Company Press Release
Is Internet Gambling the Next Internet Explosion?
Bear Stearns unveils a comprehensive report on what could be the next big investment opportunity on the Internet
NEW YORK--(BUSINESS WIRE)--Jan. 12, 2000--Fueled by the combination of two hot industries, Internet and Gaming, E-Gaming is on the verge of exploding, according to an extensive report developed by Bear Stearns senior managing director and gaming analyst, Jason Ader. In just the past few years, the number of e-gaming sites has climbed to more than 650 and continues to grow every day. However, according to the report, this rapid growth is not without question marks. Legal quandaries exist which have the potential to either fuel or doom industry growth. ``It is currently unclear whether this is an opportunity for investors to see their money skyrocket or a legal quagmire that will choke profits,'' says Ader.
Incredible Growth
Not only are gaming sites growing beyond the approximately 650 sites that exist today, but profits are also climbing. Expected revenues in 1999 totaled $1.2 billion and could grow to more than $3 billion in 2002. One casino company, based in the Cook Islands and mentioned in the report, claims to have earned more than $4 million in its first four days on line. ``It is clear the dynamics are there for this industry to succeed. People are spending more time on line, they are becoming more comfortable with e-commerce and they love games of chance,'' says Ader. ``Just look at the recent success of TV shows like Who Wants to be a Millionaire and Greed. It is clear games of chance with the potential for big payoffs attract a huge audience.''
Innovation is not lacking on the Web, either; among the e-gaming sites that have been established are ones that let consumers play traditional casino games and Bingo as well as bet on horse racing and other sporting events, and, in some instances, play the lottery. Some casino sites are fronted by celebrity pitchmen, like KennyRogersCasino.com. Others are even billing themselves as gaming and social experiences, like TheSinglesCasino.com. E-gaming sites are also becoming more mainstream on the Internet. Iwon.com, a division of CBS Broadcasting, gives away $10,000 a day, a million dollars a month and 10 million dollars a year, to people using its search engine. ``E-gaming has the potential to be everywhere on the web,'' says Ader. ``It is not unrealistic to believe that someday when you buy a CD on line you will also get a chance to spin a roulette wheel for extra discounts.''
Legal Questions
Despite the growing number of sites on line and the money being spent and earned, there is a major problem when evaluating e-gaming companies, according to the Bear Stearns analyst. The legality of e-gaming in the United States is unclear. Different states have different rules and the regulatory bills that have gone before congress have stalled. As a result of the uncertainty, many e-gaming companies have located their operations outside the US, in countries such as Antigua, Australia and Sweden. Foreign soil has been much more welcoming to online gaming companies. Thanks to the borderless world of the Internet, it is extremely difficult to keep those companies from serving customers in the US. ``Whatever congress decides,'' says Ader, ``they will want to do it quickly because of the rapid expansion in the popularity of these sites.''
Consumer Confidence
Consumer confidence is another factor which must be considered when evaluating the potential for the e-gaming industry. While users are feeling more and more comfortable with e-commerce, gambling on line is another story. ``Some people are a bit skeptical betting on cards and slots that they cannot feel and touch,'' says Ader. As a result the Bear Stearns analyst believes companies must do everything they can to establish their authenticity. To that end, some companies have formed alliances to self-regulate the industry. ``Ultimately, trust will play a large role in whether these companies are successful, so they would be well advised to make sure security is tight and that they are offering fair and reliable odds,'' says Marc Falcone, a Bear Stearns vice president and gaming analyst who worked on the report.
Consumers are not the only ones who are skeptical of participating in on line gaming. Credit card companies are also hesitant to become involved thanks in part to incidents like the one in which a California man refused to pay $70,000 in gambling debts he incurred on his MasterCard. The man cited ``bettor's remorse'' in court and was actually cleared of paying the charges.
Companies to Watch
Despite the question marks that face e-gaming companies, the potential of Internet Gambling is hard for investors to ignore. Several companies have put themselves in position to weather any regulation or consumer confidence issues and still profit from on line gaming. The report mentions many of these companies, including Online Gaming Systems (OTC BB: OGAM), Cryptologic (CRY.TSE), American Wagering (NASDAQ: BETM - news), YouBet.com (NASDAQ: UBET - news), eLottery (NASDAQ: ELOT - news)--a subsidiary of Executone (NASDAQ NM: ELOT - news), Starnet Communications International (OTC BB:SNMM) and UWin! -- a subsidiary of GTECH (NYSE:GTK - news).
As for traditional ``bricks and mortar'' casinos, Ader does not believe the emergence of on line gaming will detract from their profits. ``It is hard to duplicate the incredible atmosphere you find at many of the traditional casinos,'' says Ader. In addition, the Bear Stearns analyst believes that most ``bricks and mortar'' casinos will develop their own on line sites designed to entice people to visit their facilities.
To obtain a copy of the report, ``E-Gaming--Endangered Species or Rising Star,'' or to speak with Jason Ader, please contact:
Christina Conde Russell Sherman Bear Stearns Bear Stearns 212-272-4320 212-272-5219
Jason Ader is a senior managing director responsible for equity research coverage of the Gaming, Lodging and Leisure industries. His division covers a universe of over 100 public companies. According to Institutional Investor, Mr. Ader is the only leading analyst to be ranked in both gaming and lodging and has been a member of that publication's ``All-America Research Team'' for the past five years. In 1999, Mr. Ader was named one of New York City's ``Forty Under Forty'' by Crain's New York Business Magazine.
Founded in 1923, Bear, Stearns & Co. Inc. is a leading worldwide investment banking and securities trading and brokerage firm, and the major subsidiary of The Bear Stearns Companies Inc. (NYSE:BSC - news). With approximately $21.4 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales and trading, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services. Through Bear, Stearns Securities Corp., it offers professional and correspondent clearing, including securities lending. Headquartered in New York City, the company has over 10,000 employees located in domestic offices in Atlanta, Boston, Chicago, Dallas, Los Angeles, Puerto Rico and San Francisco; and an international presence in Beijing, Buenos Aires, Dublin, Hong Kong, London, Lugano, Sao Paulo, Shanghai, Singapore and Tokyo. For additional information about Bear Stearns, please visit our Web site at http://www.bearstearns.com.
Any recommendation contained in this report may not be suitable for all investors. Moreover, although the information contained herein has been obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. Bear Stearns may make markets and effect transactions, including transactions contrary to any recommendations herein, or have positions in the securities mentioned herein (or options with respect thereto) and may also have performed investment banking services for the issuers of such securities. In addition, employees of Bear Stearns may have positions and effect transactions in the securities or options of the issuers mentioned herein and may serve as directors of such issuers. Copyright (c) 1999. All rights reserved by Bear, Stearns & Co. Inc.