Is Internet Gambling the Next Internet Explosion?; Bear Stearns unveils a
comprehensive report on what could be the next big investment opportunity
on the Internet
Business Wire - January 12, 2000 08:22
BSC OGAM BETM %NEW-YORK %INTERNET %ENTERTAINMENT %GAMING V%BW P%BW
NEW YORK--(BUSINESS WIRE)--Jan. 12, 2000--Fueled by the combination of
two hot industries, Internet and Gaming, E-Gaming is on the verge of
exploding, according to an extensive report developed by Bear Stearns
senior managing director and gaming analyst, Jason Ader. In just the past
few years, the number of e-gaming sites has climbed to more than 650 and
continues to grow every day. However, according to the report, this rapid
growth is not without question marks. Legal quandaries exist which have
the
potential to either fuel or doom industry growth. "It is currently unclear
whether this is an opportunity for investors to see their money skyrocket
or a legal quagmire that will choke profits," says Ader.
Incredible Growth
Not only are gaming sites growing beyond the approximately 650 sites
that exist today, but profits are also climbing. Expected revenues in 1999
totaled $1.2 billion and could grow to more than $3 billion in 2002. One
casino company, based in the Cook Islands and mentioned in the report,
claims to have earned more than $4 million in its first four days on line.
"It is clear the dynamics are there for this industry to succeed. People
are spending more time on line, they are becoming more comfortable with
e-commerce and they love games of chance," says Ader. "Just look at the
recent success of TV shows like Who Wants to be a Millionaire and greed.
It
is clear games of chance with the potential for big payoffs attract a huge
audience."
Innovation is not lacking on the Web, either; among the e-gaming sites
that have been established are ones that let consumers play traditional
casino games and Bingo as well as bet on horse racing and other sporting
events, and, in some instances, play the lottery. Some casino sites are
fronted by celebrity pitchmen, like KennyRogersCasino.com. Others are even
billing themselves as gaming and social experiences, like
TheSinglesCasino.com. E-gaming sites are also becoming more mainstream on
the Internet.. Iwon.com, a division of CBS Broadcasting, gives away
$10,000
a day, a million dollars a month and 10 million dollars a year, to people
using its search engine. "E-gaming has the potential to be everywhere on
the web," says Ader. "It is not unrealistic to believe that someday when
you buy a CD on line you will also get a chance to spin a roulette wheel
for extra discounts."
Legal Questions
Despite the growing number of sites on line and the money being spent
and earned, there is a major problem when evaluating e-gaming companies,
according to the Bear Stearns analyst. The legality of e-gaming in the
United States is unclear. Different states have different rules and the
regulatory bills that have gone before congress have stalled. As a result
of the uncertainty, many e-gaming companies have located their operations
outside the US, in countries such as Antigua, Australia and Sweden.
Foreign
soil has been much more welcoming to online gaming companies. Thanks to
the
borderless world of the Internet, it is extremely difficult to keep those
companies from serving customers in the US. "Whatever congress decides,"
says Ader, "they will want to do it quickly because of the rapid expansion
in the popularity of these sites."
Consumer Confidence
Consumer confidence is another factor which must be considered when
evaluating the potential for the e-gaming industry. While users are
feeling
more and more comfortable with e-commerce, gambling on line is another
story. "Some people are a bit skeptical betting on cards and slots that
they cannot feel and touch," says Ader. As a result the Bear Stearns
analyst believes companies must do everything they can to establish their
authenticity. To that end, some companies have formed alliances to
self-regulate the industry. "Ultimately, trust will play a large role in
whether these companies are successful, so they would be well advised to
make sure security is tight and that they are offering fair and reliable
odds," says Marc Falcone, a Bear Stearns vice president and gaming analyst
who worked on the report.
Consumers are not the only ones who are skeptical of participating in
on line gaming. Credit card companies are also hesitant to become involved
thanks in part to incidents like the one in which a California man refused
to pay $70,000 in gambling debts he incurred on his MasterCard. The man
cited "bettor's remorse" in court and was actually cleared of paying the
charges.
Companies to Watch
Despite the question marks that face e-gaming companies, the potential
of Internet Gambling is hard for investors to ignore. Several companies
have put themselves in position to weather any regulation or consumer
confidence issues and still profit from on line gaming. The report
mentions
many of these companies, including Online Gaming Systems (OTC BB: OGAM),
Cryptologic (CRY.TSE), American Wagering (NASDAQ: BETM), YouBet.com
(NASDAQ: UBET), eLottery (NASDAQ: ELOT)--a subsidiary of Executone (NASDAQ
NM: ELOT), Starnet Communications International (OTC BB:SNMM) and uWin! --
a subsidiary of GTECH (NYSE:GTK).
As for traditional "bricks and mortar" casinos, Ader does not believe
the emergence of on line gaming will detract from their profits. "It is
hard to duplicate the incredible atmosphere you find at many of the
traditional casinos," says Ader. In addition, the Bear Stearns analyst
believes that most "bricks and mortar" casinos will develop their own on
line sites designed to entice people to visit their facilities.
To obtain a copy of the report, "E-Gaming--Endangered Species or
Rising
Star," or to speak with Jason Ader, please contact:
Christina Conde Russell Sherman Bear Stearns Bear Stearns 212-272-4320
212-272-5219
Jason Ader is a senior managing director responsible for equity
research coverage of the Gaming, Lodging and Leisure industries. His
division covers a universe of over 100 public companies. According to
Institutional Investor, Mr. Ader is the only leading analyst to be ranked
in both gaming and lodging and has been a member of that publication's
"All-America Research Team" for the past five years. In 1999, Mr. Ader was
named one of New York City's "Forty Under Forty" by Crain's New York
Business Magazine.
Founded in 1923, Bear, Stearns & Co. Inc. is a leading worldwide
investment banking and securities trading and brokerage firm, and the
major
subsidiary of The Bear Stearns Companies Inc. (NYSE:BSC). With
approximately $21.4 billion in total capital, Bear Stearns serves
governments, corporations, institutions and individuals worldwide. The
company's business includes corporate finance and mergers and
acquisitions,
institutional equities and fixed income sales and trading, private client
services, derivatives, foreign exchange and futures sales and rading,
asset management and custody services. Through Bear, Stearns Securities
Corp., it offers professional and correspondent clearing, including
securities lending. Headquartered in New York City, the company has over
10,000 employees located in domestic offices in Atlanta, Boston, Chicago,
Dallas, Los Angeles, Puerto Rico and San Francisco; and an international
presence in Beijing, Buenos Aires, Dublin, Hong Kong, London, Luga!
no, Sao Paulo, Shanghai, Singapore and Tokyo. For additional information
about Bear Stearns, please visit our Web site at
bearstearns.com.
Any recommendation contained in this report may not be suitable for
all
investors. Moreover, although the information contained herein has been
obtained from sources believed to be reliable, its accuracy and
completeness cannot be guaranteed. Bear Stearns may make markets and
effect
transactions, including transactions contrary to any recommendations
herein, or have positions in the securities mentioned herein (or options
with respect thereto) and may also have performed investment banking
services for the issuers of such securities. In addition, employees of
Bear
Stearns may have positions and effect transactions in the securities or
options of the issuers mentioned herein and may serve as directors of such
issuers. Copyright (c) 1999. All rights reserved by Bear, Stearns & Co.
Inc.
CONTACT: Bear Stearns or Bear Stearns
Christina Conde Russell Sherman
212-272-4320 212-272-5219 |
