The Gaming Industry Weekly Report for 1/7/08
Alan R. Woinski, Editor
Gaming USA Corporation
Subscription Info: www.gamingusacorp.com
– (800) 990-1902
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Welcome to 2008 and the 16th year of this publication.
In the past 16 years we have seen just about everything in
the gaming industry but one thing has been constant in that
time. The Street very rarely gets it right when
dictating future trends or activities based on the direction
of gaming stocks. If there is one thing that you
should always remember about investing in this industry it
is that.
Let’s just give a few quick examples of things which have
occurred in gaming stocks where the Street was completely
blindsided by reality. Back in 1993 the Street
bid Casino Magic stock up to $80 a share just a year after
its IPO at $5. Just a few months later Casino Magic
was going around begging for money to avert a cash crunch
and the stock was trading for less than $1 following a stock
split. In the mid-1990’s, IGT was
trading at a split adjusted price of less than $5 because of
the belief that they were losing market share and were out
of touch with reality when it came to new technology.
Numerous times in those 16 years we saw Las Vegas related
stocks drop 50% because of the belief LV was overbuilt and
there were not going to be enough people coming to visit to
fill ALL those hotel rooms. Isle of Capri Casinos,
Argosy Gaming, Pinnacle Entertainment (then Hollywood Park),
and Penn National Gaming were trading in the mid-single
digits in the mid-1990’s because regional riverboat gaming
was considered just a fad. Pinnacle
Entertainment was trading at $16 in the months after the
hurricanes hit Mississippi and Louisiana because there was
no reason for PNK to reopen their Lake Charles or New
Orleans casinos because nobody was going to be in the mood
or have the money to gamble. Isle of Capri Casinos
traded up almost to the mid-$30’s on expectations that
their Pompano, Florida racino would set new records for win
per day per slot machine.
Hopefully, you get the point that we are trying to make.
Gaming stocks have been one of the greatest sectors to
invest in for the past 16 years not because it is easy to
make money on them but because it is difficult to make money
on them. The majority of investors make the
wrong decision on gaming stocks which means if you know the
industry and know what to look for you have the edge over
the majority who only follow the herd. The only thing
different about Las Vegas Sands at $75, when we turned
bullish on them in May of 2007 and the $148 they hit in
October 2007 was sentiment. In May the sentiment
was that Macau visitation and gambling revenues were going
to plateau and would not be able to support a project the
size of Venetian Macau and the others on the drawing board.
In October 2007, both LVS and Wynn Resorts surged to new
highs because the sentiment had changed and investors
believed they had been proven wrong by the volume of people
who showed up during the first couple of months the Venetian
Macau was open. The Street never once thought
about hold percentages, opening expenses, or about how long
it takes to build the clientele that LVS hoped for.
In reality LVS at $100 is about where the stock should be,
somewhere between the pessimism of May and the irrational
exuberance of October. In other words, LVS below
$100 is where we start getting interested as we wait for the
Street once again to be wrong and send LVS down to the
overly pessimistic level again. How long that takes we
don’t know but just like those who are buying shares from
the people who are selling Pinnacle Entertainment stock, you
make money in gaming stocks by being patient and by
realizing that the majority of investors are wrong with
their gaming stock actions.
We are beginning to believe there is some sort of odd love
triangle thing going on between Dubai World, Kirk Kerkorian
and MGM Mirage. Dubai World filed with the SEC
that they upped their stake in MGM to 6.5%, buying 5 million
more shares from the Lincy Foundation for $84.80 per share.
The Lincy Foundation is a California charitable foundation
founded by Kirk Kerkorian and we believe those 5 million
shares were gifted to the foundation by Kerkorian back when
Dubai World first announced they were interested in taking a
stake in MGM. We think this is all very strange
for numerous reasons. First we can’t
understand why MGM is using the cash they received from
Dubai World’s purchase of stock at $84 a share to buy back
shares at any price above $84. That makes no sense at
all. Second, if Dubai World is interested in buying
more stock, why are they doing it in off-market block
transactions at a price higher than the $84 they paid before
especially since right before they completed this
transaction with Lincy the stock was all the way down at the
$81 level. We have a lot more questions but these two
should be enough to get the brain waves going.
