Online Poker- Why Facebook Will Be The Big Winner

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With online poker now legal in Nevada, and currently legally able to offer the game to those within the state's borders, I predict, in the end, the big winner in the online poker bonanza will be Facebook (NASDAQ:FB), but for this to come to pass, poker must spread beyond just Nevada…

Why Poker Will Spread

First of all, casino gambling is legal in many states. Poker is considered a game of skill, and embraced as such even by many who might frown upon games of chance.

Poker offers politicians a new way to increase revenues without having to enforce new obligatory taxes (always unpopular). As each new state approves it in some form, it will become easier and easier for state legislatures to approve the game without putting their necks on the chopping block to their conservative constituency. "See, they did it too! We just don't want to lose the revenue and tax you more" will be their explanation.

"New Jersey, which has approved "full-blown casino gaming" legislation, is the next state on the company's (Ultimate Poker) list for expansion. Then you have Delaware that's also approved it. And there's about 10 other states that are looking at it and are very serious about the legislation."

Casinos in on the Action

Many of you owners of casino shares are right now asking, how does this affect my company?

It looks like the second gaming company (after privately owned Station Casinos and their Ultimate Poker site) to get in on the action will be Caesars (NASDAQ:CZR). According to CNBC their "Nevada poker website will operate using technology provided by 888 Holdings Plc. The two companies already operate World Series of Poker websites in the United Kingdom, France and Italy."

Also planning to make offerings to their patrons are both MGM Resorts (NYSE:MGM) and Boyd Gaming (NYSE:BYD) who have both partnered with Bwin (PartyPoker) (OTC:PYGMF) to provide the technology and back-end expertise for them. Both Boyd and MGM are geographically diverse, and as poker becomes legal in more and more states, this will give them an upper hand in recruiting and maintaining loyalty amongst their players, as they will be able to reward free nights lodging in any of their casinos nationwide.

Las Vegas Sands (NYSE:LVS) is sitting this hand out completely. Chairman Sheldon Adelson is "morally against" internet gaming, and has steadfastly refused to engage in any type of online gaming. Obviously, Adelson has done a brilliant job bringing Sands back from the brink, and has successfully guided the company from near bankruptcy to garnering Asian riches in Macao and Singapore, but taking this position in an already "morally conflicted" industry (euphemistically put from my point of view) is something I would fight as a shareholder.

Wynn Resorts (NASDAQ:WYNN) had formed an alliance with Poker Stars, but cancelled its deal in light of litigation by the Justice Department against all the online poker companies who were still illegally operating in the United States in 2011. Wynn's path into online gaming and potential partnerships remain murky at this time, though sources within the company's Las Vegas poker room have told me it's not certain whether or not they would deal with Poker Stars again.


Finally, with the background set, I come to Facebook, and why I believe it will be the big winner here.

Yes, it is true that according to law, the company would have to partner with a land based casino (a huge political giveaway good for you casino shareholders above) but this just might be the magical revenue stream Facebook shareholders and analysts alike are seeking.

Two years ago I would be dubious as to whether this fit into Mark Zuckerberg's ethos of uniting the world. That all changed when the British version of Facebook (where online gaming is legal) put slots and bingo on the site to generate passive income.

Now, let's say poker's legalization spreads rapidly throughout the United States, making it possible for someone in say Hawaii to play with someone in Nevada, suddenly Facebook can market something to their user base that might just enhance their experience with the site, and provide the company with added income, raising earnings estimates, and thus the stock price.

With it now legal, and marketed by your friends' likes/invites, Facebook's base of poker players will take off like wild fire fueled by airborne drops of gasoline. With potentially millions of players playing at once, low stakes tournaments will have HUGE prize-pools making them a sort of fun Facebook lottery, which Facebook alone can uniquely offer.

It should be noted, that long time Facebook partner, Zynga (NASDAQ:ZNGA) has gone all in on their internet gambling bet, and has been setting up for legalization in the US for a long time.

I realize that evidence of Facebook entering the market is circumstantial, but the key to investing is connecting the dots before others do. By the time you wait for it to be accepted knowledge it will be priced into the stock. I'm making an educated guess here that Facebook will follow through and enter the online gambling market when the gates open.

The kindle is being set, and once ready (legalized), all Zuckerberg has to do is light a flame.

Bottom Line

While each casino company I mentioned will benefit from the spread of poker state to state, Facebook has the potential to add billions of dollars in clear cut profits each year. This might be the fastest way to monetize the gargantuan Facebook user base. Disagree? Have a thought? Leave a comment below.

Disclosure: I am long FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.