Monday, May 24, 2010
Last Wednesday, the House Committee on Ways & Means held a hearing to reverse the ban on online poker in the U.S.
The basis of the discussion was the potential tax benefits if online poker becomes legal again. Said another way, the government is desperate for cash right now.
George W. Bush banned online poker in September 2006, signing into law the Unlawful Internet Gambling Enforcement Act. The law prohibited poker players from depositing money with online poker sites through U.S. banks.
According to Poker Players Research, over 23 million Americans were playing online poker in 2006. After the Unlawful Internet Gambling Enforcement Act, the market cratered.
Poker sites across the U.S. shut down. Party Poker – the largest online poker site in the world – said it would suspend gaming with U.S. customers. Its stock price (on the London Stock Exchange) fell 60%. Other poker sites like Pacific Poker and 888.com also closed their U.S. operations.
Today, our government is looking for ways to increase revenue. Our budget deficit is over $1.4 trillion. That's the highest amount in our country's history. The White House predicts this number will hit $1.5 trillion by yearend.
One way the government can increase revenue is to legalize online poker.
According to research firm Safe and Secure Internet Gambling Initiative, online poker is a $100 billion industry. I believe the market could double if the law is changed – as more people opt to gamble from the comfort of their homes.
At the hearing on Wednesday, one representative suggested online gaming regulation could bring in more than $70 billion in tax revenue over the next 10 years. Also, poker is already legally played in card rooms in about one-third of U.S. states.
Based on this data, I think the legalization of online gambling is a no-brainer. After all, there's little difference (in terms of tax dollars) between playing poker at the Bellagio Casino in Las Vegas or on your computer at home.
Two stocks that will benefit if online poker is legalized are Cryptologic (CRYP) and GigaMedia (GIGM). Both are trading below $3 a share.
Cryptologic is a leading provider of online poker software. It currently licenses its technology to PartyGaming (Party Poker) and 888.com. These companies operate online poker sites outside the U.S.
GigaMedia also provides gaming software to the online poker industry. It operates in China and Europe. However, management is making a major push into the U.S. markets. In fact, the CEO said it's in position to receive the first licenses if online poker is legalized in the U.S. (My Penny Stock Specialist readers are familiar with this stock... The giant market decline stopped us out earlier this month. But I still think the company will go higher.)
Over the past few weeks, these companies sold off with the rest of the markets. With the next online poker hearing scheduled for July, these stocks should be on your radar. They're on mine.
Dead-cat bounce... after a sickening one-month, 10% drop, euro bounces 4% from its Wednesday bottom.
Dell drops more than 5% on disappointing quarterly results... shares down over 22% in one month.
Volatility Index peaks over 48 on Friday before dropping back to 40... up 150% from bottom last month.