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Attractiveness of Sector

Many factors are moving to make this sector very attractive:

FREE ADVERTISING

The big difference between stock market games and other games is that the stock market gets billions of dollars of free advertising. Every time you watch the news or listen to 680 AM, they tell you about the stock market (and sports). They don't give you results of Poker, Casino or Farmville games. When your car radio tells you that Dow dropped 100 points, it will remind you of your game on StockGaming and you will say "Yeah!" or "Shit!". CNBC is like a sports channel. With tickers and numbers flashing and people speaking fast, they create a sense of urgency and action-packed excitement. No other games, other than sports, enjoys this kind of free advertising…and it's 12 months a year.

PERCEPTION VERSUS REALITY

Michael Lee-Chin said that when there is a difference in perception from reality, there is an opportunity. The perception is that every buyer of stocks is an investor. Hence, companies provide a plethora of SERIOUS, COMPLICATED, "investment" products and services to these "investors". The reality is that there are niches, such as day-traders who are gamblers and gamers who would love to play the stock market but think it is too complicated or expensive. Hence, companies under-supply them with FUN, SIMPLE, AFFORDABLE "gaming" products and services. This is the opportunity.

News

Morgan Stanley's report on Social Gambling and Online Gambling

Example of Social Gaming: Angry Bird where players buy virtual goods.

Example of Social Gambling: Zynga's Poker on Facebook where users buy more chips when they run low, but cannot cash out the chips.

"Social gambling is a surprisingly large and high-growth industry"

"The social gambling market dwarfs real money online gambling operators"

"We think industry growth is not yet fully reflected by the market. We consider this to be an early stage industry, seeing strong growth, and a rapidly evolving business model and industry structure."

"Sizeable player base suggests long-term potential is high...There are currently an estimated 800m active social gaming players globally in 2012, or 12% of the total world population. Over 20% of these customers (173m) play one form of casino-style game via a social gaming platform or mobile phone every month.... number of users who use real money gambling sites...estimates to be 49m in 2012."

"...3m social casino customers...in 2012...contribute an ARPU (Average Revenue Per User) of c.$500. This compares to an estimated 49m real money gamblers, with an ARPU of c.$700."

"Competition: People are competitive and want to accumulate more chips or awards than friends or other players. Leader boards and rankings (becoming a poker "big dog") are important.",

"Social gambling is now around 20% of the total social gaming industry by revenues. This proportion has been rising steadily since 2010, and we expect this trend to continue"

"Gambling games have a higher player retention."

"Monthly Active Users for social gambling...rising at >100% per year"

"Gambling is the highest growth of all the genres of social games"

"Social gambling is accessible to anyone with access to the internet. There are currently no legal or regulatory restrictions in any country, such that anyone with a smartphone or PC can access online social gambling games"

"...total population of gamblers is 1.5-3bn (which is 30-50% of the global population)...In the UK...73% of all adults gambled.... In the USA,...60% of adults gambled..."

 

Zynga Rivals Forge Online Gambling Alliances With Betable

"Mobile gambling will grow to $100 billion worldwide by 2017, driven by surge in social-website gambling and legalization in key U.S. states, Juniper Research estimated in May."

What business to start in 2012: Social gaming

"With Facebook users now spending a billion hours a month playing games on the social network... it's easy to see why this sector is such big business"

"Another option is social betting, allowing people to bet on live events against their friends, and banter with each other as the spectacle unfolds. The competitive-yet-friendly aspect of betting dovetails perfectly with social networking, and it seems people are happy to part with real money to enhance the gaming experience."

Betable teams up with French developer for real-money gambling games

Morgan Stanley's report on Social Gambling

"Social gambling is a surprisingly large and high-growth industry"

"The social gambling market dwarfs real money online gambling operators"

40% of UK population now play games says new ISFE report

 

Legalities and Morality

Disclaimer

Our information below should not construed as fact or accurate. Readers should confirm this information with their own lawyers.

Summary

Both stock trading and our games involve a significant level of skill. Both should not be classified as gambling due to the level of skill needed, but they are because they involve some element of chance. What constitutes gambling is if the activity has these elements:

  • Stake
  • Chance
  • Profit or Loss

Based on the above, many skill-based activities can be classified as gambling, including insurance, real estate investing, etc., if they involve some chance. Not all gambling activities are the same. Some involve 100% chance and zero skill, such as lotteries.

