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0208
FANTINI’S GAMING REPORT
February 8, 2008
“The Gaming Investor’s Daily Newspaper -- Without The Paper”
Frank Fantini
Editor & Publisher
Email: ffantini@fantiniresearch.com
Laura Briggs
Staff Writer
Email: lbriggs@fantiniresearch.com
1-866-683-4357
fax: 302-730-3743
INSIDE
ILLINOIS’ SMOKELESS GAMING PLUNGE; HARRAH’S LAYS OFF WORKERS
FL TO APPROVE SLOTS STATEWIDE?
MGM PROJECTS EARNINGS
NYNY DENIES QUITTING MOHAWK CASINO EFFORT
FITCH: GAMING TO MANAGE THROUGH WEAKENING TRENDS
EARNINGS: PENN, MOHEGAN
TOP DOGS AND UNDERDOGS
ANALYST ACTION: IGT, PENN, WMS
BOUGHT AND SOLD: EGMI, RIV
AROUND THE USA: AC, AL, CA, CT, FL, IA, KS, LV, ME, NM, PA, WV
SHORT AND TO THE POINT
CONFERENCE CALLS
ILLINOIS’ SMOKELESS GAMING PLUNGE; HARRAH’S LAYS OFF WORKERS
If anybody thinks casinos are fibbing when they talk about the damage to business from smoking bans, all they have to do is look at Illinois.
Gaming revenues plunged 17.46 percent in January under the state’s new smoking ban.
Whether all of the decline is attributable to smoking may be subject to debate, but answers will become more clear in coming days when casinos from neighboring Indiana and Missouri report revenues. Smoking is still permitted in those states.
Meanwhile, the Carbondale Southern Illinoisan reports that Harrah’s has laid off 30 workers from its Metropolis casino and is blaming it on the smoking ban.
Below are property gaming revenues in order of percentage change.
E. St. Louis $13.294 million - 2.19 percent
E. Peoria (BYD) $9.377 - 9.63
Harrah’s Joliet (HET) $25.170 - 15.62
Hollywood Aurora (PENN) $19.023 - 15.79
Rock Island $ 2.361 - 17.80
Metropolis (HET) $10.766 - 19.17
Elgin (50/50 MGM, Hyatt) $28.469 - 19.89
Alton Belle (PENN) $8.053 - 21.16
Empress Joliet (PENN) $14.952 - 25.58
Illinois total $131.465 million - 17.46 percent
Multi-property results
Harrah’s $35.936 million -16.70 percent
Penn National $42.028 -21.80
FL TO APPROVE SLOTS STATEWIDE?
A bill to allow the 20 pari-mutuels outside of Broward and Dade counties to have slots has passed a Florida State Senate committee by an 8-1 vote.
The bill should pass the full Senate, but is unlikely to make it through the House, its sponsor, Sen. Dennis Jones, was quoted by the Miami Herald.
His bill would limit the pari-mutuels to operate Class II slots, but at a 35 percent tax rate compared to the 50 percent paid by Broward, and soon Dade, pari-mutuels, which have Class III machines.
Meanwhile, Sen. Steve Geller has a bill in the same committee to lower the Broward-Dade tax rate to 35 percent. It is expected to be considered next month.
MGM PROJECTS EARNINGS
MGM Mirage said it will report fourth quarter earnings from continuing operations of 60 to 65 cents a share compared to 68 cents last year.
However, counting its profit from the sale of its 50 percent interest in CityCenter to Dubai World, MGM will report $2.70 to $2.90 in earnings.
MGM now reports earnings on a GAAP basis and no longer adjusts them. However, it does provide the information for those who want to adjust.
In the fourth quarter, MGM lost 11 cents a share to pre-opening expenses, compared to a negative 2 cents last year. It earned 2 cents a share in Signature condo sales compared to 15 cents last year. Insurance recoveries from Hurricane Katrina added 8 cents compared to none last year. Property damage recoveries from Katrina were 23 cents compared to 19 cents. Other property transactions cost a penny compared to negative 2 cents.
MGM also said that profits in January were a few cents a share less than last year on lower revPAR.
