At Current Low, WPT Enterprises Still Not Worth a Gamble

World Poker Tour Enterprises (WPTE) produces the "World Poker Tour" and "Professional Poker Tour" shows which air on the Travel Channel. The company also licenses the World Poker Tour brand for various consumer products and operates an online gambling site. After reaching a high of over 25 dollars in the summer of 2005 (after a bizarre Doyle Brunson-led bid for the company that quickly disappeared), the stock has plummeted to its current price of less than 4 dollars per share. At last, WPTE shares may be worthy of a look, if not a buy.

According to the latest 10-Q , the company has 38 million dollars in cash and investments, compared with total liabilities of just over 6 million. With a market cap of 77 million, that means that 42% of the market cap was backed up by net current assets. The non-cash backed (minus liabilities) market cap of the company is just 45 million dollars. So the question becomes "Is the World Poker Tour business worth 45 million dollars?"

WPTE was one of the only poker-related stocks not to get crushed after congress passed a ban on online gambling, mainly because its site prohibits bets from US customers. But will the World Poker Tour be affected by the ban, at least indirectly? Of course it will. If no one is allowed to play online poker anymore, interest in the WPT television shows will certainly wane. And with the show currently without a network for the next season, this may spell trouble.

According to CEO Steven Lipscomb at a presentation to investors on September 6th :

"We've been out in the market talking to folks right now, and it's a difficult market...what's happened is a lot of the online sites are buying time on television and that makes it difficult when you are going out saying 'Here's how much we'd like you pay us' and they say 'well we've got people paying us.' We haven't found a new partner for it yet."

With the television show in limbo and at the very least facing considerably lower profitability, I would pass on WPTE shares for the moment. The company had announced that it was exploring strategic alternatives, but terminated the search on September 5th, presumably because there were no takers. But I will continue to keep an eye on the stock because it's a well-known brand and if it slips closer to its net current asset value, it may be worth a gamble.

WPTE 1-yr Chart

Comment on this article

Comments

[mlangner]

A couple of questions:

1. You state: <i>But will the World Poker Tour be affected by the ban, at least indirectly? Of course it will. If no one is allowed to play online poker anymore, interest in the WPT television shows will certainly wane.</i> Is this opinion or fact? If fact (which it appears given your use of the declarative) what is your source for making this assertion and to what degree should we expect it to wane? If its opinion - why do you hold this opinion, is there research that shows on-line gaming has been a driver of television ratings, or are you just guessing? I guess I don't understand the linkage between on-line poker on TV watching - or if there even is one - obviously there are other places to play poker, and one would assume that a certain number of users would watch it for the entertainment factor... is on-line poker playing a big driver of TV watching?

2. Your comment about the potential profitability of the television show seems inconsistent with the new legal realities and your argument that WPT will suffer from the loss of on-line gambling watchers... The quote from Lipscomb that you boxed is from Sept. 6 which is pre-ban. One would assume that post ban the on-line companies that have been buying TV time to put their poker programming on US TV will stop, as will their sponsorship of U.S. based poker tourneys - as they would be advertising to customers that can't play so what's the point. That would leave less competition for WPT's programming both from a distribution standpoint (assuming that poker can draw more of an audience than other programming choices for the broadcasters or at the very least kick a negotiating leg out from under the broadcasters when they are renegotiating the next season of World Poker Tour) and from a product development standpoint... But you can't really say the programming will suffer from lost viewers due to the lack of on-line gambling at the same time that you argue that on-line gambling companies buying up TV time will impact the value of WPTE programming... so which is it? I suppose you could argue that the program will be less valuable becuase no on-line gamblers means less viewership - but then that goes back to the first question of what is the empirical evidence that viewership is tied to the number of on-line gamblers...