The U.S. government has deemed trading stocks to be gambling by making an exemption for it in their anti-online gambling law (UIGEA). Stock trading is legal gambling because companies need to raise money. The government deemed futures to be gambling and banned it at one time but legalized it to enable farmers to hedge.

Therefore, there is legal gambling and illegal gambling, and gambling is not immoral as some people think, as many gambling activities involve significant skill and provide significant value to society and the economy. Our games provide the same value that Disney provides: fun and entertainment. More is explained later below.

What the government legalizes is not correlated to the level of skill versus chance. As an example, online poker which requires skill, was banned. Not only do lotteries require no skill, U.S. state governments have legalized it in 43 states and are the world's biggest promoters of gambling. The reasoning is explained later below.

Since our games do not enable companies to raise money or farmers to hedge, we do not enjoy the same exemption and therefore the real-money version of our games are classified as online gambling and are illegal in the U.S. We believe that our skill-based games should not be banned, but we do not intend to lobby or debate the government.

Comparison of Gambling Activities

Trading Stocks
StockGaming
Insurance
Investing
(including Real Estate)
Lotteries
Casinos
Online Casinos, Poker, Sports Betting, etc.
Involve the 3 elements of gambling?
(Stake, Chance, Profit or Loss)
Y
Y
Y
Y
Y
Y
Y
Skill Level
High
High
? to High
Low to High
Zero
Zero to Medium
(depending on the game)
Zero to High
(depending on the game)
Deemed as Gambling?
Y
(by U.S. government and Boston University Law Review)
Y
Y
(by U.S. gambling lawyer

Futures and Options
by U.S. government)
Y
(by Boston University Law Review)
Y
Y
Y
Main Value
Help Companies Raise Capital and Make Money
Fun and Entertainment
Protection
Make Money
Win Money
Fun and Entertainment
Fun and Entertainment
Reason for Ban in U.S.
(according to Boston University Law Review)
Protectionism, Class Discrimination and Insufficient Tax Revenues

Every activity below includes the three elements that define gambling: Stake, Chance and Profit or Loss, with the exception of StockGaming (free games with play-money).

Comparison of Gambling Activities

While all forecasts in our plan are focused on markets outside the U.S. where online gambling is legal, we believe our penetration into U.S. markets will unfold as individual U.S. states pass laws permitting online gambling.  Widely publicized by the press, the U.S. Justice Department announced at the end of 2011 that it was reversing a five-decade-old policy declaring that only online betting on sporting contests is unlawful.  See "Momentum towards Legalization" below.

While this is a terrific development for StockGaming, our initial focus will be on markets where online gambling infrastructure is already in place.  The U.S. will come later as laws get relaxed and the infrastructure permits.

In the mean time, U.S. players can still play our games for fun without wagering, allowing us to build a loyal customer base now that can be further capitalized upon when the online gaming landscape in America is predictable and favourable.  Note that in the interest of conservatism, we have not forecasted revenues from non-wagering American sources. Besides, the far more lucrative revenue-model is from the real-money games and approximately 75% of the worldwide online gambling market is from outside of North America (source).

Many Have Already Invested in Gambling Companies

It is perfectly legal for investors to invest in a gambling company, as long as the company operates lawfully. Millions of people already invest in gambling companies on a regular basis. Examples:

  • The numerous gambling stocks that millions of investors buy directly or indirectly through mutual funds, pension funds or hedge funds (source: Casinos and Gaming companies from Google Finance):
    • Cryptologic
    • Chartwell
    • MGM
    • Wynn
    • Las Vegas Sands
    • Monarch
    • Melco Entertainment (Hong Kong company)
    • Boyd Gaming
    • Pinnacle
    • Ameristar
    • IGT
    • WMS
    • ShuffleMaster
    • Multimedia Games
    • PokerTek
    • Scientific Games
    • Entertainment Games
    • Gaming Partners
    • MTR
    • Asia Entertainment (Hong Kong company)
    • Isle of Capri
    • Empire Resorts
    • Caesars Entertainment
    • Century Casinos
    • Nevada Gold and Casinos
    • Entertainment Gaming Asia (Hong Kong company)
    • Dover Downs Gaming
    • Full House Resorts
    • Ameristar
    • Penn National
    • Lakes Entertainment
    • Canterbury Park
  • IGT buying Swedish based Entraction, which is a poker operator.