The fourth quarter will be the 18th straight to achieve revPAR growth, and high-end baccarat play rose 17 percent, MGM said.
MGM reports earnings February 28. Details below in Conference Calls section.
NYNY DENIES QUITTING MOHAWK CASINO EFFORT
Empire Resorts issued a press release denying a claim by the St. Regis Mohawks that the company is quitting its effort at opening a casino with the tribe in New York’s Catskill Mountains.
NYNY said it “fully supports” the tribe taking 29 acres of land at Monticello Raceway into trust for a casino.
However, pending a court appeal of the Department of Interior’s rejection of taking that land into trust, NYNY is exploring other business opportunities, the company said.
Those other opportunities may include moving NYNY’s slots operation from Monticello to the Concord resort three miles away.
That suggestion prompted the Mohawks to issue their own release on Wednesday saying that NYNY had written to them saying they were pulling out of the Monticello casino effort and had closed their development office.
Concord is owned by Louis Cappelli, a major NYNY shareholder, the Albany Times-Union reported.
FITCH: GAMING TO MANAGE THROUGH WEAKENING TRENDS
In a report on the credit outlook for gaming, lodging and leisure stocks, Michael Palladino and his team at Fitch Ratings take a fairly sanguine view of issuers he covers.
Those companies “have the ability to manage credit profiles amid weakening consumer trends and generally maintain credit ratings” in 2008, Palladino wrote.
One reason he cited: the relative affluence of casino customers.
Here are some highlights:
• As “highly capital-intensive, credit fundamentals and metrics for gaming operators in 2008 are more tied to specific issuers’ development pipelines than to economic sensitivity.”
• Gaming may be more sensitive to the economy than in past slow downs thanks to the growth of “discretionary, non-gaming amenities at casinos…”
• “Liquidity in the sector remains sold, providing financial flexibility for companies … with significant capital expenditure programs, which should mitigate downside rating pressure.
“Native American gaming issuers are more inclined to…make cash distributions, which likely will limit upside rating potential.”
• “The current credit market is likely to limit event/leveraged transaction risk and debt issuance … due to the higher cost of capital, although well-capitalized companies or sponsors may remain active.”
• Noting that deteriorating credit markets have caused postponements of some projects, such as Colony Capital at the Atlantic City Hilton and Columbia Sussex at the Las Vegas Tropicana, Palladino said that large, well-capitalized companies might benefit from “the credit market turmoil.”
Among those who may benefit: MGM Mirage and Wynn Resorts, Palladino said.
EARNINGS: PENN, MOHEGAN
• PENN NATIONAL earnings fell below expectations in the fourth quarter, which the company blamed on bad weather.
According to PENN, snow affected 29 property days in the quarter compared to 2 in the previous year.
The result was earnings of 36 cents a share vs. guidance of 41 cents. Revenues rose to $585.841 million vs. $572.861 million.
Earnings also were affected by an unexpected $2.5 million pre-opening charge in Pennsylvania offset by an expected $1 million in pre-opening expenses that was not spent.
PENN said that its buyout by Fortress Investment Group and Centerbridge Partners is still on for the second quarter. New Jersey on Tuesday became the latest jurisdiction to approve the merger, and the Rodino anti-trust waiting period has expired, PENN said.
The company has suspended financial guidance as it goes private.
PENN shares closed Thursday at $49.98 The takeout offer is $67.
Fourth Quarter Highlights:
Diluted earnings per share: 36 cents vs. $1 vs. 41 cents consensus
Net revenue: $585.8 million vs. $572.9 million
EBITDA: $154.6 million vs. $146.4 million
Dilute shares: 89.140 million vs. 86.986 million
Year-To-Date:
Diluted earnings per share: $1.81 vs. $3.78
Net revenue: $2.437 billion vs. $2.244 billion
EBITDA: $672.7 million vs. $629 million
• MOHEGAN SUN had a disappointing first quarter as its properties faced days of inclement weather and increased competition.
CEO Mitch Etess called the quarter “disastrous” on Mohegan’s conference call, but said the property has market plans in place to improve results.
Net revenues increased slightly but adjusted EBITDA fell 19 percent.
