Respected stockbroker bullish on U.S. internet gambling

Respected stockbroker bullish on U.S. internet gambling

April 22, 2010.

This week saw some positive comments on the US legislative situation coming from the leading London stockbroker firm Daniel Stewart, which appears to believe that new online gambling legislation may be introduced and passed in the US during the second half of 2010.

The company set out its reasoning behind the opinion, pointing out that the Unlawful Internet Gambling Enforcement Act (UIGEA) has not worked as a prohibition measure, is unpopular with the banking industry and is largely disregarded a number of major (offshore) operators, including significant online poker companies PokerStars and Full Tilt Poker.

The stockbroker points to growing speculation that US Senator Harry Reid of Nevada "and his pro-legislation cohorts are preparing a Bill that could be introduced into the Senate within the next three months and ready for approval by the President during H2 2010." Stewart does not refer to Congressman Barney Frank's legalisation proposal, so the Reid initiative is presumably a new approach.

Stewart believes this will encompass only online poker and exclude casino and sports betting services, which should ensure that it is easier to sell to the anti-gambling lobby, obtain approval and implement.

The stockbroking company also notes the change in attitude - from neutral to positive - recently announced by the American Gaming Association and surmises that this may be due to a perceived change in view of both MGM and Steve Wynn, who has historically been sceptical about the online market.

"The legalised US online poker market represents a massive pot of gold for the entities that can monetise a market we estimate to offer likely annual gross gaming revenue of >$8 billion annually" the company asserts, venturing that the clear winners from the proposed US legislation will be US-based gambling giants such as Las Vegas Sands, MGM, Harrah's and Wynn," the note comments.

The "jury is still out" on how European firms may fare in such a legalised market, the firm opines, saying that this will depend on how the new legislation is set up. In one scenario, for example, the legislation may favour domestic land-based operators by effectively excluding offshore operators.

Two other scenarios could provide opportunities for European-based operators. In one, the legislation may allow other operators to secure a licence if they built or acquired a land-based presence; in another - and possibly more exciting possibility - the legislation may be opened to former-US operators from outside the country that can pass tests of appropriateness for securing a licence.

"Under this scenario European-based operators could potentially pass the requisite tests given their scale and experience in operating in regulated markets such as the UK and Italy, and having invested heavily in KYC (Know-Your-Customer due diligence and regulation) and anti-m­one­y-l­aun­dering technology," Daniel Stewart said.

If this third option came to pass, Stewart feels that several listed European companies could be strongly positioned to do well, such as Playtech plc, Bwin Interactive, Sportingbet plc, Party Gaming plc, 888 Holdings plc and - on the processing side - the former Neteller operation now branded Neovia.