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Interview: Gaming Stocks

Online gaming has generally been identified as the hot stock in e-commerce. With the expansion of gambling applications into interactive television there is the potential for huge growth in the next five years. Online gaming companies are tossing their chips into the pot, anxious to develop new technologies and faster routes to market, to catch this wave as it washes across the shores of new markets in Europe and Asia.

In fact, Oscar Nieboer, Vice President at MGM Mirage Online, says that year on year growth, increasingly powerful technology and growing digital penetration means e-gaming has the potential to open a huge global market to MGM Mirage.

But not all experts agree that this is the time to buy publicly traded Internet gaming stocks. According to Michael Tew, online gaming analyst at Bear Sterns, 2003 may be a rocky year for investors looking to capitalize on what will certainly become the next evolution in gaming leisure.

GOM: What is your outlook on e-gaming stocks throughout the remainder of 2003?

Michael Tew: I think this will be another rocky year for the online gaming world. There will be continued pressure on operators from financial institutions within the US… Investors don’t like uncertainty so with a growing amount of uncertainty (from financial institutions) you’re going to see I-gaming stocks under pressure.

GOM: Don’t you think that we’ve seen the worst of that already when the credit card ban came into effect in 2002?

Michael Tew: I think there will be continued uncertainty from a legislative standpoint, and as long as there’s uncertainty, stocks will come under pressure.

GOM: What do you think about legalized I-gaming like California Horse Racing?

Michael Tew: Horse racing is a closed loop account wagering system, so it’s not really Internet. That’s why they haven’t been affected at all by the credit card situation. Ubet.com is very successful and is in fact profitable now. Other operators, particularly TVG and Express Bet, are virtually immune to any sort of online gaming legislation.

GOM: What are the stocks to watch in 2003?

Michael Tew: I think the bell weather in the industry is Cryptologic. Watching what happens to that stock is always a good proxy for what’s happening in the industry. I think that’s going to be a hot stock to watch. (There is) also Boss Media, and a few other stocks in the UK. But as you know, most (major) Internet gaming companies are private entities.

GOM: Do you think the US Virgin Islands’ acceptance of online gaming will bring some operators to the Virgin Islands?

Michael Tew: I think some operators will look to move to the Virgin Islands but I doubt they will accept US bets. They may however move there to tap into the US capital markets. I will note that the capital markets, particularly public markets, may not be receptive to online gaming companies as they have not been very receptive to public offerings from any Internet companies.
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