The Gaming Industry Weekly
Report for 1/25/10
Alan R. Woinski, Editor
Gaming USA Corporation
Subscription Info: www.gamingusacorp.com
– (201) 599-8484
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What do video lottery terminals,
racinos, video poker, electronic table games, traditional
table games, sports betting and online poker have in common?
All of these things have been suggested at one time or
another as the best way to increase gaming revenue in an
existing gaming state. The other thing
they have in common is that all of these things have
negatively impacted gaming revenue in neighboring states,
forcing them to make changes that wound up negatively
impacting gaming in all their neighboring states, a very
vicious cycle.
In the good old days when gaming
was a terrific growth industry, casinos would be legalized
in strategically located states and the market grew and
grew. The industry was able to honestly state
that legalizing casinos or riverboats would be a way to
create jobs, increase tax revenue and help tourism.
The states that said yes to casinos found the industry true
to their word while the ones that said no watched the parade
go by. It was only after the realization that they
missed the boat, so to speak, did these other states try to
figure out ways to get their hands on this revenue.
Racinos will someday be looked
at as the reason for the downturn in the gaming industry.
Unfortunately, whether it is racinos, table games or online
gambling, all of these things have one thing in common.
Most are legalized out of desperation which usually means
that they are done the wrong way, without thinking of the
future and wind up creating more problems than they solve.
You have the average racino who
pays over 50% in taxes. Then you have the two racinos
in Indiana who paid $250 million for a license fee, then
spent hundreds of millions in developing their facilities
and now pay over 30% of their revenue to the state in taxes.
If you were teaching business courses at a college, do you
think these would be examples of the proper way to be
successful? The fact is racetrack owners have been
faced with the option of going out of business or accepting
whatever deal is given to them. The majority choose to
take the deal, even if there was really no way of being
successful at it. For every successful Yonkers Raceway
there are plenty of companies like Centaur Gaming who show
they really don’t understand the business.
Politicians, who will never
blame themselves for the crippling taxes or fees they put on
the industry, panic when they realize the industry is in
trouble because either competition is threatening them at
their borders or the state allowed too much internal
competition or a crippling tax structure. They then
turn to legalizing table games or sports betting, something
that could really help but once again, it has to be done
correctly. The state of Pennsylvania will go down as
the biggest success story for gaming states legalized in the
past 10 years. While their tax structure on slots is high,
the state is big enough and the number of casinos open small
enough that the casinos can make money. Whether they
realize that if the two Philadelphia casinos open they will
hurt the existing Philly area casinos or they just are
consistent, they put the proper tax structure on the table
games. West Virginia and Delaware continue to find
themselves trying to find a way to compete with their
neighbors because the state takes too long to make their
move for new things or they botch things up like with the
sports betting bill or a ridiculous 34% tax on table games.
We all know that lower taxes are
something that is considered a no-no in all the political
science classes state and federal lawmakers have taken.
So rather than fix the problem the proper way, they compound
it with adding more games or competition. West Virginia
added video poker at fraternal organizations and such. It
had a modest initial negative impact on existing casinos but
when you look back at it now that WV casinos have been hurt
by competition from other states, they need that revenue.
Rather than legalize table games BEFORE PA casinos opened,
lawmakers waited until after and now that their tax rate is
double what PA will be, WV casinos that compete with PA and
eventually Ohio and Delaware will be in big trouble.
Illinois is the real poster
child, first using a crippling method of allowing only a
certain amount of games, taxing the industry to failure,
then slapping the smoking ban on and now not only allowing
one more casino to be built in the Chicago area, but also
allowing video gaming at bars and fraternal organizations.
Meanwhile their main casinos have been negatively impacted
by casinos in Michigan, Indiana and Missouri and have been
on a nearly 3 year losing streak.
So now that the theme of slots
at a high tax rate, electronic table games and then
traditional table games has run its course, the next step is
to invent something new and that seems to be Internet poker.
We have often said that we think online gambling is
ridiculous with the EXCEPTION of online Poker and online
Sports Betting which we believe are tremendous money makers.
What we don’t understand is how lawmakers or even the
Indian tribes in California truly believe that Online Poker
in the state will be successful for the casinos. If
people stay at home playing Online Poker, of which the
casinos and state will split the peanuts generated by the
rake, and do not go and gamble, stay, eat and shop in the
billion dollars worth of casino developments, what is the
point? This obviously is being taken seriously because
both WMS and Scientific Games made moves towards getting
ready for an online gaming growth surge. Both
IGT and GTECH already have online gaming software units.