If investors own emerging market funds, they will likely own more gambling companies such as Galaxy, a $10bn gambling company.

Most People Gamble All The Time

Contrary to popular belief, it is not mainly the lower class that buys lottery tickets. According to the documentary Lucky (1 hour 22 minutes into the video):

"More than half of all American adults play the lottery, making it, by far, the most popular form of paid entertainment in the country"

"Every year Americans spend $7 billion on movie tickets, $16 billion on sporting events, $24 billion on books, $62 billion on lottery tickets"

According to this article, the rich buys lottery tickets as well. Lotteries are like online dating. Most people do it, but they will not admit to it.

Moreover, Americans gamble $16 billion a year on online poker (source) and $34 billion a year on casinos (source).

The Boston University Law Review's paper entitled
REGULATING PUBLIC MORALS AND PRIVATE MARKETS: ONLINE SECURITIES TRADING, INTERNET GAMBLING, AND THE SPECULATION PARADOX, explained in detail how gambling and investing are identical. Therefore, both of the following are gambling activities:

  1. online investing
  2. online gaming that involves money

The U.S. government did not ban the latter (#2) for morality reasons. They banned it for:

  • protectionism
  • class discrimination (upper class is allowed to gamble, but not the lower class)

The above paper is long, but you can get the essense from reading the conclusion at the bottom of that paper. This is for your information only, in case you had any qualms about the morality with gambling. We have no intention of lobbying or debating with any government, even though they are the world's largest promoters of gambling. (Biggest lottery jackpot is $640 million. Most private gambling operators would salivate if they can offer a $1 million jackpot.)

Both #1 and #2 above are considered gambling because both have the following three elements that define gambling:

  • Stake
  • Chance
  • Profit or Loss

Even though investing in stocks (and our games) is based on a significant level of skill, there is still an element of chance. Hence, it is deemed as gambling by the Boston University Law Review. Different types of gambling activities have different levels of chance versus skill. Some gambling activities, such as lotteries and slot machines, are based on 100% chance and 0% skill. Some gambling activities, such as Poker and Blackjack, are based on both chance and skill. We do not know if skills make up 20% or 80% of the game, but it is definitely greater than 0%. One can argue that all activities have some level of chance, including sports. Football or hockey might be based on 2% chance and 98% skill. If you ask many sports fans, who complain that the opponents got "lucky", they would claim that the game is based on a higher level of chance than 2%.

Therefore, what most people do not realize is that most people are (legal) gamblers on a regular basis, based on explanations from the Boston University Law Review and Greg Gemignani, a U.S. gambling lawyer. According to Gemignani, the U.S. government deemed that trading options and futures was gambling and banned it at one time. Then they legalized it to enable farmers to hedge. Many investors have sold (covered) call options. Options are only one type of derivatives as there are many types. A popular one is Credit Default Swaps (CDS). Wall Street trades billions of dollars of CDS every year to make bets on whether home-owners, companies or countries will default. Retail investors trade billions of dollars of leveraged bull and bear ETFs, which are derivatives. According to the Washington Post, the derivatives market is worth $600 trillion. Even if you do not trade derivatives directly, your hedge fund uses derivatives.

According to this CNBC article:

"…average holding period sits at just 3.2 months"
"…average holding period for the S&P 500 SPDR (SPY), is less than five days"

When the holding period is so short, one can assume that this is gambling, as luck is a significant factor on the profit or loss.

According to Gemignani, insurance is gambling. They all have the same three elements that determine if an activity is classified as gambling:

  • Stake
  • Chance
  • Profit or Loss

Based on the above three elements, millions of people also gamble on real estate. In 2006, over a third of homes purchased in the U.S. was for speculation (source). Based on the above three elements, Christopher Columbus and Spain took a gamble to send three ships to the new world. Oil and mining companies are huge gamblers. They risk millions of dollars every time they drill a hole. Sometimes they lose. Sometimes they win. Entrepreneurs are huge gamblers. They put in a huge stake, take a huge chance and many of them lose. The few that win, win a huge pay-off. Every business is a gambler. Every business needs to conduct sales or marketing, which are gambling activities. They all involve stake (cost of hiring sales reps or marketing campaigns), chance (possibility of getting insufficient customers) and profit or loss. Few businesses would exist without sales or marketing.

The type of gambling activities that the government legalizes is not dependent on the level of chance versus skill. According to the Boston University Law Review, the ones that are illegal are the ones where the government cannot reap sufficient tax revenues.

