Uncommon Wisdom : Casino

Profit Like a High Roller from Nevada's Bold New Bet

Tony Sagami — Fri, 08 Mar 2013 17:55:00 GMT

Casinos are increasingly cropping up all over the country, with states like Pennsylvania, New Jersey and Ohio looking to boost their revenues by adding, or providing more, local options for gamers.

To remain far ahead of its potential new competition, Nevada is now placing its bets on a new state law that is designed to shake up the gambling industry across the entire country.

Anytime there are big, disruptive regulatory changes, you should look for a way to profit from them … especially when they open up a new frontier of opportunity like Nevada’s bold new bet that, for many people, is already starting to pay off.

Casino revenues have been on the upswing in Nevada after belt-tightening consumers started coming back to the table. Gaming establishments across the state brought in almost $950 million in the month of December alone — up more than 23% year-over-year.

This made online-gaming stocks a good gamble in the past few months, with familiar Vegas Strip names like Caesars Entertainment Corp. (CZR) and Las Vegas Sands Corp. (LVS) stair-stepping their way higher as a result.

To keep that business intact, Nevada’s latest bet is designed to secure its place as the gaming capital of the world.

Plus, the state aims to open up this lucrative business to millions of people who don’t have to book a flight and hotel to Vegas, Reno or Tahoe — or even get in a car, for that matter — to rendezvous with Lady Luck.

‘The New Frontier’

“This is a historic day for the great state of Nevada. Today I sign into law the framework that will usher in the next frontier of gaming in Nevada,” Nevada Gov. Brian Sandoval said in late February.

That was when the Nevada legislature unanimously approved the legalization of online gaming.

Since then, New Jersey has also authorized Internet wagering, which adds legs to the Nevada initiative.

Sure, online gaming has been around almost as long as the World Wide Web itself. And you probably don’t go a full week without someone sending you an invitation through social media to join them in a game, even if real money isn’t at stake.

What is groundbreaking about this new law is that it makes online gambling not only legal within the state, but it also allows Nevada to negotiate agreements with other states to bring new gamers online.

Yup, gamblers in Maine, Florida, North Dakota ... you name it ... may soon be able to gamble online if their state signs up.

I expect we’ll hear about plenty more states rolling the dice with Nevada, because …

The Online-Gaming Market is Already Booming

According to analysts at Goldman Sachs, the legalization of online gambling in the U.S. could be worth about $12 billion. Morgan Stanley estimates that more than 170 million people are already playing simulated casino games on social networks.

Even-more-telling is the stampede of companies filing online-gambling permits with the state of Nevada.

A.G. Burnett, the chairman of the Nevada Gaming Control Board, said that 20 companies —casinos, social networks, equipment manufacturers, and software vendors — have applied for online-gambling licenses.

You can bet that even more companies are going to jump on board. More importantly, somebody is going to make a mountain of money from online gambling.

That “somebody” can be you!

First, the big Las Vegas casinos are going to benefit from — not be harmed by —online gambling. The reason is that the Nevada Gaming Commission will likely require the online casino entities to license “‘virtual tables” from existing casinos.

That’s extra revenue with very little investment or work.

More importantly, online gaming is going to expand the size of the pie. This is set to be a long-term positive for all the big Las Vegas casinos like Wynn Resorts (WYNN), Harrah’s (which is in the Caesars family) and Las Vegas Sands.

However, the biggest winners won’t be the old, established Las Vegas casinos, but the new, nimble, Internet-based casino operators.

Here are some of the companies that could make a mountain of money from legalized online gambling.

First Movers:

International Game Technology (IGT)

Bally Technologies (BYI)

SHFL Entertainment (SHFL)

Bally, IGT and SHFL (formerly Shuffle Master) have already received licenses from the Nevada Gaming Commission to operate online gambling in Nevada.

Plus, IGT bought online game developer DoubleDown Interactive in January 2012, and just might have the best online platforms because of it.

IGT has jumped more than 11% year-to-date.

2 Sleepers:

WMS Industries (WMS) has a library of online slot machines. However, it just signed a licensing agreement with Sky Betting & Gaming, the online betting and gaming division of BSkyB Group (a UK television company). Its SkyVegas.com site is one of the most-popular online gambling sites in the world outside of the U.S.

