Monday, January 26, 2009

Gambling With State Budgets

As an online poker guy, I am liking the sound of this article this morning. on Yahoo! News.

It seems that several states in the U.S., many of which are facing significant budget shortfalls, are increasingly turning to state-sponsored gambling as a way of making up some of those lost revenues in these increasingly tough times. This works for me in two ways.

One, I have been an investor in a few gambling-related stocks for several years now, due to my belief that the industry as a whole is a growth story, one which is likely to outlast any secular trends in the economy, the baby boomers, you name it. I just see gambling as an industry, as an activity, that is on the rise overall in this country and around the world, and as such I made the decision years ago to invest some money in stocks which play directly in that field. That said, I have tended to avoid the casino operators themselves, because those businesses can suffer more directly from downtrends in the economy, in travel, and in other sectors like the real estate market, etc. Indeed, most of the casino operator stocks have been utterly crushed over the past year or two, and it's an area I am very glad to have avoided over time.

I have found that a much more lucrative -- and stable -- area to invest in the gaming industry is the casino equipment makers. That is, the companies that make the slot machines, the video poker machines, card shufflers and other hardware used (and purchased) by those casino operators that I prefer not to invest in directly. The casino equipment makers present in my view a nice opportunity to get in to a growing industry that is often thought to be at least somewhat recession-proof, and to do so without having to take on the concurrent exposure to the real estate industry, broader trends in travel and vacationing, etc. that a company like Las Vegas Sands, MGM Mirage, etc. is wide open to. For the most part, the casino equipment companies have been growing, even on into 2008 with the economy doing what it's doing, and although the stocks have all suffered along with the broader market over the past year or so, I have been really glad to have some money in this sector as much of the rest of the sectors in the broader economy have been way down in the dumps as consumers reign in their spending. People are surely gambling less as well than they were a year ago, but the fact is that its not as much less as the dropoff in most of the other things people and companies tend to spend their money on. So today's AP article about states looking to slot machines and video poker as a way of defraying some of their state treasury shortfalls is a big boon to some of the companies I invest in.

The other reason I dig this story is a little less direct -- the effect of this on the online poker industry. Now, there's nothing in that story I linked that even mentions or refers in any way to online poker. But, I can't help but be enthused by a story of a bunch of State Treasurers all thinking at the same time about gambling when it comes to capturing a whole new pool of revenues for their respective local governments. That simply has to be all good to us online poker guys. Because if the states seeing revenue shortfalls are turning to gambling to make up the difference, then it has got to be only a matter of time before someone at the federal level starts figuring out this same thing, if it hasn't begun already. And while allowing gambling or expanding its presence has been left to the local governments of the individual states, the UIGEA and the general prohibition on online games of chance in America is more of a national issue, one that could easily be changed by the federal government, our friends who represent us so well in the House and the Senate, and/or President Obama himself.

Again, to be clear, there isn't even one whit of mention of anything related to online poker yet in the stories I am reading just lately. But the fact that state governments are turning to gambling to help make up budget shortfalls is all goodness to anyone who is into online poker. Ironically, it could end up being the severe global recession that helps turn the tide towards the U.S. considering allow some form of online gambling, agreeing to federal regulation of the industry in exchange for taking a cut of the massive revenues that could flow to the federal government from getting directly involved in permitting such activities in this country.

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Blogger Riggstad said...

Very intersting Hoy. In PA, when the slots were finally allowed, it became very clear who would be making the money.

The casino revenues themselves were beig taxed at around 40% to the state. It was a a really ridiculous number.

In come the applications for the limited number of gaming licenses and the state issued a mandate that no one who would be related to any of the decision makers would be allowed to get a license.

In comes Rendell and says that "x" amount of distributors will be given the ability to distribute the actual slot machines to the casinos. The state I believe set those prices as well. I think it wwas Bally's that won the contract to provide the machines, but PA made it mandatory that Bally's would have to first sell to a distributor.

The casinos would then have to purchase their machines at a set price from those distributors.

I believe Rendell has some relatives that own a distributor-ship. It became very clear that those distributors would be the ones who would make the lionshare of the money out of the gates. Besides the states income from gaming taxes.

And for your viewing pleasure...

If you hadn't heard or read this already...

11:51 PM  
Blogger megan.webmaster said...

if regulating gambling will boost the economy from the taxes it gets then maybe the govt should consider this. after all no one can stop gambling.

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8:48 PM  
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6:29 PM  

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