AGEM Index

The AGEM Index reached a composite score of 125.05 by the mid-point of 2012. After declining in both April and May 2012, the index increased for the first time since March 2012. The 6.69-point increase (+5.7 percent) in June was attributable to positive stock price performances for 12 of the 17 global gaming operators. Those gains were offset by the balance of suppliers posting downturns in their valuation month to month. Of those that reported improvement from May, five witnessed double-digit growth rates. Compared to the same month of the prior year, the results were mixed as eight remained in a better position while nine have fallen behind on an annual basis.

The broader stock markets also reported increases during June 2012. The NASDAQ ended the month with a closing price of 2,935.05 (+3.8 percent), compared to the 2,827.34 reported at the close of May 2012. The Dow Jones Industrial Average reported a slightly higher increase in stock price, increasing 3.9 percent, from 12,393.45 to 12,880.09. Meanwhile, the S&P 500 reported the greatest increase during the month; the index ended June 2012 with a price of 1,362.16, up 4 percent when compared to the prior month. Selected positive contributors to the AGEM Index in June 2012 included:

• International Game Technology (IGT), with a stock price of $15.75, up 10.1 percent over last month, contributed +2.85 points to the index.
• Lottomatica (LTO) contributed 1.87 points to the index in June, due to an 8-percent increase in stock price.
• Konami (KNM) also edged north and contributed 1.41 points to the index, as its stock price rose to $22.58, up 7.2 percent.

Selected negative contributors included:

• Shuffle Master (SHFL) reported a negative contribution of 0.59 points, with a 13-percent decline in stock price.
• With a stock price of $19.95 (-2.8 percent), WMS Industries (WMS) contributed negative 0.19 points to the index.

Online gambling is quickly becoming more of a reality than fantasy in the U.S. gaming industry. The U.S. Department of Justice issued an opinion in December 2011 that allowed individual states to begin legalizing online gambling for casino games. Since then, a number of states have considered legalized forms of online gaming.

Nevada will be among the first states to have regulated online gambling. This month, the state issued the first two licenses for interactive betting. Bally Technologies (BYI) was the first to receive unanimous approval from the Nevada Gaming Commission, followed by IGT less than an hour later. Authorities must approve the technology Bally and IGT plan to use for their online systems. Once approval is given, the companies can begin offering their services to casino operators also hoping to gain approval for online gambling licenses. Neither company plans on competing with their casino customers for which they also provide traditional one-armed bandits and other digital games within their casino floors.

The state of Nevada currently has more than two dozen interactive gaming applications pending. These include applications from two of the largest casino operators in the United States, MGM Resorts International (MGM) and Caesars Entertainment Corp. (CZR). The Nevada Gaming Commission says each application will be considered on a “case-by-case” basis.

Fertitta Interactive LLC created a new company in order to capture a share of the online gambling industry. The operator recently announced the launch of its online gaming company, Ultimate Gaming, which has been under development since the acquisition of CyberArts Licensing LLC in October. Ultimate Gaming plans to offer real money poker in Nevada as soon as the necessary licenses are approved, which the company believes will be by the end of the year.

There is an expectation that the online gambling industry will help states currently struggling with fiscal shortfalls. While the industry will not solve the debt problem, the additional revenue provided through the collection of taxes may help states pay down some of their obligations, fund state projects and create jobs.

This multi-billion dollar industry has transformed the business model for many global gaming suppliers. For many, the decision to enter the digital age has been made—either by choice or need to remain competitive. Either way, the sector remains a transformative industry, remaining on top of the latest technologies and innovation.

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