David Mckee's Stiffs & Georges - Isle of Capri

From the mailbag #5

Wed, 23 Sep 2009 12:26:00 -0700

Our Comment-Eating Server has been at it again, so here are a few reader remarks that got devoured in cyberspace (where no one can hear you scream at your computer) ...

With regard to "Gambling Scandal Ensnares Eight More":

This is disgraceful! How dare the Federal government interfere with private enterprise like this? Undoubtedly the casinos' self-government practices would have detected these infractions, right?

If -- and I'm not sure about this -- you're referring to tribal casinos, all generalizations are false, including this one. The Tran Organization took down 26 scores that ran the breadth and depth of casino industry: Strip resorts, locals casinos, backwater Isle of Capri operations, U.S. ones and Canadian ones, the smallest tribal casinos and the biggest, too. Even Barona Casino & Resort, which prides itself on being ahead of the industry, technologically speaking, got taken. The moral I draw from this is that too much stock is being put in game-protection technology and not enough in the human component. All the king's PTZ cameras and all the king's digital scratch pads don't know what a "false shuffle" is.

Another reader caught a hasty slip-up I made, when I wrote that Harrah's Entertainment's "$10 million a year for energy conservation isn't even 'a blimp on the radar' when it comes to Harrah's gargantuan annual budget. Heck, it's less than 2/3 of CEO Gary Loveman's compensation package for 2008 alone."

Maybe his compensation has gone down since 2002? I don't think so:

"Loveman, himself, is doing a bit better too: His business school professor's salary, approximately $120,000 (before consulting fees), is now well over $3 million, including stock options. He shuttles between his Boston-area home and Harrah's casinos around the country in a corporate jet. He has long since traded in his professorial Honda Accord for a Ferrari F-355 Spider. After 12 years in the same house, the Lovemans are currently building what neighbors describe as 'a very large' house in the Boston suburb where they live."

Maybe he's riding in a "green" corporate jet now?

Good point. What I was trying to compare was Harrah's $60 million in energy savings over six years. That is less than 2/3 of Loveman's $92 compensation for 2008. (His base salary for '09 is $1.9 million.)

And with regard to labor strife at Trump Plaza:

"While the casino's latest appeal is tied up in federal court, Trump Plaza management has refused to bargain at all.

"Trump Entertainment Resorts Inc., which owns Trump Plaza, has said it expects to win in court. The case was first filed in September 2008.

"The court could side with the casino or uphold the National Labor Relations Board's ruling requiring the casino to bargain.

"'Throughout this entire process, it has not been our intention to attack any dealers who have chosen to support the union,' Juliano continued."

... David, you said "Kudos to Trump Entertainment Resorts CEO Mark Juliano for going out of his way to soothe potential animosity between labor and management."

- I would say: Kudos to Juliano if Trump would bargain in good faith with the union that won the election. As it is, Trump Entertainment Resorts owns & controls Trump Plaza and refuses to dignify their employees with negotiations that they voted for.

That's a major reason that we need passage of a "card check" law, which includes heavy fines against employers like this who refuse to negotiate (for years) with their workers' duly elected representatives.

Fair enough. And finally:

I don't gamble on the Internet because of security concerns with unregulated offshore sites, but I agree with this comment [same blog entry, under ["Health care reform + Internet gambling?"]: This is great! Ron Wyden is an innovative and responsible law maker. As an Internet gambler, I'd be happy to support American-based companies, and pay my patriotic taxes, instead of sending my "business" to Costa Rica.

Thanks to everyone for corresponding.

Gambling scandal ensares eight more

Mon, 21 Sep 2009 18:32:00 -0700

It's not quite on the global scale of the Ultimate Bet brouhaha, but the Tran Organization's conspiracy to fleece dozens of U.S., Canadian and tribal casinos is racking up an amazing head count. To date, federal prosecutors have already nailed 31 scalps to their wall, not counting three other individuals to who pled out to related charges (including one in Canada).

If you thought this was the end of the Tran Organization ... surprise! The feds unsealed another set of indictments this month. Eight more individuals were hit with various counts of "conspiracy to steal money and other property from Indian tribal casinos, and conspiracy to travel in interstate and foreign commerce in aid of racketeering."

At the core of the Tran Organization's scam was the execution of "false shuffles," whereby "slugs" of unshuffled cards were insinuated into blackjack and mini-baccarat decks. This required the cooperation of corrupt casino employees and, from the looks of the Department of Justice's announcement, the core Tran Organization members must be rolling on their casino-employed helpers.

