In the quest for substantial profitability, Lakes Entertainment (NASDAQ:LACO) has been dealt a couple of setbacks.

Earlier this month, optimism had been running high for Lakes, which develops and manages American Indian-owned casinos -- though none of the casinos currently exist. In investors' anticipation of approval for a couple of Lakes' four major casino projects, shares experienced a considerable run-up, hitting an all-time high of $17.05 on June 7 before closing the day at $16.02.

But the news hasn't been good.

First, the Nipmuc Nation of Massachusetts has once again been denied federal recognition, meaning that "the Nation will not qualify at this time for numerous federal programs and benefits to help them achieve self-sufficiency, as well as the opportunity to pursue the possibility of Native American Gaming." According to Lakes, the Nipmuc tribe had been denied recognition in September 2001, and the damage this time is such that Lakes may decide to forgo its partnership with the Nipmucs altogether.

As a result, Lakes will write off its $6 million investment in the project, which amounts to about $0.27 per share. Worse, investors must now discount any potential value from the casino, which is much more considerable.

Next, on June 21, Lakes received a court ruling related to its Shingle Springs project near Sacramento, Calif., the impact of which is not so certain.

Lakes had received approval from the California Department of Transportation (Caltrans) for a new interchange to help the Shingle Springs Band of Miwok Indians "achieve economic diversification and unrestricted access to their land" -- and for its proposed casino. But while the environmental documents provided qualitatively show that the project passes standards under the California Environmental Quality Act (CEQA), they apparently lack the required quantitative data.

This may delay the opening of the planned casino in a Sacramento market where the Thunder Valley Casino -- operated by Station Casinos (NYSE:STN) -- has been very successful.

After all that, the stock has fallen back down to $9.40 per share, where it sat in midday trading.

The stock is once again approaching book value. Factoring in the 80%-owned World Poker Tour (WPT), whose upcoming IPO suggests a value of about $0.75 per share (post-split), as well as the $0.27 per-share write-off due to the failure with the Nipmuc tribe, book value is somewhere between $7 and $8 per share.

And despite the Nipmuc failure, the casino management business still has implied value, though recent events only serve to highlight the difficulty in bringing such projects to fruition. But before Station Casinos and Harrah's Entertainment (NYSE:HET), Lakes was successful in this business - a fact we've alluded to several times.

You also might factor in the table games business, though I would discount the potential value of that business in its entirety - at least until we have more information on any revenues generated from the new game carrying the WPT brand. Thus far, Tom Gardner's Stock Advisor pick, Shuffle Master (NASDAQ:SHFL), has proven to be the only truly viable player in that business.

So how do we play it?

Right now, we're just about back to where we were in January (see Betting the World Poker Tour), which is to say a price that I am "comfortable" holding with. Considering the red flag we discussed last month, I wouldn't necessarily object to selling. That's on top of the fact that Lakes is a company without much in the way of an actual business at this point.

That said, I think that there is enough substance and potential that I wouldn't argue against buying again should the stock fall back to a considerable discount to book value, either.

Give us your take on the Lakes Entertainment discussion board.

Fool contributor Jeff Hwang owns shares of Lakes Entertainment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.