We still believe that if anyone wanted a reality show that
would be better than any other, they would film MGM Board
meetings. Hopefully they will hold one soon
because with MGM stock falling below $80 on Thursday,
chances are either Kirk Kerkorian is going to throw another
temper tantrum soon or Dubai World is going to actually have
to do what they should be doing and average down rather than
paying up. They obviously did not like it when the
Street tried to blackmail them into paying up but it seems
it was ok for Kerkorian to do so.
If you are wondering what is going on with the NJ Division
of Gaming Enforcement decision on whether MGM will have to
choose between Pansy Ho and Macau or their casino license in
New Jersey, you are going to have to wonder a bit longer.
Seems that the division may be investigated on their own by
the Attorney General of NJ because they had a few agents
moonlighting as consultants with Spectrum Group and Spectrum
prepared an unrelated and very negative report on the Ho
family. Obviously the Attorney General is
concerned that MGM would turn to the courts if the DGE found
Pansy Ho unsuitable to be a partner of MGM. In
the meantime those thinking of being a Gaming Enforcement
Agent and making tons of money on the side can forget about
it because the Attorney General plans to slam the door on
the practice of outside employment involving the DGE.
Actually after hearing the rumors of the opening numbers for
MGM Grand Macau, it may not be that difficult of a decision
for MGM if they are forced to choose between Atlantic City
and Macau. We’ve already told you that whether the
numbers are good or bad will mean little to MGM’s bottom
line because the joint venture casino will not move the
needle on their earnings. Sentiment is a
different story and all you have to do is look at MGM’s
stock price rather than go to the end of this newsletter and
see the preliminary reports on Macau’s December gaming
revenue.
Global Cash Access announced the completion of their
internal investigation and as detailed in their conference
call earlier in December, no evidence of fraud or
intentional misconduct was found. GCA also said
they did not uncover any further issues relating to GCA’s
interpretation of contract clauses relating to the
calculation of commissions. GCA plans to file
their 10Q shortly. Hopefully those who bought into GCA
on our Portfolio Picks inclusion took the opportunity to
lock some profit in after that spike to more than $8 a share
on this news.
Columbia Sussex’s Tropicana Entertainment, LLC announced
its senior lenders agreed to forbear for up to one year from
declaring a default under the senior credit facility arising
out of the NJ Casino Control Commission’s decision not to
renew the company’s license to operate the Tropicana
Casino and Resort in AC. While this
averted a bankruptcy filing for Tropicana Entertainment,
they still have to sell the AC Trop, Horizon Casino in
Vicksburg, Miss. and Casino Aztar in Evansville, Indiana and
get enough to pay back the debt. Another
name was thrown in the hat in Atlantic City as it was
disclosed by the Mohegan Tribal Gaming Authority that the
Mohegan Tribe is interested in exploring a purchase of the
Tropicana in AC. You can bet Foxwoods would be
interested also but with the current situation in
Philadelphia and the Pennsylvania Gaming Board’s comments
that Philadelphia casino licensees were picked partly due to
their status of not having a casino in Atlantic City,
Foxwoods may have to watch from a distance.
There may only be one company with a worse record than
Columbia Sussex in litigation and regulatory battles and
that is President Casino, Inc. PREZQ announced
that the bankruptcy judge handling their situation stated
her intention to enter summary judgment in favor of Columbia
Sussex on PREZQ’s claim that Columbia Sussex breached its
contract to purchase PREZQ’s former St. Louis gaming
operations. The judge also stated her intention to
rule in favor of PREZQ on the related dispute regarding
parking charges for the Cherrick parking lot.
Pinnacle Entertainment opened Lumiere Place in St. Louis and
the initial assessment of the opening was positive which is
not surprising considering there were no expectations at all
for this property. With commentary that the
description of the property is L’Auberge du Lac meets Red
Rock Station or comparisons to Wynn Las Vegas, it certainly
does seem like Lumiere will do better than expected,
although you couldn’t tell based on PNK stock price.
In what is good news for PNK, it appears they will open
their Four Seasons and Hotel Lumiere ahead of the opening of
the new hotel at Ameristar St. Charles. While
ASCA still has not given a date for the opening, Sterne
Agee’s eyewitness analysis was that the hotel appears to
be months rather than weeks away from completion. That
brings up the question of why ASCA waited until the last
minute to announce the hotel opening would be delayed.