Net income fell 37.5 percent, primarily from an income from operations decrease of $16.9 million at Mohegan Sun in Connecticut.
Mohegan Sun at Pocono Downs did well for its first full quarter of operation.
First Quarter Highlights:
Net revenue: $386.949 million vs. $384.583 million
Net income: $23.693 million vs. $37.890 million
Adjusted EBITDA: $76.588 million vs. $94.726 million
Balance sheet: cash and cash equivalents: $127.529 million vs. $121.637 million
Debt: $1.323 billion vs. $1.311 billion
TOP DOGS AND UNDERDOGS
Gamers enjoyed a strong day Thursday doing something that has become rare in recent months – outperforming the overall market.
Companies over $4 billion in market value rose an average of 3.48 percent. Mid-size companies, led by WMS’ 9.03 percent vault, jumped 3.40. Companies under $500 million market cap and over $1 in share price rose 0.99 percent.
Equaled 52-week low:
Magna Entertainment -2.50 percent $0.78
More than 5 percent movers:
WMS Industries +9.03 percent
Global Cash Access +8.02
Empire Resorts +7.53
Chartwell Technolgy +7.09
Riviera Holdings +6.09
Rank Group +5.51
Full House Resorts -6.25
ANALYST ACTION: IGT, PENN, WMS
• IGT. Steve Wieczynski of Stifel Nicolaus reiterated his buy rating and $55 target saying that IGT remains “the best-positioned gaming manufacturer heading into server-based gaming.”
He expects IGT to have a challenging first half of 2008, then a strong half in the balance of the year and in 2009.
• PENN NATIONAL. Several analysts put out reports on PENN even though it should be a private company in several months. They all noted PENN’s language in its earnings release that it expects its buyout to close in the second quarter.
PENN continues to sell well below its $67 takeout, closing Thursday at $49.98.
Joe Greff of Bear Stearns estimates PENN will earn $2.17 a share this year and $2.58 next, both down from his previous forecast.
Robert LaFleur of Susquehanna Financial estimates earnings at $2.28 this year and $2.37 next. Felicia Hendrix of Lehman Brothers is at $2.27 this year.
• WMS leaped 9.03 percent to $39.25 on Thursday in reaction to strong earnings and a heap of analyst praise and upward revisions to earnings estimates and price targets.
Celeste Mellet Brown of Morgan Stanley was the most bullish raising her target from $35 to $50.
“In the next several quarters, we expect WMS to continue to improve product sales margins, maintain-to-increase market share, drive continued out performance in gaming operations, and increase international penetration,” she said.
Brown estimates that WMS will earn $1.07 a share this year, $1.46 next and $1.90 in fiscal 2010.
Joel Simkins of Macquarie raised his target $2 to $44 citing market share gains in the U.S., strong balance sheet, gaming expansion and new products coming online in the third quarter.
Steve Kent of Goldman Sachs raised his target $2 to $38 and noted the “acceptance of WMS’ three new participation games initiatives – community, transmissive reels and sensory immersion.”
He raised his earnings forecasts to $1.12 a share this year, $1.40 next and $1.65 in FY10.
Simkins raised his earnings forecasts to $1.11 a share this fiscal year and $1.41 next..
Brian McGill of Wachovia raised his earnings estimates to $1.12 a share this year and $1.45 next. He values shares at $38 to $40, which is 25 times his 2005 earnings estimate plus $4 for future gaming expansions.
McGill rates WMS as outperform.
Todd Eilers of Roth Capital upped his target $3 to $36 but maintains a hold rating saying that the share price reflects the company’s positive outlook.
Roth thinks WMS will earn $1.14 a share this year and $1.44 next.
David Katz of Oppenheimer expressed the general mood in the headline on his client note: “Imagine how it goes when business gets better,” he wrote citing the strong performance even during a lull in the slot industry’s replacement cycle.
Katz raised his target $4 to $44 and his earnings estimates to $1.12 a share this fiscal year and $1.51 next.
Steve Wieczynski of Stifel Nicolaus raised his target $2 to $42 and his earnings estimates slightly to $1.13 this year and $1.43 next.