Melco Crown Entertainment (MPEL) is one of the largest casinos in Macau (which is extremely profitable by the way) and has paired up with the very popular “Poker Stars” television series and will open a live poker room in the City of Dreams casino in Macau. Extending that relationship to an online venture in the U.S. would not be a big stretch.

MPEL is up nearly 12% year-to-date.

2 Potential Home Runs:

The law was just passed, so it will take time to see who actually comes out on top. But two companies that I think stand to gain the most are Zynga and Glu Mobile.
Zynga Inc (ZNGA) is the biggest maker of online social games, which are mainly accessed through Facebook. In 2012, Zynga signed a joint-venture deal with Bwin.Party Digital Entertainment to offer real-money gambling in the U.K.

Zynga has already applied for a license with the Nevada Gaming Commission. But it could take 12 to 18 months before it can offer online gambling in the U.S.

In fact, I wouldn’t be surprised if one of the old Las Vegas casinos bought Zynga, which has lost 80% of its value and only has a $2.7 billion market capitalization.

Glu Mobile (GLUU) is a company that most investors have never heard of, but it creates and sells online games for mobile phones.

Glu is one of the biggest names in the mobile-gaming space, and I expect that mobile gambling will ultimately be much-bigger than online gambling accessed by a personal computer.

Why do I say that? According to AppShopper.com, four out of the top 10, and eight out of the top 25, selling iPad games are casino/poker games. For iPhones, there are seven casino/poker games in the top 75 selling apps.

If you’re more of an ETF investor ...

BJK is trading just below its 52-week high and is up nearly 5% year-to-date.

You should also take a look at Market Vectors Gaming ETF (BJK), which is the only gambling ETF available. It is heavily weighted toward Asian casinos with big positions in overseas companies like Sands China, Galaxy Entertainment, Genting Berhad and SJM Holdings.

It also has substantial positions in Las Vegas Sands, Wynn and MGM Resorts International (MGM).

I’m not suggesting that you rush out and buy any of these stocks tomorrow morning. As always, timing is everything so I suggest you wait for my signal in The Asian Century.

However, make no mistake about it: Online gambling is here and it will be a hugely profitable industry. Invest in the right companies, and you can easily hit the jackpot.

Best wishes,

Tony

How To Get Exposure To Asia's Booming Casino Market

Tony Sagami — Fri, 24 Jun 2011 15:42:00 GMT

What amazes you the most about Las Vegas?

The over-the-top casino buildings, like the Bellagio with its choreographed water fountain show or Paris with its Eiffel Tower reproduction?

The jaw-dropping shows of Cirque du Soleil and the Blue Man Group or the concerts from Elton John or Celine Dion?

The world-class restaurants run by celebrity chefs like Wolfgang Puck, Emeril Lagasse, Bobby Flay, and Joel Rubuchon?

Or maybe you just enjoy the thrill of gambling.

Whatever your reason, Las Vegas has become one of the most popular tourist destinations in the world. But it's getting out-Vegased by its Asian casino competitors.

Singapore casinos pulled in $5.1 billion in revenues in 2010, putting it a little behind Las Vegas' $5.8 billion and way behind the $23 billion that Macau pulled in, according to the American Gaming Association.

Making Moolah
In Macau

Macau, the only city in China that offers legalized gambling, saw visitors increase by 10.7% to 2.34 million in April from the same period of 2010, according to China's Statistics and Census Service.

In the first four months of 2011, 8.77 million tourists went to Macau, a 6.6% year-on-year increase. Macau is on pace to hit 26.6 million tourists this year. You can `bet' that most of them will do a little (or a lot) of gambling.

I've seen that crush of Macau tourists firsthand. When I arrived at the Hong Kong Port to catch a high-speed ferry to Macau, I was stopped in my tracks by a huge line! Even though they had high-speed ferries leaving every 15 minutes, I ended up waiting for two hours!

The 50-minute boat ride was spectacular ... dozens of sampans filled with Chinese fisherman in traditional coolie hats ... freighters with cargo containers stacked to the sky ... a dense urban jungle of huge condominium towers, many still under construction, hugging the Hong Kong shoreline.