Obviously in states like New
Jersey, someone in Trenton is actually realizing that AC is
dead and buried and the situation is hopeless. Senator
Lesniak is supposed to be pro-gaming but he is definitely
talking out of both sides of his mouth. First he submits the
bill to legalize Internet poker in the state but as part of
the bill, the tracks in the state would get VLTs.
Supposedly the casinos would run the Internet poker and
these VLTs but the close minded casino industry in AC
quickly denounced this and called Lesniak names. Then
Lesniak defended the bill to give Revel Entertainment $300
million in tax breaks, something supported by the casinos in
AC because they think Kevin DeSanctis is Moses and if he
develops the Revel Casino, he will part the Atlantic Ocean
flooding all of Pennsylvania, Connecticut, NY and Delaware
wiping out the competing casinos. Of course that would
also wipe out the customers but have you ever seen AC casino
executives or regulators actually truly think through
promotions, legislative activity or the casino environment?
There is only one thing we are
sure of right now. Atlantic City, the way it sits
right now, is doomed. Giving Revel Entertainment $300
million in tax breaks so they can fool investors into
funding the completion of the casino is ridiculous and will
wind up destroying other casinos. The unions are
fighting because the construction guys want work but UNITE
HERE knows that if Revel opens, 2-5 casinos in AC will close
and that will hurt UNITE’s membership base.
Legalizing online poker in the state is good for the state
and lousy for the AC casinos and legalizing VLTs at tracks
is going to happen one way or the other as other lawmakers
read the writing on the wall. Many years ago we
suggested the casinos in AC take the initiative and form a
relationship with the tracks. We suggested they open card
rooms at the tracks and let the casinos manage them.
They could use it as a marketing tool, having satellite
tournaments with the finals being held in AC. The AC
casinos said they would rather give the tracks $70 million a
year to not have VLTs. Again, another example of a
business decision that would NEVER be taught in schools.
There are some only predicting low single digit revenue
declines for AC casinos in 2010. Obviously they have
not factored in what is going to happen this summer when PA
casinos get table games. Borgata never got tax breaks
and they did more for AC than Revel ever will.
Take your pick of Resorts, AC Hilton, Bally’s, Showboat,
Trump Plaza, and Trump Marina and close 3 of them and you
will see how well the remaining casinos will do and how
quick investors will want to finance Revel. Give Revel
the tax breaks and you will be looking at lawsuits years
from now by the bondholders of all the casinos that closed,
blaming the state for the mess.
It is not just NJ and California
where there is interest in legalizing online poker.
Loto-Quebec is considering it and even those geniuses that
make up the past and present legislature in Florida are
looking into it for their state. The Seminole Tribe of
Florida is making hundreds of millions in profits a year and
not giving a dime to the state because lawmakers voted down
their compact. The tribe has brought in the NIGC
and Dept. of Interior to determine whether electronic table
games and poker being legal in the state allows them to have
table games, also without paying the state a dime. Some
lawmakers think the answer to not making any money on the
Seminoles and the racinos not being successful is to
legalize online poker, giving the Seminoles more ammunition
to have table games without paying the state a dime while
also probably killing the poker business of the racetracks
in the state. That sounds pretty much like a normal move by
the Florida legislature.
With all the talk about Las
Vegas being “less bad” and MGM getting a few new fans
because CityCenter opened and so far it is “less bad”
than expected, it seems like everyone missed this little
tidbit. David Jackson, CEO of Dubai World’s
investment arm Istithmar World, has resigned.
Istithmar World chief investment officer Andy Watson will
replace Jackson as acting chief executive. Does anyone
think Watson is in there to keep everything status quo or
did they move the chief investment officer into the CEO role
so that he can decide what investments to keep and which to
dump? Istithmar World is the unit that is the partner
with MGM on CityCenter and is the holder of MGM stock.
As for CityCenter and how the
soap opera is going, Jim Murren, CEO of MGM Mirage said the
occupancy at CityCenter has been higher than expected.
Susquehanna’s gaming analyst said MGM has dropped room
rates at Aria between $30 and $90 through March. Can
you imagine what would have happened if occupancy was below
Murren’s expectations?
