The Southern Gaming Summit: Part 2

As you might expect, many of the vendors at the Southern Gaming Summit in Tunica last week came with promotional giveaways. My personal favorites were the squishy, stress-fighting Powerball from slot maker WMS Industries (NYSE: WMS  ) and bottles of Mountain Dew MDX, the "energy soda," courtesy of PepsiCo.

But the biggest promo item of the expo was probably the Apple iPod. One of the groups giving away an iPod was Philadelphia-based Lightning Poker, which happened to make another big splash at the summit.

Lightning Poker
Lightning Poker brought out its electronic, fully automated poker table at the show. The table is a full-sized, 10-seat table with ten 12.1" XVGA touch screens for the players and a 45" LCD screen at the center of the table. The players' hole cards peel up when a player touches them on his individual screen, while the community cards and chip amounts are shown on the center screen. There are no dealers, no chips, and no cards, serving to cut operating costs for the casino or card room. The electronic dealer doesn't make mistakes, there is no need to tip the dealer, and more hands are dealt per hour than on a traditional table, all of which could be seen as benefits by some players.

Poker players in Florida and Oklahoma may already be familiar with the concept: North Carolina-based competitor PokerTek (Nasdaq: PTEK  ) already has placements of its fully automated PokerPro table at some Native American-owned casinos, including the Seminole Hard Rock casinos in Hollywood and Tampa, Fla. In the January 2006 issue of Full Tilt magazine, PokerTek CEO Lou White said that he was confident that there will come a time when 75% of all poker tables will be automated.

So is this the poker table of the future?

Let's be clear about one thing: The automated poker table will never replace the traditional poker table with chips, cards, and dealers. I can't see myself ever playing for serious money on the automated table, and I think it is fact that poker players take delight in handling cards and chips. That said, while I have to be skeptical of the 75% figure, I certainly believe there is a place for automated tables in the casino and card rooms.

Not for the hardcore player
Let's backtrack to the slot maker's forum on Thursday for a second. One of the topics was about the growth in the popularity of poker, and what some of the slot manufacturers were doing to capitalize on it. Jean Venneman, vice president of product development at International Game Technology (NYSE: IGT  ) , said something interesting -- that hardcore video poker players are very particular about the games they play and that many of the new products are aimed not at the hardcore players of poker, but rather at the fans of poker created by the TV shows.

And that's really the segment I believe the automated table will ultimately attract. I don't necessarily see the automated tables taking up space inside the poker room of a casino, either. Rather, I envision it in the space near the video poker machines adjacent to the poker room.

Here's what I see electronic tables bringing to the casinos:

1. Microlimits and small-stakes SNGs. The smallest hold'em games in the average casino are usually $3/$6 limit, and sometimes $2/$4. Having an automated table can make even smaller games profitable, as well as continuous small-stakes Sit & Go (SNG) single-table tournaments. The Seminole Hard Rock Casino & Hotel in Hollywood, Fla., for example, uses the PokerPro table to run a $2/$2 limit hold'em game and a $65 SNG. (Note: There is a $2 betting limit in Florida, so this is technically the biggest cash game in the casino, but the point here is that it can run profitably). This is similar in concept to how ticket-in/ticket-out (TITO) technology has pushed penny slot machines to the forefront.

2. Poker 24/7/365. Before I left Tunica, I made a side trip over to the Isle of Capri (Nasdaq: ISLE  ) casino in nearby Lula. The poker room there doesn't open until 4 p.m. on Friday. In contrast, an electronic, fully automated poker table doesn't require a dealer or a full lineup of poker room employees, and it can run a game 24 hours a day, seven days a week, 365 days a year. If a couple of players want to sit down and play, they don't need to wait for a full table to come together.

3. Gray areas. Pennsylvania has authorized the placement of up to 61,000 slot machines at 14 locations around the state, with the first installations to come possibly by the end of the year. Table games, however, are not part of the equation. But if an electronic poker table manufacturer can manage to gain classification as a slot machine, Pennsylvania would represent a tremendous opportunity for such a product.

4. Wide-area bad-beat jackpots. Why not? Many poker rooms feature a progressive bad-beat jackpot for low-limit players. For example, the bad-beat jackpot at the local Ameristar (Nasdaq: ASCA  ) casino is currently up around $160,000. If a low-limit hold'em player makes quads (four-of-a-kind) or better and gets beaten by another player with quads or better, then the losing player in the hand will get half of the jackpot, or $80,000. The winning hand gets 25%, or $40,000, while the rest of the players at the table split the other 25%. This is a great attraction for low-limit players, particularly those who aren't winning players. Adding a bad-beat jackpot feature and linking machines across several casinos could create massive jackpot sizes, similar to the wide-area progressives (WAP) from slot makers such as IGT and WMS.

WSOP vs. WPT : Lightning Poker vs. PokerTek?
I won't judge here whether one electronic table is better than the other, or otherwise predict sales. But there is another dynamic worthy of mention, and that is that the chairman of the board of PokerTek is Lakes Entertainment (Nasdaq: LACO  ) CEO Lyle Berman. Moreover, PokerTek -- which has an international distribution agreement with Australian slot manufacturer Aristocrat -- is licensed to use the World Poker Tour (Nasdaq: WPTE  ) brand (of which Lakes owns 62%) for its PokerPro table.

That said, it's probably too early to predict a winner, and probably too early to seriously consider PokerTek for investment. But on a casino-by-casino basis, it will likely be winner-takes-all for one electronic poker table maker, and relationships will be important. PokerTek's relationship with the WPT likely precludes the company from also using Harrah's (NYSE: HET  ) World Series of Poker brand. That said, it might make good sense for Lightning Poker to side with Harrah's in the battle.

At this point, PokerTek has the head start. PokerTek began field trials of its PokerPro table last May and, as of the 10-K filing in March, has submitted applications for approval in California, Nevada, New Jersey, and Mississippi. Lightning Poker -- headed by CEO Brian Haveson, a professional poker player and former CEO of Nutrisystem -- is set to begin field trials with three units at the Turning Stone Resort and Casino in New York.

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Fool contributor Jeff Hwang took an iPod home from Tunica by winning one of Lightning Poker's two tournaments at The Summit. He owns shares of Ameristar Casinos, International Game Technology, and WMS Industries. The Fool has an ironclad disclosure policy.


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