Here’s a look at one of the only direct tribal gaming exposures – Bingo Nation.

Tribal gaming is a hot topic right now. The attempt by certain lawmakers in Idaho to remove thousands of gaming machines from tribally run casinos in the state hit the headlines in February, with the campaign widely regarded as a direct attack on the industry in the state. As it turned out, The House State Affairs Committee voted to kill the so called anti-tribal gaming bill at the end of February, but this vote doesn’t end the process, and there’s still a chance Idaho’s tribally run operations could suffer setbacks.

It’s not juts in Idaho, either. In Connecticut, MGM Resorts International (NYSE:MGM) is offering resistance to a planned new tribal casino; a joint venture by the tribal operators of Mohegan Sun and Foxwoods, MMCT. MGM’s concern is that the MMCT venture will eat into the potential of its MGM Springfield property. As with in Idaho, it’s looking as though the tribal side of the argument will win out, and that (in this instance) the MMCT property will be built.

Both sides of the story, in both of the above situations, can be argued as valid. Each has strong points, and each has weak points. Whatever the opinions of those involved, however, there can be no argument counter to the point that tribally owned and operated gaming facilities will affect economic output in the states in which they reside.

Many don’t realize the extent to which tribal gaming facilities account for industry revenues. The most recent estimates (link here) suggest that US commercial casinos (i.e. not tribally ran) won a little over $40 billion in 2016, up from the $39 billion won in 2015. The entire casino industry won more than $70 billion in 2016. Tribal casinos, which generally win between $30 million and $35 million annually, account for the shortfall.

The tribally operated casinos and resorts through which these winnings flow don’t pay state taxes like a commercially operated entity does, but that far from negates them as contributing to the state in question’s economy. In Idaho, tribes donate millions in gaming proceeds to Idaho schools. Additionally, they tap the gaming revenue source to fund their tribal government operations on their reservations, and this filters through to employment (and by proxy, capital distribution). Idaho’s five Indian tribes employ thousands and are among the top 10 employers in the state.

Whatever states try to do to limit the operational capability of these entities, they continue to grow.

From a public market perspective, however, there are remarkably few opportunities to pick up an exposure to this growth. Some of the bigger name gaming players run (or have joint ventures through which they co-operate) tribal gaming locations, but said locations generally account for just a small portion of their revenues. By design, the industry is insular, and very rarely turns to the public markets for outside funding.

Every so often, however, an opportunity comes around, and public markets have a chance to pick up a direct exposure. One such opportunity just presented itself, and it’s rooted in – of all things – bingo.

A small penny stock called Bingo Nation Inc (OTCMKTS:BLTO) just turned its attention towards the space, and is trying to bring a bingo type game to the tribal gaming industry. It’s a pretty solid concept, at first glance. Basically, industry restrictions make it almost impossible to run a multi-tribe lottery type game. As any one who has visited a tribal casino will know, these operations are generally in the middle of nowhere, and that’s not by choice – they are only permitted to operate within tribal borders, and this mostly excludes the more metropolitan areas of the US. This within-border operational stipulation includes the selling of tickets for any lottery type game, and therein lies the issue. If you can’t sell tickets to anyone outside of your tribal borders, how can you run a multi tribe lottery?

It’s not that the opportunity doesn’t exist – estimates suggest a Powerball type game could generate hundreds of millions of dollars in player spend annually) – it’s that, so far, no one has been able to find a way to take advantage of it while remaining compliant to tribal regulations.

And this is where Bingo Nation comes into play. Its game is centered on the sale of bingo type tickets from kiosks located in the casinos of various tribes. The company has teamed up with a production team to produce a weekly broadcast, which is essentially a game show in front of a live audience. Members of the public take part in the game show, and the outcome of their various participations generate numbers. These numbers correlate to the cards that the players bought at the tribal casinos, and the winners are the ones that match the numbers with those broadcast.

On the face of it, this seems to overcome the problems that have stopped this sort of lottery type effort in the past. If Bingo Nation has finally cracked it, then the company could be a real winner.

That’s the upside.

The downside is that this is a penny stock play, and there’s very little in the way of concrete evidence to suggest that the company can substantiate its claims, and meet its own rollout targets. A look at recent filings reveals a new board appointment, a statement that essentially says the company has no money, and no revenues and some going concern issues and nothing more. There are some convertible notes outstanding that are going to dilute shareholders as and when they convert, and the company is going to need to raise cash to execute on its strategy, which only serves to deepen the dilution risk.

As those with a bit of experience in this sort of stock will know, dilution risk isn’t in itself enough to render a company uninvestable, but it is a very important consideration. To put it simply, a company is going to need to appreciate in value to a higher degree if a diluted shareholder is to see a return on his or her investment, than it would need to for a non diluted position.

Additionally, the company recently changed its name and ticker to reflect an operational pivot, and while this isn’t uncommon at this end of the market, it makes due diligence that little bit more difficult.

What we’ve got here, then, is a large and growing market to which investors would love to pick up an exposure, but practically nothing in the way of actionable allocations. The entities that do offer exposure, like Bingo Nation, are inherently risky. That said, given the limited scope of options, and for an investor with a bit of risk tolerance, the company might be a nice punt.

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