In summary, the definition of "gambling" has become very limited in society, to include mainly those activities that we associate with casinos. In fact, there are numerous activities that are also gambling activities.

Gambling Provides Significant Value

As explained above, gambling is not bad. It is not a four-letter word that some people try to make it. In fact, gambling provides a lot of value.

Social and Economic Value

It can be argued that society and our economy cannot function without gambling. Without gambling:

  • the Europeans would not have discovered the new world
  • companies will not be able to raise capital
  • farmers will not be able to hedge and plan ahead on the crops to grow
  • there would be no oil for your car or for the making of hundreds of products that you use
  • nobody would have started any businesses and essentially there would be no economy
  • people will not be able to drive because they will not be able to get insurance
  • without health insurance, many more people will be driven into bankruptcy

Entertainment Value

Gambling makes games much more fun. There is a reason why Poker is more popular than Monopoly, Scrabble or Dominos. It is because it involves money. People have played Poker for over 180 years and Mah-Jong for hundreds of years. Millions of people play these games on a regular basis because they have fun, not because they want to make a living from it or to make money from their friends. They can play them for free, but they prefer to play for money because it is more fun with money. Sports fans can watch sports for free, but millions of Europeans wager on the games because it elevates the excitement and fun. On StockGaming, you won't make or lose as much money as on the stock market, but you'll have fun.

Even the stock market provides entertainment value. One investor stated that he wanted to be able to check his stock prices daily to watch them go and up down. He said that "it would be more fun" this way. Another investor stated that she "enjoyed" checking the value of her portfolio on Google Finance every day to see how much it had gone up or down.

People complain that gamblers can lose too much money. Millions of people have lost way more money to stocks and houses than they have to Las Vegas.

Momentum towards Legalization

The following is our opinion and should not be construed as fact. Empirical evidence suggests that there is a growing momentum towards online gambling legalization in North America for the following reasons:

  • Heavy lobbying by the City of Las Vegas, which has a highly vested interest in gambling generally
  • North American governments are watching billions of dollars go to foreign companies through illegal wagering by their citizens. There is mounting pressure on politicians to generate and increase tax revenues by legalizing online gambling federally and on a state-by-state basis. (Congress Rethinks Its Ban on Internet Gambling, Online Gambling Exec Bets on Legalization)
  • Washington D.C. has legalized online gambling, suggesting that the proximity to Federal government legislators may accelerate relaxation of Federal laws banning online gambling

The following quotes were originally posted in the CBS News article: Online gambling fight now about when — not if:

"The fight to fully legalize online gambling in the U.S. is now less about whether Americans will be able to play and more about who will bring the action to them — and when.

A recent U.S. Justice Department opinion opened the door for cash-strapped states and their lotteries to bring online gambling to their residents, as long as it does not involve sports betting." (Justice Department's opinion can be seen here.)

The following quotes were originally posted in the Wall Street Journal article: Legal Experts See States Wagering on Online Gambling:

"In a sweeping reversal, the Justice Department's Office of Legal Counsel said that such gambling within a state would no longer be considered illegal because the Wire Act—a law with contradictory language that has long been the subject of debate—doesn't apply to any forms of gambling other than sports betting.

The change essentially gives states the green light to allow gambling within their borders…

Nevada regulators voted to adopt the first-ever state regulations around online poker, which for now would allow companies to operate poker sites limited to players within Nevada.

The decision could also create momentum for bills that have been percolating in California, Iowa and elsewhere to allow gambling companies to offer poker within their state"

The following quotes were originally posted in the ABC article: Online Gambling, Casinos to 'Sweep' U.S. in 2012:

"All we're seeing is every single state proposing more and more legal gambling…

Washington D.C. and Nevada are already poised to start online gambling, mostly poker. Kentucky's Gov. Steve Beshear is pushing for expanded gambling in his state. And in Illinois, there are hopes that online tickets will increase sales for the lottery.

This would be good news for Florida, where lawmakers are set to consider a measure to bring three casino resorts to the southern part of the state. In New York, the governor is pushing for the legalization of casino gambling."

