888 is the tortoise, The Stars Group is the hare

TAGs: 888 Holdings, Editorial, The Stars Group

When investors think of The Stars Group, they think big. World Series of Poker, huge promotional events, largest online gaming company, leveraged buyouts, crazy stock moves. When they think of 888, they think slow and steady, lone wolf, slow burn. The Stars Group was, is, and continues to be a trading vehicle. 888 is an investment. The wild moves in TSG feed on themselves, forcing investors in and out of positions due to the emotional extremes involved in holding it.

888 is the tortoise, The Stars Group is the hareIt’s easy to say “well just buy the dips and sell the rallies”. It’s much harder to actually do it. When a stock is tanking and your position is going deeper and deeper underwater, just try to pull the buy trigger. Wear a blood pressure and heart rate monitor. See what happens. When a stock is rallying and your position is going more and more in the green, just try to sell it. See what happens. See if your mind can break through the emotions that constantly stop us from actually pulling it off.

If most people bought dips and sold rallies, dips would be minor and rallies would be gentle. If everyone bought dips and sold rallies, there would be no dips or rallies. The reason big dips and big rallies happen in trading vehicles is that people sell dips in fear of losing more money and buy rallies in fear of losing out, amplifying them. While this does provide a great opportunity for trading experts to make a lot of money, the chances that any of us are actually trading experts is infinitesimal.

Anyone can win on any given trade once in a while. Almost nobody can do it consistently. If there were a 12-step program for trading addicts, recognizing this truth would be the first step towards a cure. Here’s a picture of what I mean:

888 is the tortoise, The Stars Group is the hare

Over a 10 year period, 888 and TSG are up by nearly the exact same percentage. There have been leadership changes over the last 10 years, though 888 has been in the lead most of the time, and whenever TSG took the lead, it quickly fell back down again. The difference long term though is total return. 888 pays a dividend and will most likely continue doing so. TSG never paid a dividend, and has no plans to do so in the future either. It has debt to pay back and can’t start wasting capital paying dividends.

Well, say the naysayers, this is just cherry-picking. TSG has outperformed 888 over the last 5 years. Yes, but who knows when the next rollercoaster dump for TSG will hit? Will you be able to hold on to it when it does, or will you sell in fear of losing your gains?

As far as I can see, 888 will continue to edge higher with minor dips followed by the occasional spurt higher, followed by another minor pullback and so forth. Meanwhile, dividend reinvestment will grow your position over time without any need to actively buy any dips.

There are two primary reasons I see the seesaw TSG and slow-and-steady 888 pattern continuing over time. The first is debt, and the second is the United States. 888 still has no debt, thanks to being left out of every major gaming merger this decade. TSG has $2.3 billion in debt. That’s not horrible considering its market cap and it’s not a serious threat. The problem though is substantially all of it is due in 4 years. At that time TSG will have to roll it over, and 4 years from now we will all be in a very different world.

Can they roll it over? Probably yes. The question is at what rates and at what terms. For the next 3-4 years TSG will be on easy streak. But when principle comes due, the terms for rolling it over won’t be anywhere near as good as they would be now. Maybe TSG can pull an Elon Musk and float the idea of a mission to Mars to start a gaming colony and equity raise off the hype. I think I remember seeing one on Total Recall. Or a poker-themed trans-Pacific bullet train that travels at Mach 50 tunneling under bedrock, or sell some flamethrowers that double as slot machines and raise a few billion or something. It works for Musk.

Don’t get me wrong. I’m not saying the debt is a major problem or a crisis or anything. Just that when it comes due it will slow the company’s growth somewhat, to what degree I do not know, and that 888 will not have this problem.

As for the second reason, the United States, it will eventually become one of the biggest Sportsbook markets in the world. 888 has a better foothold there than TSG, holding licenses in every legalized jurisdiction already, and sports is its fastest growing segment. When the next recession hits, US states are going to be looking for additional sources of revenue. Legalizing and regulating sports betting could start to climb the list of priorities for state legislatures and 888 will be in a position to capitalize on this. 888 is even ahead of TSG in TSG’s bread-and-butter poker market, in the US. 888 is the only provider of poker and casino solutions across all three regulated markets in New Jersey, Nevada, and Delaware. 888’s BLAST poker was introduced in New Jersey this year. It’s a stealthy low key start but an important one.

TSG does have one advantage over 888, but I don’t see it as that big of an issue and should be resolved at some point soon. TSG has a license in Malta, which is important in the event of a hard Brexit in March, which just got more likely with the resignation of a large swath of British Prime Minister Theresa May’s cabinet. A revolt could soon take hold, bringing an end to her leadership and a Brexit hardliner could take over and bring negotiations back to square one with the Article 50 click still ticking. 888 is aware of the need to establish a licensing foothold in Malta and is currently working on it so as not be stuck in the United Kingdom if and when the bridge with the European Union is burnt.

Conclusion: If you want to try your luck at trading, go with TSG. If you want a better chance at growing your capital with much less stress so you can focus on other things, like ceramics or impressionist finger painting or building a gaming colony on Mars, go with 888.


views and opinions expressed are those of the author and do not necessarily reflect those of