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What Does Matheson’s Appointment Mean For Bingo Nation?

It's a good validation for the company's prospects in the tribal gaming space...

Via Mark Doliner

Tribal gaming company Bingo Nation Inc (OTCMKTS:BLTO) just announced the appointment of David Matheson to its Board of Directors. Those familiar with tribal gaming will likely already be familiar with Matheson – he’s played a key role in the development of this category of gaming in North America over the last thirty years. For those not familiar with him, we’ll take a closer look at his CV shortly, but suffice to say for now he’s a big player in tribal gaming, and (and herein lies the root of our highlighting his appointment in this piece) it’s unusual for an individual of said stature to take a front-facing appointment in such a young company.

Bingo Nation, in its current form, is essentially a gaming startup. With this in mind, does Matheson’s involvement make the company one to watch?

Let’s take a look,

First up, as promised, a bit on Matheson and his background. He’s a 65-year-old veteran of the Indian and tribal gaming space, having held a range of positions in both the private and the public sides of the sector. Back in 1989, he was appointed by President George H. W. Bush to serve as Deputy Commissioner for Indian Affairs, US Department of the Interior. He held this position four its four-year term, overseeing the implementation of the Indian Gaming Regulatory Act (IGRA), which had come into play in 1988. This is a key point, and one we’ll come back to.

Since his role in the Bush administration, Matheson picked up an advisory role to the President’s Commission on Tribal Colleges and Universities, and then, in 1994, became CEO of the Coeur d’Alene Casino & Resort Hotel in Worley, Idaho. Again, those familiar with tribal gaming will likely know the resort in question – it’s regarded as one of the leading tribal gaming facilities in North America, with 100,000 square feet of gaming space and more than 300 rooms.

That’s Matheson. What’s Bingo Nation?

The company is a gaming entity that is essentially trying to create a niche market in the tribal gaming sector. The market is rooted in cross-border gaming. As a quick introduction to this space, tribal gaming is the Native American incarnation of the mainstream casino and gambling sector in the US. Tribal law dictates that the industry is governed internally, as opposed to Federally or at state level (as is the case with the mainstream casino industry) and the sector falls under the remit of the above mentioned IGRA. Basically, casinos collect revenue from gamers, and a large portion of the profits go toward Indian tribal development. There’s no direct taxation paid to the state, but there are certain routes in place through which a portion of revenues flow towards the US government.

A key element of the IGRA, however, and it’s implementation in the case of tribal gaming, is that there can be no cross border selling. Tribal gaming entities can only operate within their own borders, meaning things like casinos are fine (where players come to the site) but things like national level lottery syndicates (think Powerball, etc.) are not.

It’s not that the Powerball concept goes against Tribal law; it’s more of a logistics issue. Specifically, it’s very difficult to sell tickets at a national level when buyers cannot buy them from outside of tribal borders. A team tested the concept back in 1995, trying to overcome the just mentioned issue by offering tickets for sale over the phone. It never really got off the ground, and was shut down within a year or two.

Here’s Where Bingo Nation Comes Into Play

The company is trying to do what failed in 1995 – start a national lottery type game that operates across tribal borders, similar to Powerball but in line with class II regulation. Crucially, though, Bingo Nation differentiates itself from the already failed attempt by selling tickets through kiosks, as opposed to online or over the phone. It’s a bingo format, rooted in a proprietary winners algorithm that the company has developed to facilitate payout, and is designed to be drawn live by way of a weekly televised broadcast.

Tribes place kiosks within their own borders, having rented them from Bingo Nation.

Why might this succeed when the previous effort failed? Because it falls in line with IGRA regulations. Players buy tickets direct from the kiosks, meaning participation is on a national scale, while purchasing remains tribal-centric.

This, for us, is why having someone like Matheson on board is so important. It validates the concept, since we can assume that the company’s approach complies with all the necessary rules and regulations necessary to operate within this space.

So Why Would Matheson Get Involved?

Well, a tribal version of the Powerball is something that has long existed as a sort of low hanging fruit in the gaming space, but something that, by way of certain regulatory hurdles, has yet to be taken advantage of. It’s reasonable to conclude that Matheson sees the Bingo Nation approach as valid, and has joined the company on the back of his expectations that it will finally succeed in picking the low hanging fruit.

One man’s opinions aren’t a valid investment thesis, of course. Sure, if there was one man that we would want to see joining a tribal gaming entity as validation of its concept, then it’s Matheson, but it far from makes this a sure thing from an investor perspective.

As we said earlier, this is essentially a gaming startup. The company is yet to generate any revenues from its operations in this space, and while the system it is putting in place has picked up the necessary regulatory validation (as per this release), it’s still an as yet unproven concept. There’s also a strong capital risk. There’s little to no cash in the bank, and Bingo Nation is going to have to issue equity if it is going to raise the cash required not just to get underway with its rollout, but to expand toward its own 3,000 kiosk deployment target. Equity issue means dilution, and dilution means proportional value depreciation for early stakeholders.

What’s the Bottom Line?

Matheson’s appointment is as good a validation as any for a company’s prospects in the tribal gaming space, and there’s an undoubted and well established opportunity in bringing a Powerball type concept to the sector. The risk here is rooted in the immaturity of the company in question, and the associated capital risks of backing a young entity.

Author has no position in any company mentioned in the article above, but may or may not take a position at a later date.

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