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Gambling Company Stocks: A Good Bet?

Right now I am working in the manufacturing industry but my educational background is corporate. I went to business school to pursue a degree in advertising, but there are not a lot of jobs open in that field right now. Nonetheless, I have retained my knowledge and know a fair deal about how various types of industry work. In the financial world I have always been fascinated by the stock market. It seems cool that you can buy a piece of a company and watch the investment grow or shrink with the market.

When you look at it, you don't really have a direct say in the performance of the company that you invest in and it really is kind of like some sort of casino gambling game. The key difference in my opinion is that you get to hold on to the equity in the company even if your stock crashes and you are reduced to peanuts on an initial investment, versus walking away with nothing when your slot machine gobbles up all your nickels. Of course the shiny lights and thrills are absent from stock ownership and you won't get the thrill of cool noises clinging around when your stock earns big either. But what if we could mix the two directly in a way, and is it a good idea to invest in gambling as a business?

Welcome to the world of Gaming Industry stocks.

Coming from the United States, there are several gaming companies that you can invest in. One of the biggest of these companies is Gaming Partners International. This company is a big designer of slot machines. Chances are that if you have walked into a land based casino, you have seen their slots. They also market home versions of their games which you see in many retailers such as Target or Best Buy. Another big company is Shufflemaster. They are the company that controls the shuffling machines at many tables you play. They also have video versions of blackjack tables that take away the actual dealer play...among other games and features. If you are looking to invest in the actual companies who have resorts, you can invest in MGM or Isle of Capri Casinos.

Now we know that there are a lot of choices for you to invest in, we need to ask ourselves: Is investing in gambling companies a good bet? It really is cool to to own a piece of the company that is a part of your hobby, but does it make financial sense for you? This makes things a little murkier and you need to not let your passion for the games get in the way of your dollars and cents. In general the United States' economy is sucking worse than a Hoover vacuum right now. People do not have the general amount of money they once had to finance trips or go out and spend as much on leisure. This has hurt the industry and slowed growth for many land based operators. For example, on the casinolistings main page today you will see a news story showing that Atlantic City's revenue was down 9% for May compared to one year ago. This does not hold well, and appears that the land based industry is tied closely to the overall economy. But what about online gambling companies?

Some people are optimistic that online gambling is due to be legalized in the States. I myself have my doubts but hope this does come true. Opening up a huge market to a new industry would be a big boon to everybody involved. Land based casinos would have the opportunity to put their games online and people who could not afford a trip to Atlantic City could perhaps afford a "night out" on the computer and gamble online. More importantly for these established companies, legalized U.S. gambling would become a big income boost for them. Other companies would perhaps jump to online too and boost revenues, making them a worthwhile investment should the day of legalized gambling come to America.

So, what is my overall take on this? I think that right now mixing your hobby with stock ownership is not necessarily a good idea, however if we are near the bottom of a market and online gambling does indeed become legal in the States, it may be a good time to invest, as you would be likely to see a big jump in the value of your stock. Just don't expect to hear and bells and whistles clinging if and when your stock makes you wealthy.

*NOTE: I am NOT a stockbroker, and I do not own any stock in any of these companies. Everything I said in this blog is strictly my opinion and may very well be wrong. Do your own homework and follow my wife's apparent strategy: Don't listen to me.

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auCL-Ed
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12 June 2011 - 11:41pm
#1

I actually follow some gambling stocks and I can tell you one thing I have learned over the years and it is best expressed by Warren Buffet - "be afraid when people are greedy and be greedy when people are afraid". In other words, the best time to buy is usually when everyone else is selling.

In terms of land-based gaming companies, the way I see it is the ones that will do well going forward are those with significant exposure to Asia, and the ones that complement this with an online presence. Despite the U.S. industry suffering in places like Vegas and Atlantic City for the last 2 or 3 years, a company like Wynn which has a resort in Macau is close to its all time highest value - from over $160 in 2007, it went all the way down to $15 in 2009, and now its back up to near $150 in recent weeks. Compare that to MGM though (also in Macau) which at 2007 highs of $96 are now trading for $12 or so. Shufflemaster, LV Sands and others all have similar stories. Clearly this is a volatile industry so you need to be careful!

I see a lot of upside for online gambling stocks. The obvious elephant in the room is the United States. Get in early, and pick the right companies and you could do very well if/when online gambling is regulated in the USA. eg 32 Red - £170 a share pre-UIGEA, £26 now - and this is one of the best online casinos in the world today. One thing to look out for is if the values of stocks like 32 Red, Bwin.Party, Playtech etc start rising quickly for no apparent reason. That could well be the tip that U.S. regulation is on the cards.

One of the best decisions I ever made was not to buy shares in Cryptologic a few years ago. They were going great guns, a share was worth about $30 in 2007, and investment newsletters like the Motley Fool were telling everyone to buy. Then the UIGEA was snuck in, and a succession of bad management decisions has left it where it sits today - under $2 a share. The counterintuitive thing is I am probably closer to buying in today than I was when they were flying high. I know their casinos are good (Intercasino and VIP casino), they license their games to a lot of other casinos now, and the online industry itself is probably at a rock bottom in the USA. In short there's a lot of upside - providing they sort out their management issues.

I was considering adding a page that lists some gaming stocks and their values. What do you think, would you guys be interested in it?

* Same disclosure ... I studied finance at university but I am not a professional stock broker or adviser, its all my opinion, don't base your investment decisions on what I say, and don't blame me if you lose money. At the same time I decided not to invest in Cryptologic, I did decide to invest in an Irish bank and we all know how that turned out. But feel free to come and tell me if you make some!

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usbarbadosslim93
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12 June 2011 - 11:47pm
#2

Ed, that would be sweet if you would add a stock page. I know I wouldn't have known a lot of those companies were out there if it were not for other websites. It would also be a great way to tie in the news to the stocks too... I do see the companies in your news section a lot.

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