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Global Reach

Online gaming brings entirely new elements to worldwide gaming business

Global Reach

A lot has been made of the slow start of online gaming in the U.S.

Less discussed, but perhaps a more important phenomenon, the launch of interactive gaming illustrates the globalization of the gaming industry as companies previously little known to investors, like 888 and bwin.party, are now integral.

This is a sharp contrast from just a few years ago, when American investors focused almost exclusively on U.S. companies.

The changes have been driven by three developments:

• Businesses spreading across national boundaries, both online and among brick-and-mortar companies like Melco Crown and Genting.

• European and Asian companies becoming more investor-friendly, including more detailed and frequent financial reporting, readily accessible investor relations departments, and investor conference calls.

• The internet, which eliminates delays in getting actionable information.

A few years ago, a column on international investing opportunities could focus on a relatively few companies, few of which had operations or customers in the U.S.

Now, the number of international players is too long for a single column. And there are more of them every day. As recently as last fall, GameAccount was an obscure, privately held British online software company. Today, it’s publicly traded in London and has signed a major deal for a free-play casino with Foxwoods that mimics real-money casinos.

A few years ago, only a few internet investors had ever heard of Playtech. Today, the London-listed online software and platform provider is becoming a household word.

Betfair not only was unknown to Americans; they didn’t know about its core business—exchange wagering.

Today, Betfair is an American presence with its account wagering arm, TVG, and ownership of Hollywood Park racetrack in California.

The list of publicly traded international companies with American operations goes on—Aristocrat, Ainsworth, Konami, GTECH, Genting Malaysia, William Hill, Intralot and Amaya, among them.

And, of course, there are American companies with increasing international presence such as IGT, Bally, Scientific Games, Wynn, Las Vegas Sands, MGM Resorts and Caesars.

Not long ago, a move by the British government to restrict slot-like machines in betting shops would have been of interest to hardly anyone outside the U.K.

Today, it is important to investors in Scientific Games, which supplies many of the machines, and to bookmakers such as William Hill, Ladbrokes and Paddy Power, who get so much of their revenue from the games.

Nor do the investment opportunities stop at foreign companies with U.S. operations or American companies gone international.

There’s a whole world—literally and figuratively—of opportunity in businesses that do not touch America in any way.

And, they are listed on stock exchanges with high regulatory standards, such as Sweden (Net Entertainment, Cherry), Australia (Crown Resorts, Echo Entertainment, TabCorp, Tatts), Hong Kong (Paradise Entertainment, Galaxy Entertainment, SJM, NagaCorp), Tokyo (Universal Entertainment, SegaSammy) and South Korea.

Even countries like the Philippines are moving into the mainstream, thanks to the opening of mega-resorts near Manila.

So, where does all of this proliferation and convergence leave investors?

With lots of choices, for one. But here are some quick thoughts on specific companies.

• 888. With its alliance with Caesars, its own All American Poker Network and its relatively small base, London-listed 888 could be a mover.

• bwin.party is big, but hasn’t been dynamic since the merger of bwin and PartyGaming. The arrival of Jason Ader as an activist investor might mean a big change.

• William Hill is the most internationally ambitious and diversified of the British bookmakers that have been transformed into online moneymakers.

• Betfair, like William Hill, is internationally very ambitious, and it has its own niche in exchange wagering.

• Playtech provides the software and platforms that much of the world needs.

• Net Entertainment. The Stockholm-listed company is expanding rapidly in the U.K.

• SportTech. Most Americans have never heard of the London-listed company, but that will change if Connecticut allows slots at OTBs, which SPO runs.

• Melco Crown is the easiest international casino operator to follow, given that it trades on the New York Stock Exchange and meets U.S. accounting and reporting standards.

MPEL is also the most ambitious of the non-U.S. casino operators. And for a pure play on the Philippines, MPEL has created Melco Crown Philippines, which trades in Manila.

• Paradise Entertainment runs casinos in Macau, but its big potential is in electronic table games through its LT Games division. Paradise has gone from zero to thousands of placements in live table game-capped Macau, and recently opened a bank of machines at Las Vegas Sands’ Palazzo in Las Vegas.

Macquarie analyst Jake Lynch thinks the Hong Kong-listed company can grow earnings more than 400 percent over the next two years.

• NagaCorp has a government-granted, long-term casino monopoly in low-taxed Phnom Penh, Cambodia, where it operates NagaWorld casino resort, which is undergoing a major expansion.

Hong Kong-listed NagaCorp also is expanding while staying debt-free, and paying a hefty dividend.

And, for those who think the company sounds too remote, NagaCorp Chairman Timothy McNally is a retired FBI agent.

• Genting is the biggest company few Americans heard of until several years ago. Its Genting Malaysia is Britain’s largest gaming company. Its Resorts World at Aqueduct raceway in New York is America’s biggest slots casino. And it is constructing a multibillion-dollar Resorts World in Las Vegas.

Other Genting gaming companies are Genting Singapore and Genting Hong Kong, both with growth projects.

Finally, there are the Hong Kong-listed American subsidiaries of Wynn, Las Vegas Sands and MGM Resorts as pure plays on Macau.

So, there you go. A lot of names for starters.

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