[Sniper]

Reuters update...

LONDON, Oct 10 (Reuters) - Growth prospects in online poker came under fresh scrutiny on Monday as Empire Online (EOL.L: Quote, Profile, Research) said the market was almost flat in the third quarter, pummelling its shares and those of rivals Sportingbet and PartyGaming.

"I don't think the market went up much in this period," Empire's Chief Executive Noam Lanir told Reuters after the firm reported a 24 percent increase in new players and revenues between its second and third quarters.

"We're much ahead of the market," he said. "From what I'm hearing, the overall market was more like flattish."

But Empire's shares were down 24 percent at 139 pence by 1006 GMT due to signs of increased competition after PartyGaming (PRTY.L: Quote, Profile, Research) said it was separating its own poker players from those directed to its site by partners such as Empire.

"Statements from PartyGaming and Empire Online contain the initial seeds of divorce," said Charles Wilson at Bridgewell Securities.

PartyGaming's shares were down 7.5 percent at 74 pence by 1006 GMT, the biggest fall on the FTSE 100 index .

"This is an all-time low for PartyGaming," said analyst Robin Chhabra at Evolution Securities. "They've never been in the seventies before."


STILL TOGETHER

The unease spread throughout the sector and even Sportingbet (SBT.L: Quote, Profile, Research) , the owner of the Paradise Poker Web site which is expected to report strong trading on Wednesday, fell 3.1 percent to 297 pence by 1006 GMT.

Empire and PartyGaming have always been strongly intertwined, with Empire Online's EmpirePoker Web site driving customers to PartGaming's software platform.

But recently Empire bought online gamer Noble Poker and it has started moving its customers across from the PartyGaming software platform to Noble Poker's Playtech system.

PartyGaming said on Monday it had built new software platforms and would now separate its own players from those entering via "skin sites" such as EmpirePoker and Coral Eurobet.

But it reiterated its commitment to them.

"It's not news there's a lot of competition out there," PartyGaming's John Shepherd told Reuters. "But we're still supportive of our skins. We've improved their platform as well as our own."

Charles Wilson at Bridgewell said the skins would lose out most from any split from PartyGaming and this was what hit Empire's shares.

"In essence, today PartyGaming has taken steps to distance itself from its skins," he said in a research note.

"We believe the skins customers will be disadvantaged, as they will not have access to PartyGaming's player liquidity," he added. "Player liquidity is one of the key customer drivers."

Lanir said smart marketing had helped the group pull in more players than its rivals, while the launch of PartyGaming's new software platform showed it was concerned about Empire's success.

"They're showing their concerns about our dramatic growth compared to them and the entire industry," said Lanir.

Empire Online said the number of new players reached 53,148 for the third quarter, an increase of 62 percent over the same period last year and 24 percent over the second quarter.

Net gaming revenues rose to $31.4 million, up 24 percent on the second quarter and 71 percent on the third quarter of 2004.