Online Poker Now Legal: Who Wins?

Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The first legal online poker room has opened in the United States, and this is excellent news for casinos, but perhaps the biggest winner in all this will be Facebook (NASDAQ: FB).

According to the above CNBC article, Station Casinos recently went live with “ will operate under a 30-day license, said A.G. Burnett, chairman of the Nevada Gaming Control Board, while the site works out "the kinks" before getting a formal license that he said would likely be granted.”

The “kinks” they are working on is identifying the age, identity, and location of the players. These challenges have been dealt with by overseas players and Pokerstars, and should be easily dealt with here.

Why Facebook?

I have been saying for quite a while now that there's the potential for huge amounts of revenue that will stream into Facebook from online gaming/ poker. Why?

  1. They already have bingo and slots on their British site, making it a no brainer that Zuckerberg would be willing to support his efforts to unite the world via gambling.
  2.  People spend more time interacting on Facebook everyday than any other internet site. It would be incredibly easy to look at a friend’s post, “join me in a low stakes mega-table tournament,” and click on the link and do so. Poker, as a social game, would spread like wildfire on Facebook.

The only question is the legislation that will be passed which will allow Facebook to capitalize on its global scope and billion plus users.

Also, it should be noted that Zynga stands to profit immensely from this legislation, and has been preparing for this day for some time.

The markets

As of now online gambling has been declared legal in three states, Nevada, New Jersey, and Delaware, with New Jersey being the largest market of the three estimated to generate between $500 million and $1 billion.

Right now MGM Resorts (NYSE: MGM), which posted a surprise beat of a $0.01 per share profit versus a $0.10 loss expected in their most recent quarter which sent shares surging 7%, is weighing the costs versus potential profit of entering the Nevada online poker market. Both MGM and Boyd Gaming (NYSE: BYD) have partnered with to provide the software and backend, but MGM isn’t sure that Nevada alone is a large enough market to be profitable. 

Why it’s a no brainer

Once Nevada, and New Jersey prove the kinks can be "worked out" (of course they can,) it’s a virtual certainty that California will legalize online gaming in some capacity to gain the additional tax revenue it so sorely needs. Other cash starved states will follow suit, falling like dominoes to the lure of extra revenue.The only problem this poses is that the casinos don’t want a patchwork of various regulations individual to each state, but rather broader Federal laws which would reduce costs and increase liquidity of the poker markets.

Harry Reid and the Senate

Democratic majority leader Harry Reid has been working for years on passing Federal online poker legislation in the Senate. Being from Nevada, it should come as no surprise that Reid wants to make it law that online companies must partner with a land-based casino, like a Boyd Gaming or MGM, a shining example of special interest politics at its best (or worst), which means that Facebook is going to be giving away a portion of their proceeds to someone, another win for the land-based casinos should this get passed. Current state legislation in both Nevada and New Jersey has this clause as well.

The good news for MGM and Boyd Gaming is that they are well diversified geographically throughout the nation, and should a patchwork of legislation require a land-based casino in their state, they are better positioned than their counterparts. Additionally, their name brands bring in an element of trust for gamblers, which is advantageous for all parties. 

End game

It’s not a matter of if, but rather when online poker comes to your state, except for maybe Utah. This will undoubtedly drive growth in Facebook and the casino revenue; the only question is how much, and this will largely be a function of the final legislation. Stay tuned, but don't be surprised to get invited to play poker in the near future while surfing Facebook.

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Margie Nemcick-Cruz owns shares of Facebook. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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