February 25, 2013

Zynga's Valuation Amid Changing Online Gambling Markets - Seeking Alpha

Zynga's Valuation Amid Changing Online Gambling Markets - Seeking Alpha

Disclosure: I am long ZNGA(More...)
I published an article last week on Zynga (ZNGA) that focused on the progression of online gambling legislation. After receiving feedback asking what ZNGA has already done in preparing for online gambling and wondering which states had legislation on track to be passed, I decided to get the information and links together and answer questions regarding all aspects of ZNGA and its journey to the online gambling market.
Federal Gambling Laws and Limitations
On Oct. 13, 2006, President George Bush signed the Unlawful Internet Gambling Enforcement Act into law. This law banned internet gambling and created a task force to stop and punish violators of the law. For instance, BWIN Party Digital Entertainment -- which recently teamed up with ZNGA -- had its poker platform PartyPoker.com shut down in the U.S. in 2006, causing its stock to trade 60% lower.
The excitement to get back in the game has been halted, however, as federal as well as state legislation pending approval prohibits former sites from operating for five years minimum. This leaves new faces like ZNGA, previously an online social gaming site partnered with Facebook (FB), to point their future efforts toward Internet gambling in an effort to snatch up the available U.S. online gambling market.
Zynga Gambling U.K. Partnership
The U.K. is currently the largest online gambling market in the world. At the forefront of this market is BWIN Party Digital Entertainment, which is a company consisting of a BWIN and Party Gaming (PartyPoker.com owner) merger. It teamed up with ZNGA to further pursue online gambling in the U.K. In 2012, online gambling in the U.K. raked in $2.5 billion andgambling in Europe overall is predicted to reach $42 billion in 2015. This, however, is not even the most staggering statistic. In 2010, there was a 30% growth in online users from the 2009 numbers (which was already 5.6% of the adult population). If this growth trend continues across Europe, the market could size could double in the next five years.
ZNGA, while pursuing everything from real money poker and blackjack to virtual slot machines, has seen a future that has a vast market for growth and innovation. On this subject, Mark Pincus said in January that the "amount of innovation you're going to see around gambling as an entertainment mechanic is going to be mind blowing."
The foundation for this innovation is an exploding gambling market. When poker was legal in the U.S. from 2001-05, revenue grew from $82.7 million to $2.4 billion. Internationally, online gambling generated $117.6 billion in 2011 and is predicted to grow annually at 9% to reach $182 billion in 2015. According to MSN Money, online poker alone could generate $6 billion to $8 billion a year.
State Gambling Legislation
Legal gambling in New Jersey and Pennsilvania was $3.05 and $3.16 billion, respectively, and they are just No. 2 and No. 3 on the U.S. gambling list. No. 1 last year was Nevada, making a whopping $10.8 billion. Nevada believed gambling was moving to an online venue in the future and wanted to ensure its place in the emerging market. Below are states considering legislation concerning online gambling and a timetable for completion of the legislation:
  • California -- Reintroduced a bill, and expected to vote between March and April.
  • Deleware -- Fully passed Online Gambling Bill and are currently putting infrastructure into place to get it up and running by September.
  • Florida -- Considering a bill, but could be next year before approval. They estimate online gambling will produce $10 million in tax revenue starting out.
  • Hawaii -- Proposed a bill, but are still waiting for support and have no real timetable, but would like to move quickly as they see possible revenue from Asian markets as well.
  • Illinois -- State Rep. Bobby Moak, D-Bogue Chitto, is rolling the dice again in the 2013 legislative session on online gaming legislation that could have a profound impact on the future of legal gaming in the state. The bill would have a 5% tax and limit licenses to companies already with land licenses in the state.
  • Iowa -- Are looking to move quickly on a gambling bill as they estimate 150,000 people in their state already illegally online gamble on offshore sites.
  • Maine -- Having been discussed for over a year now and not gone anywhere, it does not seem important on the agenda even though the idea is frequently thrown around in committee.
  • Massachusettes -- Proposed by State Treasurer, would allow online Social card games, fantasy sports, and the lottery.
  • Mississippi -- Failed to get bill out of committee so far.
  • Native American Tribes -- Have proposed and discussed bills, but need federal legislation to allow population to gamble on a Native American land-based gaming server.
  • Nevada -- Signed into law a bill that legalizes online gambling and sets up framework for interstate online gambling.
  • Pennsilvania -- Will introduce their online gambling bill this week and is expected to pass within the week.
  • Texas -- Proposed Poker Gambling Act of 2013 but does not have a timetable and has considerable resistance.
  • Washington -- Proposed bill legalizing in home online gambling, has yet to be voted on. Should be resolved in the next few weeks.
Why Zynga Has an Advantage in Future Markets
According to The New York Timesonline gambling from mobile devices will be $100 billion by 2017. Coincidentally, ZNGA has set its primary focus in social gaming at increasing its mobile usage in an effort to transition its 300 million monthly users away from PCs and toward mobile applications (a transition that was 25% complete according to Q4 2012 data released in February).
Currently there are many online poker sites internationally that will compete with ZNGA in current markets and future markets if the U.S. continues to open up to online gambling. What sets ZNGA apart from other gambling sites is its connection to the growth of social media sites such as Facebook, LinkedIn (LNKD), and Twitter (which is yet to go public). If the market continues moving in this direction, then ZNGA, which is the No. 1 social gaming site in the world, will be poised to take a dominate roll in the future of online gambling. Its 89 patents -- mostly from Walker Digital -- based on online social gaming will create a new unique platform that is protected by its patent portfolio. In addition, the legalization of online poker in the U.S. according to a Goldman Sachs could create $12 billion in revenue alone, an estimate nearly twice as much as previously thought possible.
According to a research report by KPMP titled "Online Gaming: A Gamble Or A Sure Bet?," one of the four key drivers that will shape the industry over the coming years is:
Combining online gaming and social networking: social networking will be a key driver of activity and growth in the online gaming world, as it represents a natural extension to users of digital and mobile technology. Social networking's role in driving online gaming is especially significant because of its high levels and ease of remote access.
ZNGA has been priced as a terminal company until recently. Its share price reflected only a 50-cent above cash valuation that was due to many analysts believing ZNGA would never become profitable and soon fail. With its partnership with BWIN Party Digital Entertainment and its hire of key executives, ZNGA has made a determined effort to become a serious player in the international and U.S. real money gambling market. With the move from traditional web-based gambling to interactive social media style gambling inevitable, ZNGA appears to be at the right place at the right time to become a dominant force in the near future. If ZNGA can even manage to take 1/1000th of the current global online gambling market, it would generate enough revenue from gambling alone to justify its current market price.
If you can see ZNGA gaining any more than 1/1000th share of the global gambling market, or having any profit from its current games, then it seems imperative that the stock valuation will be increased. As ridiculous as this scenario seems, the downplay of the importance of its move to real money gambling has been worse. Starting with the Morgan Stanley Conference that ZNGA is presenting at on Monday, I think that there will be a huge course correction by institutions raising price targets to between $7 and $11, which I believe is still a conservative valuation.

