You may think the conventional wisdom is that adult entertainment sells big but wouldn't trade even close on Wall Street. Don't tell Starnet Communications. Or, the Mounties, for that matter.
Barely had the press rolled Friday on a Wired online feature about Starnet's stock market success and coming move to shed much of its adult-oriented online activity, a joint raid by Vancouver police and the Royal Canadian Mounted Police on its Canadian offices dented Starnet stock.
The owners of Sizzle.com (www.sizzle.com) and Chisel.com (www.chisel.com) didn't exactly chisel their way across the NASDAQ board, but ever since they stepped quietly onto the over-the-counter stock market almost two years ago, they've turned what Wired calls a pure porn shop into a diversified adult entertainment and online casino business with a $400 million market cap.
In fact, they've done it well enough that they're going to move onto the national NASDAQ market. NASDAQ is expected to approve the company's application. But there's just one kink - Starnet is going to sell off at least Sizzle.com and Chisel.com, and very possibly its entire adult entertainment division.
Tell it to the Mounties? Starnet's Vancouver offices were raided Friday by Vancouver police and the Royal Canadian Mounted Police hunting evidence of illicit porn trafficking and illegal betting.
Wired reports the joint police raiders entered the offices Friday morning, sent Starnet employees out of the building, and started a thorough hunt through all the company's paper and electronic records. A Vancouver police spokeswoman said the force planned to spend the weekend on the hunt. She also says the raid came following an eighteen-month probe and that American law enforcement was notified.
Starnet officials were also banned from answering company phones or e-mail.
The raid blew a big hole in Starnet's stock, Wired says, dropping it 70 percent from its $13.22 opening price, down to $9.06. But Canada has stricter pornography laws than the United States. Canadian law bars distributing any images joining sex and violence online, or any images "in which a person is degraded or humiliated," says Wired. Canada also bans online betting.
The company could face huge trouble if there proved documentation that it knew they were receiving Canadian customers at their online casinos, although Starnet has maintained they take no Canadian or American bets.
Not long before the raid, though, Starnet chief executive officer Jason King told Wired that the company's future was beyond the adult business, even though the adult business was "an unbelievable springboard for us," bringing it new markets.
"We still think (adult entertainment's) an excellent industry, and we're still making a lot of money, but we feel like the bigger opportunity is in [online casino] gambling," he says. Indeed, online gaming is now Starnet's bigger moneymaker.
Starnet now runs sites like WorldGaming.net and licenses software to other online casinos, Wired says. Porn sites had been the company's big moneymakers in fiscal 1998, but fiscal 1999 saw most of Starnet's $10 million in revenue and $2 million profit come from gaming.
