Since word first broke that New Jersey would be voting on an online gaming bill following Chris Christie's initial veto, shares of Caesar's (NASDAQ:CZR) and Zynga (NASDAQ:ZNGA) have skyrocket higher. Boyd Gaming (NYSE:BYD) on the other hand has seen it's share price fall under selling pressure, with the expectation of a drop after earnings and an unjustified analyst rating.
Guess what? It didn't happen! BYD sold off the Echelon and Florida Dania Jai Alai properties using $150 million of the proceeds to pay off debt. Boyd's short interest as of February 15th was 25% and in the 2 weeks leading up to the March 4th release the stock was shorted over 50% on all but 2 days (44%) with many days between 60-70% short. By my estimate the short interest was close to 40% before earnings. I got these calculations from shortanalytics.com. I won't post the website I used because this is not about promoting them.
So imagine the shorts surprise when BYD shot up 16+ percent the day of earning on 10.2 million shares. Even on that day short interest was 43% followed by a 5.4 million, 52% short interest the next day as the stock was pushed back down to $7. This is where shorts are attempting to cover this massive short position. With strong resistance at $7.04 and support at $7, it's currently trading at $7.03 the last 3 days shorted 51,57 and 44% on Friday.
The float of BYD is 48+ million, 86 million outstanding with the 35% held by insiders and 60% held by institutions. Short squeeze candidate? The powers that be have been working hard to keep Boyd Gaming under the radar.
Wall Street has pushed CZR up from sub $8 to almost $14 per share on online gaming. ZNGA has risen from $2.60 to $3.60 in the same amount of time. Meanwhile BYD is trading at the same level prior to the original news, even after realizing $3.40 a share in value from the sale Echelon and Florida property, plus paying down the debt. Then there was this from Boyd's CEO Chakmak during the CC, with regards to the companies goals to improve the balance sheets in the future. "I think we continue to be very focused on the balance sheet, we have a lot of initiatives that we are considering implementing over the near-term future that will accomplish that." This means soon! Expect positive news.
Now let's move on to the main point here! In the recent conference call Boyd's CEO responded to a question about online gaming by making this statement. "With respect to timing, where the market is really up to the regulators to decide. Our job is to be ready to launch a product once the regulators approve it and we will be ready." Caesar's CEO was recently quoted that they would be up and running within 18-24 months and ZNGA will not be able to capitalize from online gaming in the New Jersey without a tie into a land based casino. Size matters in land based gaming and though CZR has more casinos in Atlantic City, as Boyd's CEO was quoted saying regarding online gaming and MGM, "As the operator of the Borgata, we will operate that product. There could be multiple brands or multiple sites, but it will be operated under the Borgata license and we will head that up." It just takes one license which Boyd holds! So Caesars size doesn't matter on the web because the web is infinite. If Caesar's relationship with 888 is that unprepared, who do you think will be first? There are only 2 publicly traded casino companies in New Jersey so it's a two horse race right now.
So who will be first to market? The Borgata and Boyd reaping the rewards of their relationship with Bwin. Boyd has been working with Bwin since Nov. 1, 2011 in preparation for online poker. Bwin, beginning in the 4th quarter of 2012 began to operate full casino offerings through their European websites. When Boyd began with Bwin they were a poker only website, but they've evolved to a full casino so expect Boyd's relationship to evolve as well. This fully functioning software is easily integrated and the setup of servers can be done in weeks if it already hasn't begun, which is why Boyd's CEO expects to be there from day one!Let's not forget that last month The Borgata became the first to offer in room gambling via the television.
How will Boyd accomplish this? Per the CEO, "We'll be leveraging out our relationship with Bwin (the worlds largest online gaming company).
According to the current bill, I don't know if this will stay this way, the rules may have changed. You'll have to go to Atlantic City to set up an account and prove you can legally gamble online. If this holds true, ask yourself this? If you drive to Atlantic City to set up an account, where are you going to go? Will you get off the highway and drive all the way into the heart of Atlantic City to a Caesar's owned casino or will you go to by far the nicest casino right off the 87 with easy access? Seems pretty simple, if you're the first face people see in Atlantic City you will get the lion's share!
How will Boyd capitalize this? Per the CEO, "With respect to the market size, I think it's been reported from $200 million to $1 Billion in New Jersey. We with our Brand (The Borgata) and our relationship with Bwin, would expect to get more than our fair share of the market. So we're excited about the opportunity and look forward to it." Remember, New Jersey online gaming is for all casino games, as well as online poker. The only current bill that allows full casino gaming online. New Jersey also has the largest population of all the state to enact online gaming, giving them the largest stake right off the bat. Interstate gaming pacts will most likely be signed with those offering the largest jackpots as incentive. States will also reap larger tax revenue from those with larger jackpots that offer more than just poker. Nevada will not be offering anything except for poker.
When? Sooner that you think! According to a recent article on March 3rd, in the New Jersey Star-Ledger titled, "New Jersey Moving at dizzying pace to implement online gaming" According to the author, New Jersey officials working with the legislature, casinos, and Gov. Christie at their backs, are moving at a dizzying pace. They were to have finished the first draft of rules last Thursday, March 7th. Experts say they could be rolling dice by December if not sooner! I would say it will be much sooner than December. Everything was well planned regarding online gaming in New Jersey, unlike the rushed legislation in NV. Remember there were hopes back in the beginning of 2012 that online gaming would come to New Jersey, before Gov. Christie vetoed it. It is basically the same bill with a few things changed and a few things taken out. Given that Gov. Christie and the legislation lost a lot of fanfare the bill would have garnered, when Nevada rushed through their bill in 24hrs, with every intention of stealing the spotlight from New Jersey. Gov. Christie is lighting a fire to beat Nevada to the punch. If Nevada expects to have online poker up and running by this summer you should expect to see New Jersey's online gaming even sooner. They know that first to market will have an advantage over the competition. New Jersey needs this advantage right now and Christie knows it.
How will this happen? Once the rules are set, (apparently they are already done) New Jersey will set a date to begin. There will be 60 days of public commentary, which given the AC economic situation, NJ voting to allow sports betting (struck down by a judge last week, it will be appealed), there isn't much the public can do or say to change the current direction. So what is holding it up then? Nothing! I would expect some action out of New Jersey this week and online gaming by summer. You know the way Nevada rubbed it into New Jersey, they won't be beaten to the punch again.
Finally! Boyd Gaming will be the first company in the United States to begin legalized online gaming. The facts back it up! These are not highly nefarious opinions from analysts that are made to influence share price. The facts are right here. You just have to put these pieces together to see that online gaming is at the finish line. It's been a long horse race and Wall Street has backed the wrong horse. The odds have looked long because all the money went on Caesar's while betting against Boyd. The problem with that bet and using the horses (ceo's) own words, Boyd will win by a 3 lengths.