Tuesday, January 02, 2007

A recovery in the online gaming economy act is gaining traction, according
to several reports. The passage of the Unlawful Internet Gambling
Enforcement Act by the US left a swath of economic misery in its wake, but
efforts by the major players in the industry to refocus their energies on
Europe and Asia are starting to pay dividends. Both Sportingbet.com and
Partygaming.com reported stronger than expected earnings last week, as
increasing numbers of players from the European and Asian markets offset the
loss of the enormous American market. Partygaming.com reported an increase
in daily poker revenue from $637,000 in October to $721,000 in November.
Overall daily revenue in November, excluding the sportsbook, averaged
$921,000. Sportingbet.com reported an increase in traffic from 6,000 players
per day to about 7,000 according to Gamingpublic.com, an industry trade
paper. Banking giant UBS responded by upgrading its stock evaluation from
reduce to neutral. Harrah's has agreed to a $27.8bn buyout, according to a
company press release. The largest gambling conglomerate in the world is
being taken private by a group of investors led by the Texas Pacific group,
in one of the largest leveraged buyouts in history. Harrah's began as a
bingo parlor in Reno in 1937, and became the first Casino operator to be
listed on the NYSE back in 1973. This comes on the heels of Murdoch's
BskyB's
takeover of 365 Media, which itself had just gobbled up longtime competitor
Bowman's. It also follows the announcement a strategic partnership between
the Sands and Cantor Gaming, and the confirmation by El Reg of ongoing
merger talks between Ladbrokes and 888 Plc. The collapse of the sector after
the passage of the UIGEA has provided both the opportunity for
consolidation- i.e., ridiculously low stock valuations relative to the cash
generated by the sector- as well as the impetus to get big enough to weather
any adverse legal developments in jurisdictions such as Germany, France or
South Africa where internet gaming remains controversial. It's easy to
imagine the online gaming sector going through same growing pains that beset
the search portal industry in the late '90's- too many competitors in a
field likely to be dominated in the long term by a few major brands.
Ironically, major American players like The Sands or MGM Mirage, with strong
brands and cash to invest, are well positioned to pick up the pieces of a
fragmented, weakened market.