Wieczynski also likes WMS’ revenue-enhancing approach to server-based gaming and believes the company “should be able to flourish” in the networked casino floor environment.
Bill Lerner of Deutsche Bank raised his target $4 to $43.
WMS has “great positioning and momentum heading into massive dual cycle over the next several years,” he said, citing international expansion and the expected replacement boom caused by server-based gaming.
He forecasts earnings of $1.12 a share this year and $1.45 next counting FAS123R. On a pro forma basis, Lerner forecasts $1.27 and $1.59.
Joe Greff of Bear Stearns raised his target $3 to $43. In addition to industry growth, he sees WMS benefiting from its improved margins and new products.
Greff raised his earnings estimates to $1.12 a share this fiscal year and $1.43 next.
Harry Curtis of JP Morgan, who was one of the first analysts to catch WMS’ turnaround, remains neutral, saying much of the growth story is in the stock price.
He estimates that WMS will earn $1.13 a share this year.
Robert LaFleur of Susquehanna Financial raised his earnings estimates to $1.09 a share this year and $1.40 next. He maintains a neutral rating.
Charlie Rareshide of Coker & Palmer was one of the few analysts expressing caution on WMS. He said: 1) Slow growth in existing jurisdictions will temper growth generated by new markets, 2) casino companies are allocating less money for new products, 3) a weaker economy may mean lower win on participation machines.
Rareshide’s target is $32.50. His earnings estimates are $1.09 a share this year and $1.41 next.
BOUGHT AND SOLD: EGMI, RIV
• ELECTRONIC GAME CARD. Horace S. Boone reported that he currently owns 2.905 million shares and 6.0 percent of EGMI outstanding shares.
• RIVERIA HOLDINGS. Plainfield Asset Management, LLC has increased its holding by 25,712 shares to 1.151 million.
Plainfield Asset Management now owns 9.23 percent of RIV outstanding shares.
AROUND THE USA: AL, AC, CA, CT, IA, FL, KS, LV, ME, NM, PA, WV
• ALABAMA. Gambling bills might rock the legislature in this Bible Belt state. Legislation is expected to legalize slots a more racetracks, but perhaps with tracks allied as opposed to being opponents like last year when tracks left out of legislation opposed it.
Meanwhile, two anti-gaming bills have already been introduced. Senate Bill 17 would prohibit video poker and video sweepstakes machines in racetracks. And Sen. Charles Bishiop wants to outlaw gaming machines in Walker County where video bingo machines operate, the Birmingham News reported.
• ATLANTIC CITY. Felicia Hendrix of Lehman Brothers said her checks with casino operators suggest that they will once again report declining revenues for January.
February may be better given one more day than last year and Chinese New Years. And things comparisons get easier in April when AC anniversaries its partial smoking ban, she said.
Casino operators also are reporting elevated promotional environment, but cooled from last year, she said.
• CALIFORNIA. It’s appears to be full speed ahead for the four Southern California tribes to expand their casinos by up to 17,000 slot machines.
Opponents of their new gaming compacts have thrown in the towel and will not sue to block the expansions, the Palm Springs Desert Sun reported.
Among those quoted as saying they are probably out of options to stop the expansions were Unite Here labor union, the No on Unfair Gaming Deals coalition, and StandUp California.
Tribes wining expansion compacts are the Pechango, Morongo, Sycuan and Agua Caliente.
• CONNECTICUT. MGM Grand Foxwoods is set to open May 17, the Waltham Daily News-Tribune reported.
The $700 million expansion includes a casino, a 26-story hotel and a 4,000-seat theater, plus retail an dining.
• FLORIDA. The snowbirds are playing slots in Broward County, but not at the levels many had predicted.
The best slot parlor, Isle of Capri’s Pompano Park, rang up daily win per machine of $255 in January, by far its best result, but not near the and even $350 that had once been expected. However, the daily win beat Pompano’s previous record of $223 in December.
Below is win per unit in January:
Pompano Park (ISLE) $255
Mardi Gras $194
Gulfstream (MECA) $178
• IOWA. The Omaha Indians broke ground on a $3.2 million expansion of their casino south of Sioux City, the Sioux City Journal reported.
