Scrutinizing InTrades financial statement for 2008 – Part II

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Jesse Livermore (a pseudo):

More Intrade Financials

I paid 7.50 euros to see Intrade’-s full filings from 2008 at www.cro.ie. I’-m not going to post them publicly, because they contain the names and addresses of everyone who owns shares in the company. (Fun fact: John Delaney’-s address does not have a number, it has a name.)

A few new pieces of information:

-How can Intrade keep losing money? Like any other startup, by issuing new shares. Intrade issued $2 million in new stock last year. About 320,000 shares were issued, on a base of 1.2 million shares, which would value Intrade at about $10 million, the same as my ballpark estimate yesterday.

-I was correct about the valuation of the Tangible Fixed Assets. Intrade valued anything left over from Trade Exchange Network at $0, and depreciated computer and software equipment by 33% of the purchase price per year.

-The report does not break down expenses and revenues in great detail. It tells total employee compensation, and interest income, but does not spell out commission revenue or other expenses.

-Trade commissions are (properly) recognized only when they are paid. Trading fees are paid when trades are made- expiry fees are paid when contracts expire. Intrade likely recognized a good deal of revenue on election day, which at least mitigated their losses.

I don’-t view this with the shock of some on the Intrade forums. These numbers seem entirely reasonable to me. Intrade has grown substantially comparing 2004 to 2008, and even in the absence of legislative change, will probably be profitable in 2012. I’-m not going to short the contracts on whether Intrade will still be in business. Even in the unlikely event that Intrade were to close, there is no reason to worry about customer deposits.

Part I

The InTrade numbers

InTrades financials: Where is the note #12?

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Our commenter:

We would need to see note 12 to understand what happened to the Share Premium account. It appears that the December 31, 2007 balance of the P &amp- L Account was applied against the Share Premium account. However, at September 30, 2008, the Share Premium is 1,063,614 higher than it should be (6,651,502 – 5,715,540 = 935,962 vs. 1,999,576). Note 12 might explain why.

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2007

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te1

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2008

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There might be a slight discrepancy between the accounts and the balance sheet.

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intradeaccounts

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intrade2

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I have obscured the personal addresses of these 2 persons:

intrade3-without-addresses

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InTrades Accounts and Balance Sheets – 2007 and 2008

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This material is available on: http://www.cro.ie/ .
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2007

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te1

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te2

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2008

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There might be a slight discrepancy between the accounts and the balance sheet. If you, too, spot it, then publish a comment just below, and we will share our thoughts. (Please, do not publish any negative comment that can be legally reprehensible.)

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intradeaccounts

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intrade2

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I have obscured the personal addresses of these 2 persons:

intrade3-without-addresses

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Worlds #1 finance blogger withdraws all his money from InTrade… and blogs about it -detailing his negative customer experience to his thousands of Wall Street readers.

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Market Movers:

Dec 3 2008 5:52PM EST
The Problem With InTrade

I recently withdrew money from an InTrade account I’-ve had for some years. The total cost of withdrawing the money was $53.10: A $20 fee to InTrade for “-processing the bank wire”-, a €10 ($13.10) wire-transfer fee to National Irish Bank, and a $20 fee to Bank of America, the intermediary bank via which the money arrived in my Citibank account. If Citi had charged their customary $25 incoming wire fee, the total would have been $78.10.

You need to have a very large balance at InTrade, or an incredibly successful trading strategy, to make trading there worthwhile if it costs the best part of $80 just to withdraw your money. And prediction markets need a critical mass of users, otherwise they die. InTrade, for one, can count me out.

[Felix Salmon]

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Posted: Dec 03 2008 6:24pm ET
I’-ll definitely use the check option next time —- but there’-s no indication on their website as to which one is cheaper, and I stupidly thought that a wire transfer would be cheaper than printing and posting a check.
By Felix [Salmon]

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Posted: Dec 04 2008 04:46am ET
PayPal will not process transactions to online gambling sites (including Intrade) from the US. After the Unlawful Internet Gaming Enforcement Act none of the payment providers will process these transactions, that is why you are stuck with check and wire transfers.

I expect that Antiguan sports books offer free withdrawal because they have much higher margins than Intrade and therefore can absorb the costs elsewhere.
By nigeleccles [Nigel Eccles of HubDub]

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Previously: Why did John Delaney shut down TradeSports?

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Previously: The InTrade predicton markets on the viability of InTrade won’-t reveal *ANYTHING* about the future of InTrade.

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Previously: on TradeSports death – on InTrade’-s viability

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TradeSports & InTrade – The saga continues…

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- See comment #2 that says that the InTrade PMs on InTrade are “-absurd”-.

- Scroll down there to spot Todd’-s comment.

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Previously: Why did John Delaney shut down TradeSports?

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Previously: The InTrade predicton markets on the viability of InTrade won’-t reveal *ANYTHING* about the future of InTrade.

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Previously: on TradeSports death – on InTrade’-s viability

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The InTrade predicton markets on the viability of InTrade wont reveal *ANYTHING* about the future of InTrade.

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It is impossible for any InTrade trader to know whether the financial accounting of InTrade is sound or not. Any commercial company surrounds itself with secrecy. Let alone an Irish company that illegally (from the DOJ’-s standpoint) exports its services to Americans.

UPDATE: See the comment #1 there.

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It was impossible for the InTrade traders to divine whether Yahoo! CEO Jerry Yang would step down.

(In passing, note that InTrade has expired this contract hours after the breaking news hit the wires.)

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It was impossible for the InTrade traders to divine whether Unlawful Internet Gambling Enforcement Act of 2006 would be voted and enacted.

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The InTrade predicton markets on the viability of InTrade won’-t reveal ANYTHING about the future of InTrade. It will just aggregate InTrade’-s PR output.

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As for the “-business development initiatives”- planned by the InTrade executives, I wish them the best of luck. However, I remain skeptical, since I don’-t see what can replace the 2008 US elections in terms of attractiveness —-now that the SuperBowl has been sacrificed.

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