Upon arriving in Macau, I was greeted by yet another ugly picture — more lines! Twisting snakes of people were waiting to clear customs. Heck, I've seen shorter queues at Disney World's most popular rides.

Macau's crushing popularity is because it is within a five-hour flight of 3 billion people or nearly half the world's population. To put this into perspective, Las Vegas is the same distance from only 450 million people!

Macau, by the way, has already seen its gambling revenues jump by another 40% so far this year.

Move Over Sin City
Here Comes Singapore

Singapore is getting its share of gambling tourists too. Singapore is on track to pass Las Vegas this year. Singapore's gambling industry is set to rake in $6.4 billion, which will edge out the $6.2 billion Las Vegas is expected to deliver. Yup, our own Sin City is moving to third place.

Lastly, you better believe that other Asian governments are looking at the huge tax revenues that Singapore and Macau are raking in and wishing they had their own casino sugar daddy.

The attraction is simple: Casinos bring in tourists. 11.6 million tourists passed through Singapore immigration in 2010, a 20% increase over the previous year. All those tourists spend a lot of money at Singapore shops, restaurants, and hotels.

Japan, Taiwan, Vietnam, Korea, and Spain are considering legalized gambling and may pass legislation sometime in the next 18-36 months. Las Vegas Sands is talking to all of those countries.

"We are going to develop in Europe, we are still going to develop in Asia; Asia is our first preference," said Las Vegas Sands founder Sheldon Adelson.

Clearly, the crème of the gambling crop has crossed the Pacific Ocean from Nevada to Asia.

If you wanted to include some gambling stocks in your portfolio, there are several ways for you get exposure to the booming casino business in Asia:

Las Vegas Sands (LVS) owns the luxurious Venetian hotel in Vegas as well as a stake in the Macau Venetian and the Marina Bay Sands casino complex in Singapore. Marina Bay Sands is a $5.5 billion resort project with a 15,000-square-meter casino, a stunning three-tower hotel with 2,500 rooms, restaurants, nightclubs, shopping, as well as one of the largest convention centers in Asia.

Steve Wynn (WYNN) is one of the most recognizable names in Las Vegas with the success of Wynn Las Vegas and the Encore at the Wynn. The Wynn Macau is his newest and perhaps most profitable casino yet. Wynn Macau is available on the Hong Kong Stock Exchange (1128.HK) or the U.S. over-the-counter pink sheets (WYNMF.PK).

MGM Resorts (MGM) is the only Macau casino that I've visited that wasn't packed with gamblers but it is also building several hotels in mainland China.

Melco Crown Entertainment (MPEL) is a casino that very few Americans have ever heard of but it owns several Macau casinos and its stock is traded right here in the U.S.

Genting Berhad (GEBHF.PK or 3182.KL), the parent company of Genting Singapore, is the third largest casino company in Asia and reported a 57% increase in revenues and a 300% increase in profits for the first quarter of 2010. Genting operates the ONLY casino in Malaysia as well as the Casino at Resorts World Sentosa in Singapore.

Genting Singapore (G13.SI or GIGNY.PK) operates the Casino at Resorts World Sentosa, a $4.5 billion entertainment complex that includes a 15,000 square meter casino, six hotels, conference center, retail shops, entertainment facilities, restaurants, as well as a Universal Studios theme park.

SJM Holdings (0880.HK or SJMHF.PK), owned by Chinese billionaire Stanley Ho, used to own a monopoly on the Macau casino business and despite the arrival of American competitors, is still doing a thriving gambling business with its dedicated clientele.

If you are more of an exchange traded fund investor and happy with broad exposure to the entire gaming sector, you should take a look at Market Vectors Gaming ETF (BJK).

This ETF includes many of the above casinos as well as U.S.-only casinos, like Boyd Gaming (BYD) and Pinnacle Entertainment (PNK), as well as companies that provide gaming equipment to casinos like Shuffle Master (SHFL) and slot machine-maker International Gaming Technology (IGT).

I'm not suggesting that you rush out and buy any of these casino stocks tomorrow morning. As you know, timing is everything when it comes to investing, so you should always wait for stocks to go on sale before jumping in or wait for my buy signal in Asia Stock Alert.

As always, you need to do your homework and decide whether any of the securities I talked about in this column are appropriate for your personal situation and financial goals.

Best wishes,

Tony