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European gambling ready to ante up in U.S. again

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The United States has dealt Europe's online gambling companies a promising hand at last. Laws introduced this year and last allow forms of online gambling to take place in three U.S. states. Investors may be wary after being burned in the online poker craze that took hold last decade. Yet while the stakes remain high, the odds facing Europe's croupiers are shortening.

Last year, Nevada legalized online poker and Delaware allowed Internet gambling. New Jersey approved online gambling in February and seven other states are considering following suit. That plays to the strengths of London-listed online specialists bwin.party and 888 Holdings, which have well-developed proprietary trading platforms. U.S. gambling companies, by contrast, have been slower to embrace the Internet.

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Research by Morgan Stanley estimates that annual gaming revenue in the 10 U.S. states where laws have been or could be changed could climb to $10-billion (U.S.) by the end of the decade. If federal laws are passed, which so far looks unlikely, the potential take could rise to about $14-billion by 2021.

Shares in bwin.party, meanwhile, are up 30 per cent this year, while 888 stock has climbed almost 40 per cent. That suggests they've priced in this U.S. growth potential, given the Eurostoxx 600 leisure and travel sector has risen only 14 per cent over the same period. Yet both companies trade at discounts to more heavily regulated peers such as Paddy Power or William Hill.

After the years in the middle of the last decade which saw such massive disappointment, investors in European gambling companies will be cautious. The U.S. arrests of the chief executive officers of foreign companies Sportingbet and BETonSPORTS left a psychological scar as well as losses. Trends in online poker also remain challenging. Bwin.party new player sign-ups fell to a record low in the third quarter.

But with governments in the developed world looking to boost tax revenues, fiscal imperatives may trump moral objections. The U.S. may loosen gambling legislation further. European gambling companies, who are ahead of most Asian or American players, may have first tilt at the U.S. online gambling jackpot.

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