In the world of gambling, it’s much better to be the house than the mark. And it looks like the world of online gambling is back in fashion.
Washington, D.C., just passed a bill to became the first U.S. jurisdiction to allow Internet gambling. The bill was slipped into its 2011 budget and made it through the 30-day period that Congress had to object.
If you remember, Internet gambling was huge in the United States back before 2006. Poker tournaments were high ratings on TV, and people would stay up all night playing six games on their PCs.
Internationally, it is a five-billion-dollar business with 8.6 million users and growing.
But then the casino lobby — coupled with a government losing taxes — forced a national bill that made it illegal for credit card companies and banks to process payments from gambling companies to individuals…
A Bet on Washington
This all changed last week.
D.C. council member Michael Brown, looking to fill some budget holes, examined the law and discovered that they could do it on a local level:
D.C. hopes to tap those millions to help offset budget cuts and help social services programs. Conservative estimates from D.C.’s chief financial officer indicate the district could bring in around $13 million to $14 million (with online gambling) through fiscal year 2014.
If the District can pull this off, it will open the floodgates to every local government in the country…
Municipalities are bleeding red ink.
Nevada, for instance, has directed the Nevada Gaming Commission to begin drafting rules to regulate online poker. A Nevada legislative panel amended and approved a bill that would set the standard for Internet gambling.
The bill encourages Congress to enact legislation clarifying state and federal laws governing Internet poker and providing for licensure. It stipulates that any regulations adopted by Nevada will not permit online gambling until permissible by federal law.
Nevada will attempt to partner its current gaming companies with online gaming companies and tax the results.
Back in the day, traders used to love Party Gaming (PYGMF.PK), a company out of Gibraltar.
The company runs partycasino.com among others, and offers a whole range of gambling — from poker to backgammon.
The company has a market capitalization of $829 million but has fallen on hard times, reporting no earnings in the latest quarter.
Another online gambling company is 888 Holdings (EIHDF.PK).
This is a smaller company, also based in Gibraltar, with a P/R of 30 and a market cap of $238. The company signed a deal with Caesars back in 2009 in order to seek the feasibility of an online gambling site. It could pay off if Nevada manages to go through with its plan.
Intralot won the D.C. Service contract for its online gambling. The company is based out of Athens, Greece, and trades on the Greece stock exchange.
Intralot saw revenue growth of 42.6% year over year to 318 million euros. EBITDA increased 82.6%. The majority of its sales originated in Europe with the Americas coming in a strong second.
The stock has been trending down for the past two years. It now trades at 2.27 euros with a $402 million market cap.
GigaMedia (NASDAQ: GIGM)
One of my favorite companies of all time is GigaMedia. I bought this company personally about ten years ago and sold it for a 1,500% profit when it hit $16 on its way to $30 a share.
The company is based out of Taiwan and saw its fortunes rise with the gaming boom in Asia. They have a market capitalization of only $77 million (which amazingly is less than its cash position of $89.4 million), and $14.9 million in debt.
A good rule of thumb is to buy any company that is trading less than cash as long as it has earnings.
Unfortunately, GIGM sold off all of its better assets some time ago and now is burning money.
The stock is getting a lot of hits on technical analysis sites as it has broken its downtrend on strong volume. This was due to a change in management, the D.C. gambling news, and increased attendance at its Everest Poker site, the leading online poker room in France.
Uptick in Gambling
Gambling stocks the world over were hit by the recession. But the most recent hotel data from Asia’s gambling mecca — Macau — suggest the high rollers are feeling flush. Occupancy rates rose to 82.2% in February from 74.1% in September 2010.
It might be time to roll the dice on small caps online…
If blue chips are your game, check out MGM Resorts (NYSE: MGM), Wynn Resorts (NASDAQ: WYNN), and Las Vegas Sands (NYSE: LVS).
Editor, Energy and Capital