North American I-Gaming Index on the Decline

The decline in the market value of companies in our North America Index since October 16th has been $124 million, with 93 percent of this decline accounted for by just four of the eight stocks. In aggregate market value, eLOT has declined $41 million(52.6 percent), with CryptoLogic closely behind at $37 million (20.2%). Youbet.com, which announced this week that it would lay off 29 percent of its work force and had accepted the resignation of its president, is down 52 percent or $16 million in market cap. The remaining stock, Starnet Communications International, has lost $22 million or 49 percent.

The I-gaming field is expected to report strong revenue growth and earnings for this third calendar quarter. This growth is especially attributable to sportsbooks, and a strong and seasonal upswing in I-casino operations. Specialized operators, such as eLOT, have positioned themselves for significant growth away from the crowded casinos and sportsbooks. Youbet.com, which operates a closed-loop track and betting system in California, had counted on its horse racing exemption from Congress in the original proposed I-gaming prohibition bill. Revenues for its nine months rose to $4.6 million from $2.3 million, and a loss of $4 million before special charges was reported.

While these stocks have been hammered, we like the field, and especially think software stocks such as Chartwell are very attractive at these prices (US$.75 vs. $1.27 on November 7) when we issued our research report. Starnet, at $.72, is a tremendous speculation/investment and is expected to report strong revenue gains from its sports book operations on December 15th, and can be considered to be a strong candidate to rebound to the $3 to $5 range.

Our EuroAustralia Index, which is made up of larger capitalization companies, has been very steady since its introduction. It is made up of larger companies that have extensive operations in complementary fields, such as Hilton Group and Stanley Leisure. Additionally, Europe has a substantially longer history with gambling, in particular sports books who are enjoying a major expansion at present.