The Tran gang managed to take no fewer than 26 casinos during the life of its scheme, which is a very black mark against the industry's standard of game protection. The dishonor roll is as follows:

1) Beau Rivage Casino, Biloxi, Miss.
2) Casino Rama, Orillia, Ontario, Canada
3) Foxwoods Resort Casino, Ledyard, Conn.
4) Gold Strike Casino, Tunica, Miss.
5) Horseshoe Casino, Bossier City, La.
6) Horseshoe Casino & Hotel, Tunica, Miss.
7) Isle of Capri Casino, Westlake, La.
8) Majestic Star Casino, Gary, Ind.
9) Mohegan Sun Resort Casino, Uncasville, Conn.
10) Palace Station Casino, Las Vegas, Nev.
11) Resorts East Chicago Hotel & Casino, East Chicago, Ind.
12) Sycuan Casino, El Cajon, Calif.
13) Cache Creek Indian Bingo & Casino, Brooks, Calif.
14) Emerald Queen Casino, Tacoma, Wash.
15) Imperial Palace Casino, Biloxi, Miss.
16) Argosy Casino, Baton Rouge, La.
17) Trump 29 Casino, Coachella, Calif.
18) Isle of Capri Casino, Bossier City, La.
19) Agua Caliente Casino, Rancho Mirage, Calif.
20) Spa Resort Casino, Palm Springs, Calif.
21) Pechanga Resort & Casino, Temecula, Calif.
22) L'Auberge du Lac Casino, Lake Charles, La.
23) Nooksack River Casino, Deming, Wash.
24) Barona Valley Ranch Casino & Resort, Lakeside, Calif.
25) Caesars Indiana Hotel & Casino, Elizabeth, Ind.
26) Monte Carlo Resort & Casino, Las Vegas, Nev.

Competition forces sanity

Mon, 13 Jul 2009 18:50:00 -0700

While the Bible Belt may hold out until the bitter end, we may finally be seeing the demise of the "boats in moats" arrangement, a fig leaf that enabled Midwestern states to blushingly accept casino money. Illinois has started phasing it out. Ohio Gov. Ted Strickland's decree today that seven Buckeye State racetracks can go to racino status may be a real game-changer for neighboring Indiana.

First, a word on the Strickland move. It anticipates legislative passage of a package deal that would require tracks to pay $65 million upfront and the usual usurious tax rate (48-50%). However ... slot machines would be purchased by the state (and run under the auspices of the Ohio Lottery), which softens some of the pain. Racino facilities would have to be periodically upgraded, too, at an average of $16 million/year.

All this has spurred (well, slowly prodded) Indiana's Lege to take a second look at the Hoosier State's riverboat regime. This could mean everything from on-land casinos to free drinks for players. There's also talk of "simplying" taxes and admission fees. How about simply eliminating the latter? It's a paternalistic anachronism that needs to go away.

Don Barden's two Majestic Star boats will likely prove an impediment. Some solons want any arrangement to include moving one of them out of Gary, Ind., to better the chances of both. Whatever the case, don't expect any action until next year.

The recession is catching up with regional casino markets. Even the loosening of operating rules in Missouri wasn't enough to stave off a slippage in revenues. Chrysler and Hummer plant shutdowns might explain a -1% shift in St. Louis, but what about a -2.5% June in Kansas City? A 2% drop in statewide slot win was almost countered by an 8% jump at the tables, where higher betting limits are now in force.

Ameristar Casinos took the hit in K.C., down 12%. All other three major boats posted growth, led by Isle of Capri, up 5%. With a $19 million June, the Ameristar boat still led the market in dollar volume but both Harrah's Entertainment and Penn National are closing the gap.

In the greater St. Louis area, both Harrah's and Ameristar fell by an average of 5%, while Pinnacle Entertainment's Lumiere Place gained almost 6%, really starting to give the two older casinos a battle. Even the snake-bitten President had a good month, chipping in nearly $2 million to Pinnacle's kitty.

Further good news came in the form of the bulletin that Isle of Capri had eked out a month in the "plus" column. So even an outwardly disappointing June in the Show-Me State cosseted some significant tidings of comfort and show.

Case Bets: CityCenter, W, Bernie Goldstein, Roger Thomas

Tue, 07 Jul 2009 13:15:00 -0700

Some rueful condo buyers are probably calling MGM Mirage's ultra-mega-super-duper resort "ShittyCenter," judging by their ire. It's difficult to know with whom to sympathize in this ongoing dispute. Condo depositors want to renegotiate prices (which range all the way up to $9.4 million/unit) while MGM -- though not unsympathetic -- maintains buyers got a special deal going in and therefore have relatively little cause for complaint.

