PokerTek - real company or scam?

[midas]

Is this Company for real?

PokerTek rides gambling wave
by Kate Gibson Posted 03:56 EST, 5, Aug 2005

Seeking to cash in on the poker craze, gambling technology company PokerTek Inc. has unveiled plans to raise about $23.3 million in an initial public offering.

Under the company's plan, which it filed late Thursday, Aug. 4, with the Securities and Exchange Commission in the form of a preliminary prospectus, Matthews, N.C.-based PokerTek would offer 2 million shares. The deal, which Minneapolis investment bank Feltl and Co. underwrote, priced shares in the offering at $10 to $12 each, according to the filing. John Feltl, a principal at the underwriter, owns roughly 30,500 shares of PokerTek's stock.

PokerTek's effort follows a similar move earlier this summer by British online poker company Partygaming plc. The Gibraltar-based company in early June announced plans for an IPO that could value it at up to $10 billion.

To date, PokerTek has been a money-loser, although it hopes to cash in on the boom in poker. The company leases electronic poker tables to tribal casinos and card clubs, hoping to offer them the ability to cut out the labor cost of hiring live dealers.

PokerTek has struck only one deal, with the Seminole American Indian tribe of Florida, which operates six casinos in three cities or towns in the Sunshine state. At the end of July, the company took in its first operating revenue of $12,000 from the Seminole tribe for their use of two PokerPro system tables in July.

PokerTek has operated in the red since it was formed under the name National Card Club Corp. in August 2003. The company, which took the name PokerTek in July 2004 after merging with an affiliated company, had a net loss of nearly $926,000 in the fiscal year ending Dec. 31, 2004, according to the IPO filing. The company incurred a net loss of nearly $1.6 million in the six months that ended June 30, 2005. As of June 30, PokerTek had run up a deficit of $2.57 million.

Assuming the sale of 2 million shares in its proposed IPO, the company's three founders — CEO George White, James Crawford and Lee Lomax — would collectively hold a 49% stake in the company, which had a book value of $2.5 million as of June 30, 2005, according to the filing.

Since its start, the company has run on loans from its principals and WPT Enterprises Inc., the West Hollywood, Calif.-based operator of the World Poker Tour. WPT hosts gaming events that have gained popularity on cable television. Its executive director, Lyle Berman, also serves as chairman of the PokerTek board.

For counsel, PokerTek retained Robert Donlon and Elizabeth Derrick of Womble Carlyle Sandridge & Rice PLLC. William Mower and Alan Gilbert of Maslon Edelman Borman & Brand LLP were underwriter's counsel.

PokerTek said it will apply for a listing on Nasdaq under the ticker PTKE.

[MrMon]

Don't know how good a company it is, but I was wondering how long it would take for someone to come out with an electronic poker table to deal live low limit games. Now I know.

If it's going through with an IPO, it's probably a real company. There are a couple warning signs (very high insider ownership, only founded 2 years ago) that make me wonder. You'd have to look at the rules for insiders selling stock to see. Basically you want to know if they can dump their shares as soon as it IPOs.

That doesn't mean it's a good investment. An automated poker table is a good idea, and would save on dealer costs, but there are a lot of problems.
1. Dealers aren't that expensive for the casino. A lot of the dealers' income is from tips. Let's say the dealers make $10/hour including benefits. Replacing them will could save the casinos $160/day/table. However, there will be new costs of maintenance. Also, there will still have to be some kind of assistance on the floor to prevent collusion.
2. Will players want to play there? Inexperienced players will want to play someplace where their questions can be answered by the dealer. Experienced players probably don't care too much, but they mainly want to play where the inexperienced players play.
3. Is the market large enough? It looks like they're charging $6000/table. It's hard to tell if this is a monthly, annual, or one-time fee. It's hard to imagine it's a monthly fee, because the casinos can't be saving too much money with this. Let's assume the profit margin is something like $3000/table. In order to wipe out their debt, they'll have to sell about 1000 tables. That means they'd have to replace the majority of the poker tables in the US, just to break even. Just 998 to go...

Stay far away.

[midas]

Couple other interesting points:

-Website is a joke - not even a picture of the technology.
-Cross ownership with WPTE founders.
-Never heard of the bank that is taking them out.
-Don't most casino tech firms headquarter themselves in Nevada?
-Foxwoods can't make autoshufflers work- why is this better?

[TGoldman]

With this technology, B&M casinos will now have the opportunity to easily rig live games the way they do on the internet! Welcome pattern mappers, action flops, etc. to the world of brick and mortar! /images/graemlins/grin.gif

Plus, if they already have the tables ready to deliver to the casinos, what do they need $20 million for? They've done the hard part of designing and programming it, now they just need to market it. If this were going to be profitable on its own, they'd keep it private.

You might ask the same thing about Party. It's well established and throwing off lots of free cash flow. There's not much reason for them to go public, except to let the founders cash out at the peak of poker's popularity. I suppose they might want to buy out some of their competition, but other than that they don't need the massive capital infusion that comes with an IPO.

[Sniper]

Here's the prospectus...

PokerTek Inc (http://www.sec.gov/Archives/edgar/data/1302177/000119312505157657/ds1.htm)

[tek]

[ QUOTE ]
what do they need $20 million for?

There's not much reason for them to go public, except to let Lyle Berman cash out.

[/ QUOTE ]

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