Companies Gearing Up for Intra-State Poker Will Dominate Internet Gambling -iGaming - 27th April 2009
Implications
Harrah's is rumored to have hired Mitch Garber, former CEO of PartyGaming (PYGFM), to head its World Series of Poker and online gaming operations. PYGFM itself settled with the federal Department of Justice, and is looking to now get back into the U.S. Rep. Barney Frank had to delay repealing the UIGEA, but the states are moving ahead with intra-state gambling, particularly poker in California. And the operators who get in on the ground floor will be in the best position to control the entire U.S. market.
Analysis
The continuing financial crisis has delayed Frank's reintroduction in Congress of his bill to amend the UIGEA, to create a federal regulatory and taxing authority. But even under existing law, states like California are actively looking at expanding Internet gambling. More than 20 states already have at-home betting on horseracing, so there is no logical reason to not have the same for dogracing, or poker. The California bills authorizing Internet poker have actually already been introduced, though the specific language will be added by amendment in late May or early June. California is such an enormous market, that the gaming companies that are most successful if the state legalizes intra-state poker will dominate the U.S. and even the world markets when Congress allows interstate compacts. PartyPoker captured 40% of all online poker by being one of the first, with the best marketing.
Harrah's already works with California Indian tribes and for years has been trying to buy a California cardclub. It has an active online play for fun site. The rumors about Mitch Garber, who reached his own settlement with the DoJ, may or may not be true. But Harrah's won't let an opportunity like California Internet poker go by. PYGFM is already looking to get in, but bad blood with Garber may prevent any deal with Harrah's.
A wild card is Lakes Entertainment (LACO), headed by expert poker player Lyle Berman, with strong ties to the World Poker Tour and a California tribe. Most other gaming companies are either too worried about, or already in, bankruptcy -- MGM Mirage (MGM), Las Vegas Sands (LVS), Trump Entertainment Resorts (TRMPQ), Station Casinos, Herbst Gaming, Greektown Holdings, Legends Gaming, Magna Entertainment (MECAQ), Progressive Gaming (PGICQ), Greek Isles, Tropicana Entertainment, Riviera Holdings (RIV), Hooters, Empire Resorts (NYNY), UTGR, Majestic HoldCo.
Penn National Gaming (PENN) and to a lesser extent Wynn Resorts (WYNN) and Boyd Gaming (BYD)are in great shape, but have never shown much interest in the Internet, and are looking to pick up land-based casinos at bargain prices from MGM. Regional gaming companies like Isle of Capri Casinos (ISLE) and Pinnacle Entertainment (PNK) and foreign landbased operators have no natural ties with California.
Internet operators, on the other hand, want in. Publicly traded companies that pulled out of the U.S. market are looking into following PYGFM's lead. SportingBet and 888 Holdings are in discussions with the DoJ to pay cash for settlements giving them a clean bill of health and the right to start taking legal bets from Americans, as soon as the law is made clear.
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