Close on the heels of the MECN Gaming Industry Index, which claims that gaming stocks have grown by 40% in the past twelve months, comes the news that billionaire Mark Cuban plans to create an investment hedge fund to punt mostly on such stocks. Cuban's conclusions are quite simple when he states that the difference between investing on the SE and Las Vegas is down to the objectives of investors and gamblers. In the first instance the investors expect a return on the monies invested, while in the second the gamblers go to Las Vegas with no such expectations because they go for fun, knowing that they will lose money gambling.

The money gamblers lose is at the centre of Cuban's theory, which concentrates on the monies won systematically by the casinos, that will be generated by his proposed investment funds. Cuban states that whether the investment is on sportsbooks, blackjack or poker, the value is not found beyond the real gaming action or the game itself. This is similar to the millions of dollars placed on options each day, and that will never convert into stock, or any other asset. Cuban's plan is to use the hedge funds investment strategy to support his theory.

It is relevant at this point to recall Princeton Professor Burton G. Malkiel's 'blind monkey' theory first suggested in 1973, when it was conceived that the selections randomly spiked from darts thrown by a blind monkey on to the financial pages of The Wall Street Journal were just as good as those jealously picked by a finance expert. In his theory, Professor Malkiel proposed that the financial markets were efficient in the long term because it reflected the true value of the companies. However, it was practically impossible to predict the markets' behaviour in the short term, and it was preferable to invest on an index rather than create a stock portfolio. Rather than the rantings of a maverick gambler, who just happened to read a financial excerpt from the Reader's Digest, Cuban's information goes to the core of the gaming business both on the operational and regulatory aspects. While he is aware of the operational gaming revenue mechanics, he is also critical about the SEC's controls, and praises the exemplary controls set by the gaming control boards:

"Contrary to what happens in the financial markets, (in gaming) you know exactly the rules of play and you'll know that the casino will play by those rules. The Gaming Control boards ensure that the rules of play are complied with, unlike the SEC." Cuban added, "I have learnt that in spite of everything that has been written about the efficiency of the stock exchanges, individual stock quotes are not efficient. And there will always be people investing with good or bad information. These people will invest more by a hunch than with logic, and these people are just gambling. No more, no less."

The high risk fund that Cuban intends creating plans to invest in gaming and sportbooks stocks because the information on these stocks and sports events is more transparent than that available from the stocks in the financial markets. Once more, Cuban is critical about the quoted companies, complaining that not only the information from them is not available on a daily basis, preferring instead to go to great pains to conceal their business endeavours, when they are supposed to be making public such information.

One expects that Mark Cuban's hedge fund will look further than Las Vegas to profit from his investments, as both Europe and Asia are promising gaming markets, and will surely enhance his portfolios or gaming 'indexes'. As Martin Oelbermann, author of the study published by MECN indicates, Europe is one of the most promising gaming stock markets: "As many as 7 out of the top 10 stock performers are European companies. This shows that the increasing liberalization gives European gambling companies an edge in achieving top financial performances."

Whether or not, through the efforts of Cuban or Oelbermann, gaming stocks will figure highly in the sights of fund managers in 2005 is yet to be seen but, if not in the blue chip class yet, they are certainly getting hotter by the day.

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