Internet gambling stocks: A good time to buy?
Get 'em while their hot....or better yet, get 'em while their not. In the wake of a blood bath that witnessed internet gambling stocks come crumbling down Monday right through into Tuesday, one has to ask themselves: Can it really get any worse?

Aside from PartyGaming and 888.com, most of the other internet gambling firms trading on the London Stock Exchange seem poised to stay put and continue catering to the US market.

Following the passage of an internet gambling bill that sailed through Congress Friday night as an attachment to the popular ports security measure, the online gambling community including the nearly 100,000 member strong Poker Players Alliance, were left wondering if they still had an industry to call their own following Monday's stock carnage and the biggest online poker site, PartyPoker, announcing plans to leave the US.

The banking sector and attorneys calmed nerves somewhat with some encouraging news that gamblers themselves would not be held liable and that banks could only enforce regulations with credit cards.

If a bill passes Congress ordering all hospitals to ensure there is a cure for cancer within a nine month period to cut down on health care costs, that doesn't mean the hospitals would be able to comply. A similar situation exists here where banks have already informed lawmakers they can not and will not be able to monitor checking instruments used for the purposes of online gambling within 9 months, or maybe even 9 years for that matter. The technology is available the same way we have the technology to drive fuel free Hummers. In other words, it's not.

So with that bit of news, can things really get much worse?

Well, they can, especially if the banks somehow find a way to go along with blocking out all internet gambling transactions. But truth be told, from an oddsmakers point of view, that has odds of around 100 to 1 of happening over the next year. Those are the same odds as The New York Jets winning a Super Bowl this year. Improved team with a shot of walking off with a winning record this season, but nobody is discussing the possibility of a Jets Super Bowl win. Of course, it could happen. Notice we didn't give the same odds as say the Oakland Raiders winning the 2007 Super Bowl.

But again, the chances are slim.

So we are left with the knowledge that internet gambling stocks will probably improve over time - probably in the short term. And aside from when earlier listed companies were just appearing on the London Stock Exchange (i.e. Sportingbet), never has there been better value in this sector.

What can drive internet gambling stocks up? Plenty!

Legal action taken by online gambling firms to prohibit or seriously curtail this recent provision from coming into law, expansion and diversification into other markets and overall positive performance should cure the ills these companies are faced with today.

Assuming the industry realizes its ability to get beyond this measure and understands this is the last bill of its kind that will be passing any time soon (a House and Senate split up by both parties should assure this), shares in these online gambling companies are likely to rebound in a matter of months.

Whether you believe the Republicans or Democrats are the main obstacle to online gambling's existence (both parties have had their fair share of angst towards the industry), the perception within the sector will be positive if Democrats assume some power after the November 7 elections. Such a situation will provide the internet gambling industry with hope, albeit perhaps false hope.

One thing we probably will not be seeing among these publicly traded companies is a whole lot of acquisitions unless they involve a substantial amount of cash upfront. The BetonSports debacle and PartyGaming's decision to leave the US market have caused more damage to publicly traded firms than any bill could ever do over the long run. PartyGaming, which in the past has issued statements deemed detrimental to its competitors, could have provided much lift to the share prices yesterday by announcing the intention to review legal means of fighting the new legislation. They chose not to, and their peers followed a similar path minus the threat of leaving the US market entirely.

Few are buying PartyGaming's "everything will be fine and dandy with us" announcement Tuesday that they planned on replacing the US market with that of the Asian market. The Asian market is a tough one to crack. BetonSports announced the same thing when they closed down back in July and we haven't exactly seen Clive Archer and the other BoS shareholders breaking down the Great Wall of China. If it were so easy to crack that market, PartyGaming would have been there a long time ago.

Publicly traded internet gambling firms the likes of Leisure & Gaming and Sportingbet aren't exactly sitting back and hoping this will all go away. Gambling911.com reported Tuesday that Leisure & Gaming were already in the process of shutting down their high cost Nine.com branch in Costa Rica as a means of saving substantial money for the company while Sportingbet CEO Nigel Payne already began reaching out for help from online gambling jurisdictions such as the United Kingdom.

And while the United Kingdom assisting with the cause might at first seem highly unrealistic, consider the fact that Tony Blair's presumed successor has been at the forefront of internet legalization in Great Britain.

The tax-code change, announced by Chancellor of the Exchequer Gordon Brown as part of the governments budget for 2002, made Britain the first world power to embrace Internet gambling.

Under the new scheme, the government scarpped its 9 percent tax on wagers, which was paid directly by bettors, and replaced it with a 15 percent tax on gross profits that will be absorbed by bookmakers who previously conducted off-site wagering, either via the Internet or by telephone, in Britain.

Ultimately, this will lead to the first bookmaking licenses granted in the upcoming year.

----

Christopher Costigan, www.gambling911.com

Originally published October 3, 2006 5:56 pm ET