MGM Grand Paradise, with its
single digit market share in their casino operations in
Macau, has begun the process of vetting investment banks to
work on a Hong Kong IPO. The South China Morning Post
said the IPO would raise $1 billion with the joint venture
of MGM Mirage and Pansy Ho selling 20%. Oppenheimer
was reported to have valued the venture at up to $5 billion.
The ever cynical Gabe Chan of Credit Suisse in Hong Kong
said MGM will have to be priced at a discount to Sands China
and Wynn Macau and would only raise $500 million or so. You
all know our view on this. MGM Grand Paradise going public
is a no win situation for everyone in Macau.
In our end of the year report we
named Genting, Carl Icahn, Penn National Gaming and Isle of
Capri Casinos as the 4 most likely to take advantage of
distressed gaming opportunities. This past week the Wall
Street Journal published a story on how Genting is looking
to get more active in the U.S. for gambling investments.
Right now Genting doesn’t own any casinos but has
ownership of stock and notes in MGM and WYNN and owns a
majority interest in Empire Resorts. Genting has the
financial wherewithal to be a big player in the U.S. market,
just like Crown has (had) but it seems like both refuse to
pull the trigger on any deals in the regional or even for
full casinos in the destination markets. In the case of
Genting, we don’t think they will be very active until
this matter with the former CEO of Empire Resorts is
settled. Bernstein made some severe allegations against
Genting.
Penn National Gaming pulled out
of the bidding for Fontainebleau and two other bidders could
not pass muster with the bankruptcy court so it looks like
Carl Icahn will own the blue elephant on the LV Strip. As
for what Icahn’s plans are for the partially completed
casino, nobody knows but him.
Penn National Gaming is moving
forward in Ohio and now has a lot of land to choose from.
First they completed purchase of the Arena District Property
in Columbus, the 24 acres originally expected to be the
place the casino was developed. PENN then announced 4
days later that they optioned the site of the former Delphi
Automotive Plant on the West Side of Columbus. Quite a
few newspapers bowed down to PENN, thanking them for being
understanding while lawmakers said they will quickly move to
get the 3/5ths majority votes needed to put a ballot measure
in front of voters in May to approve the new site.
Isle of Capri said they want to
amend their senior credit agreement to give the casino
operator more flexibility as it recovers from the economic
downturn. ISLE said they are working with Credit Suisse
Securities on the potential amendment which includes
restructuring some financial covenants. Later in the week
Bloomberg reported that ISLE was asking lenders permission
to issue senior unsecured notes, among other items, to pay
off existing loans. Sounds like ISLE wants some financial
flexibility for future plans.
The PA Gaming Control Board and
many others in Pennsylvania were surprised to hear that in
the 160 page bill to legalize table games, a provision was
included that lifted the caps on slot manufacturers.
In other words, there is no longer a law in place to cap the
floor space at 50% for any one manufacturer. Years ago
this would have been music to IGT’s ears but now it means
maybe another few percent opportunity for them as WMS, BYI,
Aristocrat and Konami have cut IGT’s market share to
around that 50% level.
Nothing pleases us more than
when an anti-gambling fanatic is embarrassed by their own
actions or that of someone close to them. So when Alabama
Governor Bob Riley’s anti-gambling task force head
resigned following the revelation that he won $2,300
gambling at a Mississippi casino, we had quite a chuckle.
Riley is a lame duck Governor who has spent the last couple
of years forgetting about governing the state, focusing
solely on ridding the state of those evil bingo slot
machines that have popped up in mini-casinos around the
state. The local governments love them, residents love them,
lawmakers want the revenue they produce but Riley has tunnel
vision. With Riley’s anti-gambling task force
shut down, will the Governor be able to actually do what he
was elected for?
Sands China’s Cotai Strip
CotaiJet ferry operation has been issued a 10 year license
to operate its ferries between Macau and Hong Kong. The
license also increases the number of routes the CotaiJet
service can use, including the addition of several daily
roundtrip sailings between the Hong Kong International
Airport and Taipa Ferry Terminal.
Asian media sources trumpeted
the news that Genting had partially opened their Resorts
World Sentosa Integrated Casino Resort. 4 hotels and
10 restaurants opened while the theme park and casinos
remained closed. While the Asian media made a big deal about
this, if Genting was opening a U.S. casino resort and opened
it without the casino, the media and stock market would have
crucified them.