February 20, 2013



"Go, gather together all the Jews that are present in Shushan, and fast for me, and neither eat nor drink three days, night or day; I and my maidens will also fast in like manner; and so will I go into the king, which is not according to the law; and if I perish, I perish" (Esther 4:16). So responded Esther to her uncle Mordechai when he requested that she present herself, unbidden, before King Achashverosh.

In commemoration of that fast, Jews around the world observe Ta'anit Esther, the Fast of Esther, on the 13th of Adar, the day before Purim.

If the 13th of Adar occurs on Shabbat, (as happens this year) the fast is observed on the Thursday prior. Thus Ta'anit Esther will be observed this year on Thursday, March 21, 2013.

The fast begins at dawn (aloht hashachar)* and ends after nightfall, during which time eating and drinking are prohibited. (Pregnant and nursing women, and others with health restrictions may be exempt from fasting--please consult your rabbi).

On Ta'anit Esther, as on other fast days, special prayers are added to the synagogue services:

1. Selichot (Penitential Prayers) and Avinu Malkeinu(Our Father, Our King) are recited during the morning service.

2. At the morning and afternoon service, excerpts from Exodus 32 and 34 are read from the Torah. These include the 13 attributes of God's mercy. At the afternoon service only, the Torah reading is followed by a special haftarah for fast days.

3. The Ah'nay'noo prayer, which asks for special forgiveness, is added to the morning and afternoon services by the prayer leader. An individual who is fasting includes Ah'nay'noo in the blessing of Sh'ma Koh'laynu (Hear Our Voices) when saying the afternoon service.

*Some people will get up before dawn and have an early morning breakfast (but this is permitted only if a decision to do so is verbally expressed the night before).