Ameristar Casinos, Pinnacle Entertainment and other Missouri
casinos filed a proposal with the Secretary of State that
would allow voters to decide in November whether the $500
loss limit should be lifted. The proposal would also
cap the number of licenses at 13 and up the gaming tax to
21% from the current 20%. The coalition is called
“Yes for Schools” and is a life line in case the
Missouri General Assembly keeps their heads buried in the
sand about the upcoming competitive threat from Kansas
casinos and does not act in 2008.
MTR Gaming’s Mountaineer Park and Wheeling Island
Hotel-Casino-Racetrack introduced table games late in
December. The two West Virginia racinos now have
the competitive edge on Pennsylvania racinos, at least for
now, with the addition of live table games. This is
going to be a good indication of whether live table games
are that much more of a draw than electronic table games and
if the competing PA casinos will increase the number of
electronic table games in response. It’s not
difficult to see that Shuffle Master will win on this no
matter what, either by supplying electronic table games,
electronic shufflers or specialty table games.
Lottomatica S.p.A. announced the Nevada Gaming Commission
gave them licensing approval to own an interest in a Nevada
licensee which in this case is Atronic International and
Atronic Americas. Lottomatica said their GTECH
Global Services Corporation will complete the acquisition of
the interest in Atronic in the first quarter of 2008.
This also means that GTECH and its Spielo VLT unit are
licensed to sell products in over 100 gaming markets
globally. Prior to GTECH being purchased by
Lottomatica, we had high hopes that they would be the
primary consolidator of the slot manufacturers and that
getting licensed in Nevada and New Jersey would be the
catalyst. While we still hope they spark activity,
they really missed the boat by being acquired by Lottomatica.
They missed the opportunity of a lifetime, along with
Aristocrat and WMS, to acquire Bally Technologies at a cheap
price along with other companies at lower prices.
All this talk about IGT losing market share probably helps
IGT if they would find some sort of small acquisition in the
slot machine market. Most believe IGT would have
antitrust problems if they moved on any further acquisitions
in the slot space.
The U.S. Department of Interior is keeping up with their
lack of a sense of reality, approving the gaming compact
between the Governor of Florida and Seminole Tribe despite a
lawsuit filed by the Attorney General. The AG filed
the suit asking the Supreme Court to block the compact until
they have a chance to rule on its validity. The
Florida House has already sued the Governor to try to
prevent him from going forward on the compacts.
Despite this if the DOI approval is published in the Federal
Register the Seminole Tribe legally could start acting under
the Compact. Somehow we cannot see the Tribe paying
the state the initial $50 million payment and installing the
new games with the Supreme Court hearing expected at the end
of the month. We also don’t believe IGT, BYI, WMS or
Aristocrat will risk lawsuits and their licenses by
supplying machines to the tribe without the Supreme Court
hearing.
Majestic Star Casino, LLC announced that their plans for
development of new and improved dockside gaming and land
based facilities at Buffington Harbor in Gary, Indiana are
on hold. Majestic had been considering
developing one or two gaming vessels that contained the
majority of the casino operations on a single floor and new
land based amenities to support casino operations.
Majestic Star cited weakness in the capital markets, their
lack of financial flexibility and an inability to solidify
definitive plans for their decision. We also think
Majestic is waiting on other things such as whether Illinois
will get a lot of demand for the Emerald Casino license
bidding, prodding them to approve more casino licenses
and/or positions in the market, the impact of the Illinois
smoking ban, and whether the state of Indiana will allow
Emerald to move one of their licenses to another location in
the state.
Magna Entertainment once again showed corporate governance
at its finest as they announced that the Frank Stronach
controlled MECA entered into an agreement with the Frank
Stronach controlled Magna International to sell 225 acres of
excess real estate in Ebreichsdorf, Austria for $28.7
million. Considering just about every one of these
asset sales MECA has been doing has been to a Stronach
controlled entity, the debt that is going to be repaid and
keeps piling up is from a Frank Stronach controlled entity
and the recent private placement was from a Frank Stronach
controlled entity, is the decline in the stock to below $1 a
share a wake up call to Stronach?
Station Casinos announced that Kevin Kelley will be
rejoining the company as executive VP and COO, effective
January 7th. Kelley was most recently senior VP
for Las Vegas Sands, was president and COO of Hard Rock
Hotel and Casino in LV before that and had spent 10 years
prior with Station Casinos. Kelley succeeds William
Warner who resigned recently.
Elad Group received approval from the Clark County Planning
Commission for its proposed Plaza project on the Frontier
site on the LV Strip. The Clark County
Commissioners will be voting on the project on January 16th
and that will be the final approval needed.