The first phase will add gaming space and an entertainment center/ bingo hall. It should be complete in July.
The second phase could include a five-story hotel, water park and golf course.
• IOWA II. Nebraska Gov. Jon Bruning is suing to block construction of a proposed Ponca Indian casino in Carter Lake, Radio Iowa reported. Bruning said the tribe bought the land to build a medical facility and then changed plans when that didn’t work out.
Bruning has said that the casino is too close to Omaha where citizens have repeatedly voted down casinos.
The five-acre site is adjacent to Omaha on the western side of the Missouri River, though it is part of Iowa. It lost its physical connection to the Hawkeye state some years ago when the Missouri changed course.
• KANSAS. The state Supreme Court will consider the legality of the state’s new gambling law on May 14, the Wichita Eagle reported. Justices are not likely to rule before legislators wrap up their session.
If the Supreme Court OKs the law, the state can proceed with selecting developers for casinos in four parts of the state – Kansas City, Sumner County in south central Kansas, Cherokee County in the southeast, and Ford County in the west.
• LAS VEGAS. Despite the headlines that would suggest they are at war, Columbia Sussex’s Tropicana and the Culinary Union are still negotiating a new contract.
The Las Vegas Sun quoted Culinary leader D. Taylor as saying the negotiations are difficult but that he is hopeful agreement will be reached.
The Trop is the last Strip casino to reach a new contract with the Culinary.
• MAINE. The Penobscot Indians are accusing Gov. John Baldacci is going against his word by promising to veto legislation allowing them to have slots on their reservation.
Penobscot Chief Kirk Francis said the bill was amended and carried over from the previous legislative session because Baldacci said he would put it to referendum without a petition.
The amended bill would allow 100 extra slots as opposed to the previously requested 400, and would shorten hours of operation.
• NEW MEXICO. Gov. Bill Richardson’s bill to give small casinos a tax break passed the House and has gone on to the Senate, Las Cruces Sun-News reported. The bill would give a tax break to any track that makes less than $14 million a year in net revenues.
Of the five racinos in the state, only Ruidoso Downs would qualify under the bill, but if another small track opened as some suggest in Tucumcari or Raton, they could also qualify.
• PENNSYLVANIA. Casino opponents in Philadelphia continue the fight that has at least delaying development of two slot parlors.
Councilman Bill Green was expected to introduce a bill in City Council Thursday that could torpedo the casino development agreements of SugarHouse and Foxwoods, the Philadelphia Daily News reported.
Green’s bill would remove the property tax abatements granted to the casinos as developers of deteriorated properties. The cost over 10 years would be $100 million.
New Mayor Mike Nutter, who has sided with casino opponents, called Green’s approach creative and said he will study it, the Daily News said.
• WEST VIRGINIA (MNGT). Lottery Commission Director John Musgrave said weekly table game revenues have soared at Mountaineer and Wheeling Island since casino-style gaming was added in mid-December, the West Virginia Gazette reported.
Mountaineer’s table revenue has jumped from $462,050 in the week ending December 29 to $1.066 million in the week ending January 12, far above the lottery’s prediction of $574,000 a week once the full-fledged casino games launched.
Wheeling Island was projected to reach $293,000 a week, but went from $284,606 during the week ending December 22 to $792,110 in the week ending January 12.
Musgrave also noted that the surge in table gaming has led to an upswing in slots play as well.
Mountaineer is owned by MTR Gaming. Wheeling is owned by privately held Delaware North.
SHORT AND TO THE POINT
• POKERTEK has won a temporary supplier license in Indiana. The Indiana Gaming Control Board has also approved PTEK’s PokerPro system for field trial at all 11 casinos in the state.
• PINNACLE now has both hotels open at its Lumiere Place casino in downtown St. Louis. The 200-room Four Seasons opened this wee, joining recently opened Hotel Lumiere, which PNK owns.
• MGM MIRAGE. MGM Grand Detroit was awarded Development of the Year 2007 by the 2008 Americas Lodging Investment Summit. The $800 million resort is the first Las Vegas-style destination to open in a major metropolitan center.