The U.S. federal government has essentially removed its law and is leaving it up to the states to decide on whether they want to legalize online gambling. Washington D.C. and Nevada have legalized online poker. The following news reports came out in the past few years, which show other countries pressuring the U.S. to allow online gambling:

E.U. Online Gambling Operators File Complaint Against U.S. for Discriminatory Practices:

"After the W.T.O. ruled that the U.S. had violated trade rules in barring Antiguan online gaming operators from the U.S. market, the U.S. withdrew its W.T.O. obligations with regard to free trade in the gambling area. Earlier this week, the European Union and several other countries, including Japan, Canada, and Australia, agreed to accept compensation from the U.S. for the withdrawal of market access."

"It is time for the U.S. to end its hypocritical practices that discriminate against foreign online gambling operators, while allowing U.S. gambling operators to accept bets for certain forms of gambling.""

EU Commission concludes investigation on US internet gambling laws:

"…US laws on remote gambling and their enforcement against EU companies constitute an obstacle to trade that is inconsistent with WTO rules."

"EU...: "It is for the US to decide how best to regulate Internet gambling in its market, but this must be done in a way that fully respects WTO obligations. I am hopeful that we can find a swift, negotiated solution to this issue.""

EU tells the US to allow online gambling:

"EU says it might seek compensation from the World Trade Organisation"

Antigua demands trade sanctions [against U.S.]:

"Antigua has asked the WTO to impose sanctions on the United States for ignoring a ruling that it has breached trade rules by effectively banning online gambling."

"The government of the island nation said it was seeking compensation from the World Trade organisation worth US$3.4 billion a year."

The rest of the world is already very lucrative without the US market, which will be wholly accretive to StockGaming when legalized. Our immediate goal is to position StockGaming as a non-cash wagering site for US players looking to have fun.

 

General Disclaimer

StockGaming Inc., its subsidiaries, and related companies ("StockGaming"), have attempted to provide accurate and timely information but cannot guarantee or warranty that this information is free from defect.  Information on the StockGaming document is provided solely for your convenience.  StockGaming reserves the right to make changes to the information, material and content provided on this document, including, without limitation, the terms and conditions of this disclaimer, at any time without notice.  Continued use of this document following the posting of these changes shall constitute acceptance of such changes.  Information on this document is deemed to be provided in Ontario, Canada, and is subject to the laws of Ontario.  By accessing this document, you agree that all disputes, controversies, or claims arising out of or in connection with the document shall be subject to the jurisdiction of the courts of the Province of Ontario for final adjudication.  By accessing this document from outside of Canada you acknowledge that you do so at your own risk and are responsible for any failure to comply with any local, national or international law.   This document does not constitute an offering under applicable securities legislation.  All potential investors should seek independent information and advice from qualified investment professionals.  Where any document on this document has been filed in accordance with applicable securities legislation, such documents are not the official versions of StockGaming's securities legislation disclosure documents, and visitors are directed to obtain official copies either from applicable securities regulators or from the Investor Relations department at StockGaming.  Unless otherwise stated, all monetary funds displayed on the document are in Canadian dollars.

Exclusion of Liability

StockGaming shall not be liable for any claims, expenses, loss or profits or damages (including direct, indirect, special or consequential damages) arising from: the use or reliance on information contained in this document; any error or omission in such information or failure to update information in a timely manner; use of third-party websites or documents linked from this document; any Internet software used in connection with this document, computer viruses or other destructive programs encountered as a result of using this document; and any other matters related to this document; even if StockGaming is made aware of the possibility of such claims, expenses, damages or losses.

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Forward-Looking Information

Certain statements contained in this document are forward-looking statements or information (collectively "forward-looking statements"), within the meaning of the applicable Canadian securities legislation, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended.  StockGaming is hereby providing cautionary statements identifying important factors that could cause StockGaming's actual results to differ materially from those projected in these forward-looking statements.  Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "target", "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "intend," "plan," "projection," “projected”, "could," "vision," "goals," "objective" and "outlook") are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.  Because actual results or outcomes could differ materially from those expressed in any forward-looking statements, investors should not place undue reliance on any such forward-looking statements.  Although StockGaming believes that the expectations reflected by the forward-looking statements presented in this document are reasonable, StockGaming's forward-looking statements have been based on assumptions and factors concerning future events that may prove to be inaccurate.  Those assumptions and factors are based on information currently available to StockGaming about itself and the businesses in which it operates.  Information used in developing forward-looking statements has been acquired from various sources including third-party consultants, suppliers, regulators and other sources.  Further, any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by applicable law, StockGaming undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors and to assess in advance the impact of each such factor on StockGaming’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.