The Transport Workers Union announced that dealers at
Caesars Palace in Las Vegas voted 380-128 to unionize right
before Christmas. Harrah’s Entertainment would
only say that they were disappointed by the outcome.
Caesars Atlantic City has upped the betting maximum of its
table games to $50,000. The Press of AC
said that on a Saturday night visit to the casino’s high
roller areas, no such high bets were being observed.
Harrah’s Entertainment and Caesars AC were not deterred by
this saying they are also discussing development of a new
$25,000 chip but are stuck on what new color to use along
with a new emperor for its surface. We suggest putting
Gary Loveman on the chip in an Emperor’s costume and
making the chip color very green. This could represent
the extension of Loveman’s employment agreement with
parent company HET.
The Choctaw Resort Development Enterprise, an enterprise of
the Mississippi Band of Choctaw Indians of the Pearl River
Resort, announced Mike Donald was no longer VP of finance
and CFO. New CEO General Paul Harvey said this
was a result of a management plan to put them in a stronger
position to compete in the highly competitive environment.
Kent Jones, currently controller of the resort, will assume
the role and responsibilities of CFO in the interim.
Harvey said they plan to appoint a COO to serve the primary
day to day management role for the resort properties.
So it appears that they hired a CEO with no operational
skills, fired the CFO but will not only hire another CFO but
also a COO.
NY self-proclaimed racing king Jeff Gural said he plans to
close Tioga Downs and Vernon Downs early next year if NY
State does not pass legislation granting his facilities a
higher percentage of gaming revenue. Gural said
he plans to close Vernon Downs on January 7th and Tioga
Downs at the end of January. He said the shutdowns
will send a strong message to the state and push lawmakers
to approve a bill that will give him extra money to manage
the racetrack, help fund capital improvements and additional
marketing for the two facilities. Obviously
closing the two facilities will put people out of work but
do you really think the state is going to be that concerned
about two tracks that don’t even bring in enough VLT
revenue combined to equal Saratoga or Yonkers?
Gural should work with Monticello and the other smaller
tracks to lobby together. Gural should also keep
Tioga Downs open because a smart business person could make
money there. Vernon Downs is a loser and always will
be a loser because it cannot compete with Turning Stone.
Trump Entertainment Resorts announced they obtained a new
$493.25 million first lien mortgage credit facility through
an agreement with Beal Bank Nevada. The new facility
refinances all the Company’s current first lien debt at an
interest rate of LIBOR + 3.2% with a maturity of five years,
eliminates requirements to maintain certain leverage, first
lien leverage and interest coverage ratios.
Colorado State Rep Al White is proposing removing the $5
betting limit on Colorado casinos and keeping them open
around the clock. Obviously the smoking
ban that recently went into effect for Colorado casinos
could change the reception to this proposal if it hurts
gaming revenue growth.
Emerald Casino has dropped its legal challenge to keep
control of the dormant gaming license. This follows
the Illinois Supreme Court decision which upheld the
Illinois Gaming Board’s decision to revoke their license
back in 2005.
Sociedade de Jogos de Macau, SA announced they plan to
redevelop the old Hotel and Casino Lisboa in 2009 with an
opening expected by 2012. Stanley Ho and company plan
to hold an international architectural competition to select
the design for a new iconic building to occupy the existing
hotel and casino’s landmark site.
Lightning Poker, Inc. announced they were awarded a U.S.
patent entitled Electronic Game Table for automated poker
tables having a center screen continuously displaying
multiple community cards and betting information for each
player to all the players. Lightning Poker will
most likely be the first gaming company of 2008 to go
public. They completed a reverse merger with Red Pearl
Acquisition Corp. which changed its name to Lightning
Gaming. In the press release they even gave a
Nasdaq symbol of LTGM. Right now LTGM comes up as an
invalid symbol which means they are probably in the middle
of filing to get approved to trade.
Century Casinos, Inc. announced that they acquired the
remaining 35% of all issued and outstanding partnership
units of CC Tollgates LLC that were owned by Central City
Venture LLC for $2.1 million. Tollgate owns and
operates the Century Casino & Hotel in Central City,
Colorado. CC Tollgates also repaid Central City
Venture a $1 million loan as well as $0.2 million of accrued
interest.
