A good article on gaming stocks.
From Starnet board.
By: STARDOM
Reply To: None Saturday, 18 Mar 2000 at 9:37 AM EST
Post # of 196692
ARTICLE FROM NATIONAL POST!!
High rollers warm to world of e-gaming
More and more investors are betting that big money will be made once the legal
cloud lifts over gambling on the World Wide Web
Stephen Miles
National Post
Photo Illustration: Kagan Mcleod, National Post
(Slot machine)
Rolling the dice by investing in e-gaming companies can be a crap shoot. But for
those who can tolerate the risk, the rewards may be vast. Until recently, e-gaming
-- casinos, horse racing, bingo, keno, lotteries and sports betting on the Internet --
was considered a bad bet. Investors shied away because of uncertainty over the
legality of betting online.
But a recent Bear Stearns & Co. Inc. research report has lent financial credibility
to the e-gamers and opened the eyes of investors to the huge potential of these
firms.
E-gaming is growing at an explosive rate, according to Jason Ader and Marc
Falcone, analysts at Bear Stearns. So are companies that supply the Internet
betting operations with software to run their Web sites.
"The demand for Internet gambling is strong and getting stronger," the analysts
say. "We believe that any industry that is comprised of the Internet and gambling is
going to be explosive."
Worldwide e-gaming revenue climbed from $834.5-million (US) in 1998 to more
than $1.2-billion (US) in 1999 and could top $8-billion (US) by 2002, says a report
by marketing consultants Frost & Sullivan.
In fact, online gaming has the potential to dwarf revenue generated by most other
interactive services by tapping into an established gambling market already worth
more than $700-billion (US) a year in the United States and Europe alone.
Despite the legal cloud that hangs over the industry in the U.S. and Canada,
where online gambling has been deemed illegal, e-gaming continues to thrive in
parts of the world where the regulatory environment is more hospitable.
In 1997, there were just 40 gaming Web sites worldwide. Today, there are almost
650, owned by about 250 different companies.
Some jurisdictions, like Australia, view Internet gambling as an unstoppable force
and want to regulate it to protect consumers. Others, like Caribbean and Pacific
island nations, use the Web sites as a source of government revenue.
There are more than 60 publicly traded companies, including a number in
Canada, that are directly related to Internet gaming.
But despite often bullish forecasts, their shares' performance has been uneven.
The biggest problem is that many online betting firms work in a grey area of the
law.
The U.S. Department of Justice says that, technically, there are no specific federal
laws against the placing of Internet bets. However, it maintains it is illegal to
operate Internet gaming Web sites within the U.S.
E-gaming firms often skirt gaming laws by locating their gambling operations
offshore, often through subsidiary companies.
U.S. Justice also maintains it is illegal for Internet gambling firms operating
outside the U.S. to accept bets from U.S. citizens.
But can the U.S. prevent foreign-based sites from accepting U.S. wagers? The
government is attempting to clear up the issue through legislation. The Kyl bill
(unofficially the Internet gambling prohibition bill) is winding its way through the
U.S. system. It has to be passed by the judiciary committee of the House of
Representatives, the full House and be signed into law by the president. That
could take some time.
Meanwhile, gaming software developers and online casino operators are focusing
on Europe and Asia, where the fastest Internet user growth is occurring.
Companies like Toronto-based CryptoLogic Inc., which specializes in developing
online casino software, have become investor favourites. Casino software
producers do not face the same regulatory hurdles as firms that take bets directly
but they still can still capitalize on the growth potential.
CryptoLogic, which licenses online casino software through subsidiary Intertainet
Overseas Licensing Ltd., said revenue grew 43% to $32.7-million in 1999. Profit
climbed 23% to $20.6-million, ($2.40 a share) from $16.7-million ($1.99) in 1998.
CryptoLogic shares (CRY/TSE) rocketed from $22 at the end of 1999 to a
52-week high of $68.50 earlier this month. After trailing off, they jumped yesterday,
closing at $57, up $6.
Another large Canadian player moving into the arena is Magna Entertainment
Corp., an Arcadia, Calif.-based firm spun off from auto parts giant Magna
International Inc. last month. Magna Entertainment is the largest owner of horse
racing tracks in the U.S. It is developing sports wagering, interactive television
and Internet-based betting as well as leisure and real estate projects. It had
revenue of $98.8-million in 1999. Its shares (MIEa/TSE), which began trading at
$3.50 on Feb. 23, peaked at $8.75 just five days later. They closed yesterday at
$5.90.
Several smaller e-gaming firms also have made Canada their home. Global Net
Entertainment Corp., IGN Internet Global Network Inc. and Network Gaming
International Corp. have set up shop in Vancouver, Chartwell Technologies Inc. is
based in Calgary and Total Entertainment Inc. has its headquarters in Montreal.
Many have seen solid gains in their shares in recent months.
Global (GET/CDNX) jumped from 60½ in November to a peak of $2.26 last month,
Chartwell (CWL/ CDNX) rose from $2 a year ago to a recent peak of $7.50 and
Total (TTLN/NASDAQ) recently climbed as high as 80½ (US) from 18½ (US) last
November.
Mr. Ader and Mr. Falcone, of Bear Stearns, identify four key U.S. players -- Online
Gaming Systems Ltd., American Wagering Inc., YouBet.com Inc. and Starnet
Communications International Inc.
Starnet develops online gaming technology and Web sites. It relocated most of its
business to St. John's, Antigua, after Vancouver police raided its headquarters six
months ago to investigate operations allegedly taking illegal bets, though
business activities were later found to entail only accounting and customer
support. The firm's shares (SNMM/NASDAQ BB) took a pounding at the time,
dropping from $29 (US) to $1 3/4 (US). But they have rallied since to trade around
$4 (US).
The Bear Stearns analysts say that while the U.S. is the key battleground for the
future of e-gaming, the rest of the world isn't going to wait. "Regardless of a
potential U.S. ban on Internet gambling, other world markets will embrace it and
capitalize on the immense potential of the combination of two very lucrative
industries." |