This Treat was originally posted on March 6, 201

February 01, 2013

The Politics Of Revelation | JewishPress

The Politics Of Revelation | JewishPress

The revelation at Mount Sinai – the central episode not only of parshat Yitro, but of Judaism as a whole – was unique in the religious history of mankind. Other faiths (Christianity and Islam) have claimed to be religions of revelation, but in both cases the revelation of which they spoke was to an individual (“the son of G-d,” “the prophet of G-d”). Only in Judaism was G-d’s self-disclosure not to an individual (a prophet) or a group (the elders) but to an entire nation, young and old, men, women and children, the righteous and not-yet-righteous alike.
From the very outset, the people of Israel knew something unprecedented had happened at Sinai. As Moses put it, forty years later:
“Ask now about the former days, long before your time, from the day G-d created man on earth; ask from one end of the heavens to the other. Has anything so great as this ever happened, or has anything like it ever been heard of? Has any other people heard the voice of G-d speaking out of fire, as you have, and lived?” (Deuteronomy 4:32-33).
For the great Jewish thinkers of the Middle Ages, the significance was primarily epistemological. It created certainty and removed doubt. The authenticity of a revelation experienced by one person could be questioned. One witnessed by millions could not. G-d disclosed His presence in public to remove any possible suspicion that the presence felt, and the voice heard, were not genuine.
Looking at the history of mankind since those days, it is clear that there was another significance also – one that had to do not with religious knowledge but with politics. At Sinai a new kind of nation was being formed and also a new kind of society – one that would be an antithesis of Egypt in which the few had power and the many were enslaved. At Sinai, the children of Israel ceased to be a group of individuals and became, for the first time, a body politic: a nation of citizens under the sovereignty of G-d, whose written constitution was the Torah and whose mission was to be “a kingdom of priests and a holy nation.”
Even today, standard works on the history of political thought trace it back, through Marx, Rousseau and Hobbes to Plato’s Republic, Aristotle’s Politics and the Greek city-state (Athens in particular) of the fourth century BCE. This is a serious error. To be sure, words like “democracy” (rule by the people) are Greek in origin. The Greeks were gifted at abstract nouns and systematic thought. However, if we look at the “birth of the modern” – at figures like Milton, Hobbes and Locke in England, and the founding fathers of America – the book with which they were in dialogue was not Plato or Aristotle but the Hebrew Bible. Hobbes quotes it 657 times in The Leviathan alone. Long before the Greek philosophers, and far more profoundly, at Mount Sinai the concept of a free society was born.
Three things about that moment were to prove crucial. The first is that long before Israel entered the land and acquired their own system of government (first by judges, later by kings), they had entered into an overarching covenant with G-d. That covenant (brit Sinai) set moral limits to the exercise of power. The code we call Torah established for the first time the primacy of right over might. Any king who behaved contrarily to Torah was acting ultra vires, and could be challenged. This is the single most important fact about biblical politics.
Democracy on the Greek model always had one fatal weakness. Alexis de Tocqueville and John Stuart Mill called it “the tyranny of the majority.” J. L. Talmon called it “totalitarian democracy.” The rule of the majority contains no guarantee of the rights of minorities. As Lord Acton rightly noted, it was this that led to the downfall of Athens: “There was no law superior to that of the state. The lawgiver was above the law.” In Judaism, by contrast, prophets were mandated to challenge the authority of the king if he acted against the terms of the Torah. Individuals were empowered to disobey illegal or immoral orders. For this alone, the covenant at Sinai deserves to be seen as the single greatest step in the long road to a free society.
The second key element lies in the prologue to the covenant. G-d tells Moses: “This is what you are to say to the house of Jacob and tell the people of Israel. ‘You yourselves have seen what I did to Egypt and how I carried you on eagles’ wings and brought you to Me. Now, if you obey Me fully and keep My covenant, you will be My treasured possession, for the whole earth is Mine. You will be for Me a kingdom of priests and a holy nation…’ ” Moses tells this to the people, who reply: “We will do everything the Lord has said.”
What is the significance of this exchange? It means that until the people had signified their consent, the revelation could not proceed. There is no legitimate government without the consent of the governed, even if the governor is Creator of heaven and earth. I know of few more radical ideas anywhere. To be sure, there were sages in the Talmudic period who questioned whether the acceptance of the covenant at Sinai was completely free. However, at the heart of Judaism is the idea – way ahead of its time, and not always fully realized – that the free G-d desires the free worship of free human beings. G-d, said the rabbis, does not act tyrannically with His creatures.
The third, equally ahead of its time, was that the partners to the covenant were to be “all the people” – men, women and children. This fact is emphasized later on in the Torah in the mitzvah of Hakhel, the septennial covenant renewal ceremony. The Torah states specifically that the entire people are to be gathered together for this ceremony, “men, women and children.” A thousand years later, when Athens experimented with democracy, only a limited section of society had political rights. Women, children, slaves and foreigners were excluded. In Britain, women did not get the vote until the twentieth century. According to the sages, when G-d was about to give the Torah at Sinai, He told Moses to consult first with the women and only then with the men (“thus shall you say to the house of Jacob” – this means, the women). The Torah, Israel’s “constitution of liberty,” includes everyone. It is the first moment – by thousands of years – that citizenship is conceived as being universal.
There is much else to be said about the political theory of the Torah (see my The Politics of Hope, The Dignity of Difference, and The Chief Rabbi’s Haggadah as well as the important works by Daniel Elazar and Michael Walzer). But one thing is clear. With the revelation at Sinai, something unprecedented entered the human horizon. It would take centuries, millennia, before its full implications were understood. Abraham Lincoln said it best when he spoke of “a new nation, conceived in liberty, and dedicated to the proposition that all men are created equal.” At Sinai, the politics of freedom was born.
About the Author: Rabbi Lord Jonathan Sacks, chief rabbi of the British Commonwealth since 1991, is the author of many books of Jewish thought, most recently The Koren Sacks Rosh HaShana Mahzor (Koren Publishers Jerusalem).