Harrah’s Entertainment has
taken over management of Planet Hollywood Resort’s hotel
operation while they work towards completing negotiations
with lenders to buy the property. Harrah’s replaced
Sheraton Operating Corp. Harrah’s is now operating the
2,496 room hotel tower and some of the property’s food and
beverage operations. What makes no sense about this is
that PH’s hotel rooms will not be offered in Harrah’s
Total Rewards system and Planet Hollywood will continue
operating the property’s casino. We have heard of
getting their foot in the door but this is a bit strange.
FortuNet’s CEO has upped his
price to take the company private. The Yuri Itkis Gaming
Trust of 1993 raised its tender offer to $2.25 per share in
cash for all the shares they do not own. The original price
was $1.70 per share. Even at the $2.25 per share price,
Itkis is using the money he generated from giving a dividend
of all the cash in the company last year to pay for the
purchase.
Right now it looks like there
will be four bidders for the final resort casino license in
PA but since the deadline is in April, there may be more.
Right now the bidders are Nemacolin Woodlands Resort in
Farmington with ISLE; Bushkill Group for Fernwood Hotel and
Resort in the Poconos; Wyo Gaming for the Crowne Plaza
Reading Hotel in Wyomissing and David LeVan and Joe
Lashinger for the Mason Dixon Resort & Casino, near
Gettysburg.
PokerTek, Inc. announced that
Oaklawn Racing and Gaming placed its third order for
PokerPro tables, expanding Oaklawn’s poker offering in
time for the 2010 live racing season. Three new tables were
added on January 6th bringing their total to seven.
PTEK also announced they installed eight new PokerPro tables
at Caliente properties in Mexico. Caliente’s Hipodrome de
Agua Caliente in Tijuana opened its Texas Hold’em room
with five PokerPro tables and three were added at
Caliente’s Bosques property in Mexico City.
It may not be as dramatic as the
events that occurred in Massachusetts but the most anti of
the anti-gaming politicians in Pennsylvania, Paul Clymer,
has announced he will not run for re-election. While
we are sure those that are paying tribute to Clymer as
having a lot of integrity and being a great person may have
a point, we don’t mind telling him to make sure the door
doesn’t hit him in the you-know-what on the way out.
The Attorney General of Arkansas
modified the language of Arkansas Hotels and Entertainment
Inc’s ballot measure, paving the way for signature
gathering to begin. The ballot would allow the company
to open casinos in Boone, Crittenden, Garland, Jefferson,
Miller, Pulaski and Sebastian counties. Where we come from
this would be called a monopoly. Interestingly enough
Arkansas Hotels and Entertainment was created by a Texan,
Michael Wasserman. He must gather 77,468 signatures to
get on the ballot.
FutureLogic, Inc. announced the
introduction of the Eclipse Universal ticket and receipt
printer. FutureLogic said the Eclipse printer is
made to excel in the most extreme operating conditions and
in a broad range of applications.
Wells-Gardner Electronics Corp.
announced the sale of its 25,000th LCD replacement kit sold
directly to casinos in North and South America through its
American Gaming & Electronics unit. This business
was pioneered by WGA in 2005 and has generated over $16
million in revenue and $4 million in margin since its
inception. WGA expects growth in this business line to
continue in 2010.
Seneca Gaming Corp. has a new
chairman. Kevin Seneca replaced Jeffrey Gill who
served as chairman for the long term of four months. Gill
will remain on the board. Seneca is the immediate past
treasurer of the casino gaming operations of the Seneca
Nation.
The Seneca Tribe has another
issue they must devote time to. It seems the Seneca
Gaming Authority does not think their Catskills partner,
Rotate Black, is an honorable group to partner with. The
Authority refused to grant a gambling license to Rotate
Black. Seneca Nation President Barry Snyder Sr.
believes the Authority is useless and overruled the
commissioners by issuing an executive order allowing Rotate
Black to pursue the casino while they appeal the unsuitable
finding.
The Mohawk’s Akwesasne Mohawk
Casino in upstate NY unveiled its $55 million addition and
renovation on January 14th. The gaming floor expansion
added 600 slots, giving them 1,600.
The Las Vegas Monorail Company
filed for Chapter 11 bankruptcy protection. The system
will operate while they try to restructure.
Both the Indiana Gaming
Commission and Nevada regulators gave their approval for
Tropicana Entertainment to remain licensed in their states
and to emerge from bankruptcy.
