currently claims to be the world's No. 3 poker site, has 97,000 active players.