The Next Gambling Gold Rush

The dice seem to be coming up sevens for the gaming industry.

In today's cash-strapped times, states are becoming increasingly desperate for new sources of tax revenue and jobs, and casino operators are happy to provide both. With Florida, New York, and Massachusetts taking steps to allow more gambling and a favorable ruling from the Department of Justice on online betting, the coming years could be a boon for casino developers.

Sunshine State
Florida has the estimated fourth-largest gaming industry in the country, but current legislation could make it a premier gaming destination. Lawmakers will soon consider a bill to allow three Vegas-style casinos to open near Miami. One of their suitors, Genting, a casino developer based in Malaysia, has already invested $236 million for the purchase of the old Miami Herald building and has released designs for a $3.8 billion project called Resorts World Miami. Las Vegas Sands (NYSE: LVS  ) and Wynn (Nasdaq: WYNN  ) have also expressed interest. Sands Vice President Andy Abboud recently visited Tallahassee to sell state legislators on the tourism revenue and jobs that his company could bring to the state's reeling economy, and Wynn CEO Steve Wynn has expressed a desire to build a casino in Miami Beach next to the convention center.

Florida seems like a natural location for resort-style casinos. The state features a tropical climate, sandy beaches, and ocean vistas, and it's already a tourist mecca as the home of theme parks such as Disneyworld, and annual events such as the Daytona 500 and baseball's spring training. The Sunshine State is a shorter distance away than Vegas for most Americans, and its largely retired population has the time and money to spend on casino entertainment if they so choose.

The casinos pushing for the legislation, however, have come up against a major player who, not surprisingly, sees gambling as more of threat than a windfall. Disney (NYSE: DIS  ) , whose Florida operations comprise more than 2.5% of the state's GDP, believes the resort casinos are antithetical to its family-friendly brand of entertainment, and one of its executives heads the state's Chamber of Commerce, which also opposes the casinos.

In New York, Gov. Andrew Cuomo has extolled the industry's job-creating virtues and aims to amend the state constitution to allow full-fledged resort-style casinos. Following Massachusetts Gov. Deval Patrick's signing of a bill in November allowing the construction of three Vegas-style casinos, Steve Wynn now has his sights set on Foxboro for a casino across from Gillette Stadium, where the New England Patriots play. Along with the good news out of the state legislatures, the federal government has also weighed in with new support for online betting.

Online gambling
In related news, The Department of Justice's recent ruling may open the door for states to offer Internet poker and other forms of gambling, excluding sports. The opinion explicitly dealt with states' ability to use the Internet to sell lottery tickets, but industry watchers see it as opening the door for other forms of online gambling.

 After expelling PokerStars, Full Tilt Poker, and Absolute Poker from the U.S. market in April 2011, the Justice Department seems to have created an opportunity for the big casino operators with the ruling. MGM Resorts International (NYSE: MGM  ) and Boyd Gaming (NYSE: BYD  ) formed a joint venture with Bwin.Party, the world's largest listed online gaming company, in October, anticipating the legalization of online poker, and investors have rewarded the two U.S-based companies for their foresight. Following the DOJ ruling, Boyd moved up nearly 10% on Dec. 27, while the larger MGM rose almost 5%.

Legislative obstacles are notoriously slow to move, but as the necessary hurdles are cleared, the recent news may give the gaming industry more than one reason to smile in the years down the road.

With Florida legislators set to meet this month, and the consequences of the Justice Department's ruling still to unfold, you'll want to keep a close eye on these companies.

Investors must have cast-iron stomachs to invest in gambling stocks despite the industry's potentially massive returns. The industry's big swings can feel a bit like gambling itself. If instead you'd prefer investments you can sleep easy owning, I recommend considering dividends. The steady stream of income they provide is just what the doctor ordered for tough economic times.

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Fool contributor Jeremy Bowman holds no positions in the above companies. Motley Fool newsletter services have recommended buying shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 10, 2012, at 12:57 PM, JJGonzalez wrote:

    It's about time that Florida legalizes gambling. It's already the third largest gambling state in the country. Why should the Indians get all of the money. The casino revenues should go to the state. We can't afford to turn our backs on this opportunity to turn the entire state into a destination state, instead of just Orlando monopolizing that industry.

  • Report this Comment On January 10, 2012, at 1:02 PM, JJGonzalez wrote:

    That is correct. Florida is the best destination in the country for a resort casino. Florida will take over 25% of the existing Las Vegas and Atlantic City business - if not more. Florida is a no brainer. IT has always been a gambling state and it should now become the greatest tourist state in the world, and the casinos are going to help make it happen.

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