With gaming revenue plunging to
an all time low at the Grand Victoria in Rising Sun,
Indiana, the Mayor is publicly begging the Pritzker family
to renovate the casino development. The Mayor wants to know
why just about every property has improved their project and
all the permits for an expansion are in place yet he cannot
get an answer from the owners. Grand Victoria revenue is
down 26% since PENN opened their Hollywood Casino expansion
in Lawrenceburg. It looks to us like the Hyatt affiliate may
just decide to avoid putting any more money into the casino
and let the chips fall where they may when Cincinnati gets
their casino developed. In other words, this property
may be on the potential casualty list that we are starting.
Then again they may be waiting to see if Indiana lawmakers
make any changes that allow redevelopment of casinos on
land. The Pritzkers had put the property up for sale
in 2006 but couldn’t snag a buyer.
The light has apparently gone on
for some Kansas lawmakers as they are suggesting the state
lowers the minimum investment required by casinos developers
and managers to build and operate and drop the amount of the
privilege fee paid to the state. Once again there were
no bidders for the Southeast Gaming Zone and the other two
developments remain bogged down in red tape and
negotiations. Others are suggesting making
changes to the rules governing racinos, possibly causing
Phil Ruffin to feel it would be worthwhile to reopen his
track. It only took some Kansas lawmakers a couple of
years to realize the problems are in Kansas itself, not the
developers. Now lets see if they fix things.
According to the Memphis
Business Journal, the Sportsman Casino and Lodge in Tunica,
Mississippi that is proposed by Abston-McKay Ventures and
Lakes Entertainment have investment bankers they are working
with. While not Goldman Sachs, the venture is working
with Chapdelaine Investments and Global Hunter Securities on
raising the approximate $75 million they need to begin
construction this summer for a summer 2011 opening.
IGT has named Susan Macke chief
marketing officer and Gideon Bierer as executive VP of new
media. Macke comes to IGT from Hewlett Packard’s handheld
business unit where she was VP of global marketing. Bierer
was previously with MTV Networks as executive VP of
international digital media.
Bally Technologies has acquired
Games4you, LLC out of Scottsdale, Arizona without actually
acquiring them. They have basically folded the entire
employee and management team into their new Arizona office.
Games4you is basically the old Atronic team as Atronic moved
to Las Vegas after their acquisition by GTECH and the most
of these employees were with Atronic and started their own
company rather than move to LV. Jason Stage, the
managing director and founder of Games4you, is now director
of software development at BYI.
In June, Station Casinos will no
longer be the manager of the Thunder Valley casino near
Sacramento, California as their 7 year contract will expire
and the United Auburn Indian Community will manage the
casino on their own. If all continues as planned,
Station Casinos will start their new gig, managing the Gun
Lake Casino in Wayland Township, Michigan, at the end of
this summer as construction on the casino is said to be
ahead of schedule.
Herbst Gaming won
bankruptcy-court confirmation of their restructuring plan,
wiping out $363 million of debt owned to bondholders.
Magna Entertainment has
postponed the bankruptcy auction of the Maryland tracks
until February 10th.
WMS Industries will use Betson
Enterprises as their exclusive distributor in the Illinois
VLT market. Betson struck a deal with The Funding Stop
to help finance operators in the state.
Ameristar Casinos announced the
opening of a high limit room at Ameristar St. Charles in
Missouri. They also named Sean Barnard as senior VP
and GM of Ameristar Casino Hotel Kansas City and promoted
Roxann Kinkade to director of external communications for
ASCA.
Mississippi December gaming
revenue fell 9.4% to $185 million. This was the 18th
consecutive decline and sadly the lowest revenue number
since December 2005. For the entire year, results were
below that of 2005 when casinos on the Gulf Coast were
closed for 4 months because of Hurricane Katrina. In
December revenue fell 12.5% on the Gulf Coast and 6.7% in
the River counties.
Louisiana December gaming
revenue fell 13.7% to $192.4 million. The only market that
held up was Lake Charles as the boats were only down 6.5%
but once you throw in the 18.2% decline at BYD’s Delta
Downs, this market got hit too. PNK’s biggest hit was at
Boomtown New Orleans, down 15.8% as L’Auberge and Boomtown
BC were down 3.4% and 4.3% respectively. Overall
Peninsula Gaming had the biggest decline statewide at 19.3%
following by Harrah’s at 19%, BYD at 11.9% and PNK at
6.7%.
