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Gaming Stocks: How Will Regulated US Online Gambling Affect Them?

Dec.31, 2011 1:23:AM
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The end of 2011 brought on some interesting scenarios for the gaming sector.  The news that the Department of Justice interprets the Wire Act as only covering sports betting brought sharp rises to gaming stock prices.  Most of the gains have been lost as traders have moved on to the next hot news story, but that does not mean the good news is over for the gaming sector.  Here are several stocks that could be affected by online poker regulation in the future.

Slot Manufacturers

Bally Technologies (BYI) – Not to be confused with Bally’s casino in Las Vegas, Bally Technologies is a slot manufacturer.  Bally Technologies has applied for a Nevada online poker license.  While Bally will not be offering online poker themselves, they figure to be a player in the backend development of online poker software.  While they are behind International Game Technology at this time, expect this slot maker to make some noise in the online poker industry in the U.S.  Bally Technologies already has a relationship with most brick and mortar casinos, the companies that will ultimately offer their online poker products.  Bally Technologies also has a large portfolio of slot machine games that could be licensed in states that legalize online casinos.

International Game Technology (IGT) – IGT planned ahead for online poker in the U.S.  In June, IGT received approval to takeover the Entraction Network.  While traffic on that network has slumped this year, IGT now has a software platform that they can use in the U.S. as soon as they receive approval.  The Entraction Network is currently popular among European players.  Expect the world’s largest slot machine manufacturer to enjoy a windfall from online poker.  If online casinos become legal in the US, IGT owns many different slot machine brands including Wheel of Fortune as well as the most popular video poker machine in the world, the Game King.

WMS Industries (WMS) – WMS has yet to apply for any type of Nevada online gaming licenses.  Their appeal will likely only be if online casino games are legalized.  WMS owns slot machine brands that include Monopoly, The Price is Right, Super Jackpot Party and The Wizard of Oz.  WMS already owns online casino Jackpot Party which is licensed in the UK.

Shuffle Master (SHFL) – Shuffle Master is a brand known to most live poker players.  Shuffle Master manufacturers the card shufflers that are found in most poker rooms.  Shuffle Master also owns patents on casino games that include Let it Ride, Three Card Poker, Four Card Poker and Caribbean Stud.  Using these patents, Shuffle Master distributes multi player video versions of these games.  While the online poker boom may pass them, Shuffle Master stands to do well if online casinos become legalized.  Many online casinos will pay licensing fees to offer these games, just as brick and mortar casinos do.

Pokertek (PTEK) – Pokertek has seen some unusual stock price swings since the DOJ news broke.  Its stock price nearly doubled in two days before giving back much of the gains.  Pokertek manufacturers multi player poker tables for casinos that either cannot have live cards by law, or find it more economical to use machines for their poker room.  Pokertek has not publicly announced any internet poker plans.  This makes their bump in stock price very odd.  Pokertek has recently  received a delisting notice from NASDAQ due to their stock price slipping below $1.  They have also had problems with their business in Mexico.  There is also a real possibility that one of their biggest customers, Harrah’s Cherokee in North Carolina, may be able to offer cards in their casino.  Pokertek will likely have to have another reverse split in their stock to avoid delisting.  With this and all of the other bad news, Pokertek does not look like a good investment at this time.

Brick and Mortar Casinos

MGM (MGM) – On October 31, 2011, MGM entered into a partnership agreement with BWIN.Party and Boyd Gaming.  In this agreement, MGM would own 25% of the new online poker room while BWIN.Party will own 65%.  MGM is in a great position with this agreement.  BWIN.Party will provide the gaming software and manage the project, MGM will use their enormous player database to help promote the online poker room.  This provides MGM with an incredible cross marketing opportunity.  Not only can they market the online poker room to their casino players, but they will be able to add new online poker players to that database so that their brick and mortar casinos can be marketed to those players.  MGM is preparing for this opportunity by suing poker domain owners that are using their Las Vegas casino names.

Boyd Gaming (BYD) – Boyd Gaming will own the remaining 10% of the partnership that involves BWIN.Party and MGM.  Boyd Gaming is probably in a better situation than MGM is as it relates to Nevada online poker.  Boyd Gaming owns several Las Vegas casinos that are aimed towards locals.  These include Orleans, Suncoast and Sam’s Town.  This database of players should help Boyd Gaming should the partnership get off the ground before other gaming companies capitalize off of it.

Wynn Resorts (WYNN) – Wynn Resorts created a partnership with PokerStars before Black Friday.  That partnership was immediately dissolved after Black Friday.  Expect Wynn Resorts to capitalize off of their strong, high end brand name as online poker grows.  While they may not make much short term noise, in the long term Wynn could be a big player.

Las Vegas Sands (LVS) – Sheldon Adelson, Chairman and CEO of Las Vegas Sands, stated that he was morally opposed to online poker.  Presumably, that is the stance that Las Vegas Sands will take as well.  This stance will hurt Las Vegas Sands in the long term.  Not only will they miss out on the profits online gambling will bring, other casino companies are likely to poach their brick and mortar players through their own online gaming offerings.  If this happens it could have an overall negative impact on the business of their Las Vegas casinos, Venetian and Palazzo.  Out of all of the Las Vegas casino companies, Las Vegas Sands looks like the worst bet.

While Caesars Entertainment stands to profit from online poker with their World Series of Poker brand,  Caesars Entertainment is not publicly traded.

Online Gaming Companies

BWIN.Party (BPTY.L) – Unlike other gaming companies, BWIN.Party has put together several days of stock price gains together after the DOJ announcement about the Wire Act.  BWIN.Party stands to benefit more from regulated U.S. gaming than most companies.  Five years after leaving the U.S. market, Party Poker is still a well recognized brand.  With their partnership with MGM and Boyd Gaming, they will have a fresh player database to use.  All Party Poker will have to do is provide the software platform and other operations, assets BWIN.Party already has.

888 Holdings (888.l) – 888 Holdings owns many successful online casino companies, as well as a successful poker network where their 888/Pacific Poker brand is the flagship.  This poker network hosts the real money World Series of Poker online poker room, available to UK players.  888 Holdings has already applied for a Nevada online poker license.  Expect them to be a major player in regulated online poker.

Author Note

None of the information above is a solicitation to buy or sell any stock.  Please do your research when buying stocks.  There are many more variables to these stocks than the online gaming segment that can control the future stock prices.