Red-Hot Poker

Poker is getting hot, and Lakes Entertainment (Nasdaq: LACO) is cashing in. On Friday night, the World Poker Tour -- a joint venture of which Lakes owns 80% -- announced plans to raise approximately $20 million through an IPO. Lakes shares are up 5% to $27.83 today, and more than 60% since we first discussed the company last month.

Whether Lakes is expensive today depends on how you look at it.

Last month, at about $17 per share and with a $180 million market cap, Lakes traded at a modest premium to book value. The company, which develops and manages Native American casinos, currently generates all of its revenues from the World Poker Tour -- which is to say, not much thus far. Last year, Lakes made $4.3 million in revenues, losing $0.37 per share.

But two things have since driven up Lakes' share price.

First, the company was essentially cleared to break ground on a casino near Sacramento, possibly in the second half of this year. To illustrate how valuable these deals can be, Lakes earned $5.71 per share in 1998 with four casino management deals, which have since expired. It has four new management deals in place, the holdup being that the other three -- one near San Diego, one near Chicago, and another large project possibly somewhere in Massachusetts -- are also awaiting approval for construction to begin.

Clearly, this can be lucrative business. Others that have management contracts to run Native American casinos include Harrah's Entertainment (NYSE: HET), Station Casinos (NYSE: STN), and Caesars Entertainment (NYSE: CZR), from which Lakes was spun off at the end of 1998.

The second driver is the World Poker Tour, the success of which helped propel Lakes from a 52-week low of $5 per share and which is expected to be profitable this year. The tour was showcased on Super Bowl Sunday, when General Electric's (NYSE: GE) NBC broadcast a tournament to compete with the pre-game show on Viacom's (NYSE: VIA) CBS. Disney's (NYSE: DIS) broadcasts of last year's World Series of Poker on ESPN and ESPN2 helped fuel the fire.

So how much is Lakes worth?

A few weeks ago, Lakes reported a book value of $167 million, or $14.66 per share. Plus, while we don't know precisely how much of the joint venture Lakes plans to sell, we do know that it values its 80% share at more than $16 million (80% of $20 million), or $1.50 per share. Further, and most importantly, Lakes' core business carries an awful lot of "implied" value. Again, look back to the $5.71 per share earned in 1998.

Pure value players might consider this "implied" value speculation, and might shy away. If you're intrigued, dig deeper into Lakes' casino management business. Having done so myself, I can think of some pretty big numbers regarding Lakes Entertainment's value.

Join the chatter in the Lakes Entertainment discussion board.

Fool contributor Jeff Hwang owns shares of Lakes Entertainment.