April 4, 2005
For poker players like me who cannot stand being stared down, and who have a hard time not fidgeting at a live table, online poker has been a godsend. I can make a huge bluff bet in Texas Hold 'Em and scream "Fold!" at my cyber-opponents without their knowing. I can also leap for joy when I catch a card on the river and not be considered a boor. Online gaming is great in one other respect -- I don't have to hop a plane and reserve hotel rooms to gamble in Las Vegas at MGM Mirage (NYSE: MGG ) , Hilton Hotels (NYSE: HLT ) , or Wynn Resorts (Nasdaq: WYNN ) .
Thus, poker players and investors alike have been awaiting the launch of what World Poker Tour Enterprises (Nasdaq: WPTE ) hopes will be the next hot online site -- its own. I've been skeptical about how exactly WPTE was going to earn money. Licensing? No way. Poker boot camps? Not enough revenue to matter. Sponsorships? Poker ain't NASCAR.
Nope, pundits and players alike say that the gaming site is what will make WPTE worth its $370 million market cap. Is this a real possibility, or is WPTE just drawing dead? One thing working in its favor is that online gaming sites never seem to lack traffic. I've popped in on a few at all hours of the day, and people are always playing poker somewhere. The sites make their money on what's called a "rake," which is usually 10% of a pot in a limit game, and via fees for tournaments, which also run about 10% of the buy-in. Subtract out the overhead necessary to run the sites, and the rest is pure profit.
For me, though, it all comes back to one big question: Is poker a fad? There is just no telling. I think it is either at, or approaching, the peak in its popularity. If so, then these sites will either need gamblers to keep playing or they'll need to raise the fees and rakes if they want to grow. I do think that at some point the playing audience for poker will level off, but those revenues will be sustainable because those will be the die-hard addicts.
The question then remains: Can WPTE pull in enough revenue to justify its stock price? Only the cards have the answer.
Lawrence Meyersprefers sit-and-go tournaments and folds pocket jacks -- usually.