• MELCO PBL announced that its Crown Macau casino Best Casino Interior Design Award at the first International Gaming Awards 2008.
• PACIFICNET has appointed Su Guo Jing to its board as an independent director. Jing is CEO of Beijing Lottery International Information Technology Development.
• BOYD will pay its quarterly 15-cent dividend on March 3 to holders of record as of February 18.
• SEMINOLE Hard Rock Entertainment has appointed three new directors to its board in addition to the previously announced appointment of Michael Rumbolz.
Appointees are Seminole Tribal Council Vice Chairman Richard Bowers, COO of the Seminole Tribe of Florida Elrod Bowers, and Robert Gips, an Indian Affairs special counsel of the law firm Drummond, Woodsum & MacMahon in Portland, ME.
ONE MORE NOTE
It isn’t quite “The wretched refuse of your teeming shore,” but it has been a rough patch lately for Messrs. Adelson, Kerkorian and Wynn.
The Las Vegas Review-Journal noted that the three are somewhat lighter billionaires since October.
Sheldon Adelson, the richest of them all, has lost $10.8 billion in the value of his Las Vegas Sands shares, though he still has $15.9 billion.
Kirk Kerkorian’s MGM Mirage shares have knocked $4.6 billion off his $18 billion trove.
Steve Wynn has seen $1.4 billion removed from his $3.9 billion base.
“Your tired, your poor, Your huddled masses…” you get the idea.
Contributing to today’s report:
Matt Bellia, senior researcher
Lisa Sitko, administrative assistant
WEBCASTS
• ROTH CAPITAL INVESTOR CONFERENCE. February 19, 20; webcast available at www.wsw.com/webcast/roth16/TICKER.
- Tuesday
Bally 8:30 am
GigaMedia 9 am
Cryptologic 9:30 am
Elixir 10 am
Shuffle Master 10:30 am
GameTech 11 am
Progressive Gaming 11:30 am
Century Casinos 12 pm
Lakes Entertainment 1:30 pm
PokerTek 2 pm
Sona Mobile 1 pm
Transact Technologies 2:30 pm
Electronic Game Card 12:30 pm
- Wednesday
WMS Industries. 8 am
Paradise Entertainment 5 pm
CONFERENCE CALLS
• WYNN. February 12, 4:30 p.m. ET. Phone: 800-794-8478 domestic and 706-643-0974 international; pass code 34251187. Webcast at www.wynnresorts.com. Replay at 800-642-1687 domestic and 706-645-9291 international; pass code 34251187, and at the company website.
• POKERTEK. February 13, 5 pm ET. Phone: 888-713-4214 or 617-213-4866 international; pass code 40528334, and via webcast at www.pokertek.com. Replay available through February 14 at 888-286-8010 or 617-801-6888; pass code 81235534, and archived on the company’s website.
• WELLS GARDNER. February 14, 4:30 pm ET. Phone: 888-713-4215; pass code 29930251, and webcast at www.wellsgardner.com. Replay available through March 14 at 888-286-8010; pass code 58484670.
• PROGRESSIVE GAMING. February 19, 11 am ET. Phone: 866-700-5192 or 617-213-8833 international, and via webcast at www.progressivegaming,net and archived on the website through March 19.
• HARRAHS. February 27, 11 am ET. Phone: 877-876-8924 or 706-758-4271 international, pass code 3075198. Replay available through March 5 at 800-642-1687 or 706-645-9291 international; pass code 3075198.
• MGM MIRAGE. February 21, 11 am ET. Phone: 800-526-8531 domestic and 706-634-6528 international, and at www.mgmmirage.com. Replay through February 21 at 706-645-9291, access code 44165515, and at the company website.
CONFERENCE CALL REPLAYS
• LAS VEGAS SANDS. Replay through February 9 at 888-286-8010, access code 68090481, or 617-801-6888 international.
• MOHEGAN SUN. Replay available through February 21 at 800-642-1687 or 706-645-9291; pass code 32008737.
• MULTIMEDIA GAMES. Replay will be archived at www.multimediagames.com.
• WMS INDUSTRIES. Replay available at www.wms.com through March 6.
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