Seven Pennsylvania legislators filed a lawsuit claiming
Philadelphia officials usurped the state’s authority by
issuing a licensed to SugarHouse Casino to build part of a
casino over the submerged banks of the Delaware River.
One of the lawmakers who filed suit is Vince Fumo so this
could be a real problem. They claim nobody granted
SugarHouse riparian rights, use of submerged lands, meaning
there is a ban on building over the river’s banks there
and that could force SugarHouse to seek approval of a new
design or abandon the site altogether. Although
Pinnacle Entertainment and Trump Entertainment’s stock
prices began their downward spiral after not being picked
for a Philadelphia slots license it is beginning to look
like the winners of the licenses are becoming the real
losers in this battle.
Here’s a good one to make your weekend. Roman
Catholic Reverend Joseph Sica was arrested outside his home
in Scranton, Pennsylvania. Sica is an adviser to Mount
Airy Casino Resort owner Louis DeNaples and was arrested for
lying to a grand jury about his relationship with the late
Russell Bufalino, an organized crime boss. Despite
Sica’s testimony that he met the mobster by chance and had
no relationship, there are photographs of the priest arm in
arm with Bufalino and another of him with William D’Elia
who allegedly heads the Bufalino crime family now.
Harrah’s Entertainment has received all regulatory
approvals necessary to close the transaction to be acquired
by TPG and Apollo Management.
Rhode Island’s Attorney General has ruled that no
legislative or voter approval is needed for the state’s
two racinos to install electronic blackjack table games.
Twin River already installed some of Shuffle Master’s
electronic table games with the Providence Journal reporting
the machines having an initial average daily income of
nearly $600 per seat. Each machine includes 5 seats.
Las Vegas Sands began a soft opening of the Palazzo in Las
Vegas on New Year’s Eve, opening the casino portion last
Sunday evening. The hotel and other parts will open in
stages, all leading up to the grand opening on January 17th.
Dodge County, Kansas received two casino proposals with
Wyandotte County receiving 6. With the Unified
Government endorsing one of Pinnacle’s proposals, along
with the ones from Kansas Speedway/Cordish and RED
Development/Mohegan Tribe/Olympia Gaming, those were
expected but Las Vegas Sands reworked their rejected
proposal for a new $500 million one along with another in
Edwardsville and the RED/Mohegan/Olympia Gaming group added
another proposals. In addition, MGM Mirage/Foxwoods
Development reworked their proposal to add a site in
Wellington after Sumner County only endorsed the two that
were located in Wellington. While Kansas started
out looking like they had their act together, the
combination of the counties not sticking to deadlines and
the attorney general filing suit and then resigning over a
sex scandal is quickly putting Kansas in the same category
as other states who have fumbled the gambling legalization
football. It looks like the chances of Kansas
starting up operations in 2008 are fading as we enter the
New Year.
November 2007 Macau visitation rose 26.1% from November 2006
with an even more important 1.1% increase from October.
Visitation from Mainland China was 1.4 million, up 31.2%
over November 2006 and 2.5% sequential increase from October
2007. Preliminary December revenue numbers were
somewhat disappointing with Lula news agency reporting
revenue up 32.3% to $1.013 billion. MGM Grand Macau
appears to have only taken in $20.3 million in the 13 days
it was open. Also the word is that despite nearly $18
billion in VIP rolling chip volume for MPEL’s Crown Casino
from A-Max, their hold percentage was only 2%.
We keep telling you that the only thing that matters is Hold
percentage in Macau but it seems we are in the minority on
this and each month investors get disappointed. We
want to know why the Hold percentage average of 2.7%-3%
doesn’t go down even though it seems each month there are
reports that VIP hold percentage is only 2%. We would
suggest using 2% as the base for VIP hold percentage from
now on.
Insider Transactions
Jeffrey Goldstein, director of Isle of Capri Casinos bought
44,249 shares between 12/18-12/27 at $12.99-$14.32.
Robert Goldstein, officer of Isle of Capri Casinos bought
40,372 shares between 12/18-12/27 at $12.99-$14.32.
Leonard DeAngelo, VP of Penn National exercised 134,493
options on 12/26 at $10.06 and sold the shares at $59.18.
William Clifford, CFO of Penn National exercised 33,140
options on 12/26 at $7.42 and sold the shares at $59.18.
Steven Saferin, VP of Scientific Games exercised 3,600
options on 12/20 at $27.68 and sold a total of 4,271 shares
at $32.86.
