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How Long Will Online Gambling Be a Bad Bet?

Owners of gaming stocks are still several years away from cashing in on online poker

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How Long Will Online Gambling Be a Bad Bet?

If you happened to step into gaming stocks like Zynga (ZNGA), Caesars Entertainment (CZR) or Boyd Gaming (BYD) in 2013 after a handful of states finally legalized online poker — a couple of years after the U.S. government finally lifted its ban on Internet-based poker (played for real money) — the past year or so has been surprisingly disappointing.

Although a small number of states — three so far, to be precise — have legalized online gambling via sites like PokerStars or Full Tilt, the online poker industry has fallen alarmingly short of initial revenue expectations.

Indeed, the tepid response to online gambling thus far is leaving some investors to wonder when, or even if, gaming stocks will ever benefit from digital betting.

If you’re one of those investors, you might not want to hold your breath.

State of the Online Gambling Market

While online gambling may be legal in Nevada, Delaware and New Jersey, that doesn’t mean it’s popular. Nevada’s Internet poker tables aren’t even driving $1 million in monthly revenue yet. Delaware has yet to see a six-figure revenue total in any month since launching online poker in November, although other online gambling options for Delaware have pushed the state’s Internet casino revenue up to near the quarter-million dollar mark as of April. New Jersey has found the most success so far, but even its success has been muted at about $10 million per month in online gambling revenue, as of March.

It’s not the billions that onlookers were expecting for their gaming stocks before online poker became legal. But there is a game-changer on the horizon.

Last week, Canadian gaming equipment maker Amaya Gaming (AMYGF) agreed to buy PokerStars Inc. and its Full Tilt division to the tune of $4.9 billion. The union of Amaya and PokerStars doesn’t create anything magical, but it removes the reason PokerStars has thus far been unable to break into the U.S. online gambling market: owner Isai Scheinberg.

In 2006, the U.S. government finally took a definitive stance against online gambling by enacting the Unlawful Internet Gambling Enforcement Act. By that time, PokerStars had already developed some serious U.S. market share, and even after it became technically illegal, PokerStars continued to operate in the U.S. Although the Department of Justice has since undone the ban, the company still had to settle on money-laundering charges under Scheinberg, and the owner still is the subject of semi-related indictments, and PokerStars won’t likely be granted a gaming license as long as it’s linked to Scheinberg.

With Scheinberg out of the picture, some say PokerStars will be able to leverage its good global name and quickly develop the U.S. market.

Don’t Hold Your Breath, Though

While the introduction of PokerStars and Full Tilt could arguably accelerate the entire online gambling movement in the United States, owners of gaming stocks with a chip in the game might want to prepare for a long wait to see a payday.

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Article printed from InvestorPlace Media,

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