PokerTek, Inc.--Dealt a Bad Hand? Fold! (PTEK)

| About: PokerTek, Inc. (PTEK)

The World Series of Poker on ESPN, The World Poker Tour on the Travel Channel, Celebrity Poker Showdown on Bravo, Poker Royale on the GSN (formerly the Game Show Network), and the Hollywood Hold'em series which aired on the E! channel—the growth of tournament poker dominated the TV landscape, as seen by an unending stream of programming on these and other TV networks last year.

The American Gaming Association reports that nearly one in five American adults played poker during the last 12 months, a more than 50 percent increase from the previous year. Consumer spending on poker has increased dramatically, too. Additionally, the American Gaming Association reports that in Nevada and New Jersey (the only states that track poker revenue) poker players spent $151.7 million on organized poker in 2004, a 45% increase over 2003.

According to Casino City Press, as of June 2005, there were approximately 3,900 poker tables operating in the United States and close to 2,000 outside the United States. And, According to the Tribal Court Clearinghouse, of the 562 Federally-recognized Native American tribes, 224 were engaged in gaming, operating an aggregate of approximately 1,245 tables in 28 states.

The commercial casino segment of the poker market is the most mature and is almost as large as the tribal casino segment. The American Gaming Association reports that there were 445 casinos operating in the 11 states that offer legalized gaming in 2004. The largest market for commercial casinos was Nevada, which in 2004 had 258 casinos, and New Jersey, which in 2004 had 12 casinos. According to Casino City Press, commercial casinos operate approximately 1,210 poker tables in the United States.

Seeking to cash in on the poker craze, PokerTek, Inc. (PTEK) ($11.00) was formed to develop and market the PokerPro system, an electronic poker table that provides a fully-automated poker-room environment, to tribal casinos, commercial casinos and card clubs. The computer-operated table game allows as many as 10 people to play Texas Hold 'Em. The two-year old Company offered approximately 22% of its equity with a two million share IPO on October 14, 2005, at $11.00 per share.

The gaming technology firm’s shares fell 8 percent, closing at $10.15 per share on its first day of trading.

In our opinion, like the ratings of some of the aforementioned programs, this stock has much further to fall.

The PokerPro system is designed to increase casino revenue and security while helping to reduce the labor costs associated with poker rooms. The Company’s limited testing of the PokerPro system has shown that by eliminating a live dealer, more hands of poker can be played in a given amount of time, thereby increasing revenue generated by the “rake.