Good luck trying to renegotiate the price of that Saturn on which you just made a downpayment. MGM needs those condo purchases if CityCenter is to remain in balance (look what happened to Fontainebleau, which has sold nary a timeshare). And it really can't afford to start refunding some of that $313 million that depositors have already placed in the kitty.

However ... there might be a pragmatic argument to be made for MGM bending to pressure. Condo sales in the valley haven't been robust -- a mere 1,172 units in 2007-08 and a measly 52 closings this year. Scarier still, the Wall Street Journal notes that 7,000 more luxury condo units are under construction as we speak.

There's basically no market remaining for high-end condos and every unit that goes on sale dilutes the value of a CityCenter aerie just a little bit more. MGM hasn't been ashamed to offer discounts to players and vacationers. Maybe it's time to extend that philosophy to condo buyers. If CEO Jim Murren has to sell a few casinos to make up the difference ... well, so be it.

Not everybody is having a hard time moving property in this market. J.P. Morgan reports that Starwood Hotels & Resorts Worldwide just sold its W San Francisco for 14X cash flow. Geez, try to get half that multiple for a Strip property and watch potential buyers yawn in your face.

Bernie Goldstein, R.I.P. Not only are there second acts in American lives, the late Mr. Goldstein proved there are third acts as well. The granddaddy of Midwestern riverboat gambling, Goldstein built Isle of Capri Casinos into the first company of its ilk with a recognizable brand identity and saw it outlive several of its rivals. If the company's business plan went astray in recent years, that doesn't diminish the scope of Goldstein's achievement. Thankfully, the gallus-snapping Goldstein was inducted into the American Gaming Association's Hall of Fame just in the nick of time.

Congratulations to Roger Thomas for being named the next recipient of the Jay Sarno Award from Casino Design and G2E. While I'm not sure it's flattering to receive an award named after the man who covered Caesars Palace with unsightly cement mesh and gave the world Circus Circus, it's the sentiment that truly counts.

Basically, Thomas (and architect DeRuyter Butler) set the template for the last two decades on the Strip and everybody else has been tinkering around the edges. Thankfully, he's rescinded his retirement from Wynn Resorts, so we can look forward to years more of standard-setting design work.

"Another one bites the dust"

Fri, 15 May 2009 11:15:00 -0700

That's how a reader informed me of Las Vegas-based Golden Gaming's decision to bail on Wyandotte County in Kansas. Considering that you've got Harrah's Entertainment, Ameristar Casinos, etc. firmly entrenched across the state line in Kansas City, Mo., and Isle of Capri making a comeback over there, I don't blame Golden for its hesitation.

Penn National remains in the Wyandotte running but it found no support for its last bid and previous winner Cordish Co. withdrew amicably from its Kansas Speedway project so that it could be downsized. Casino-enabling legislation in the Sunflower State didn't allow Cordish to revise its proposal once it had been accepted by the Lottery Board. But Cordish promised it would be back, and it was.

Lottery Executive Director Ed Van Petten told media Golden wanted to conserve its assets, adding, "They are being conservative and playing it smart. I hate to see it, but I fully understand." Golden executive veep Rod Atamain's diplomatically phrased withdrawal alluded to preserving liquidity, among other motives:

"While we believe in the long-term viability and appeal of our site and project, we are not confident in making such a commitment on our own in the current environment." That's tantamount to an admission that Golden couldn't find lenders, especially considering Atamain's previous reference to "ongoing turmoil in the financial markets."

It would have been a tough call for Kansas. The Cordish and Golden projects were comparable in budget ($700 million vs. $662 million). As appealing as a Tom Watson golf course might be, Cordish's promise of a 50% larger slot base than Golden's would have been sweet music to state officials weathering a deep recession and counting the gambling receipts before even one handle is pulled.

In the meantime, Golden still has that liquidity it wants to preserve -- and its cash flow will improve this summer as liberalized casino rules in Colorado (Golden's primary market) take effect. It could always spend some of that dough close to home: Golden CEO Blake Sartini is the brother-in-law of Frank & Lorenzo Fertitta. What are the odds the Fertitta clan might try to spin off assets to Golden? It would enable Station Casinos to sweeten the offer it's making to bondholders and keep Boyd Gaming at bay, all in one fell swoop.

Just a thought.

Atlantic City Death Watch VII

Thu, 07 May 2009 14:29:00 -0700

Speaking at the Southern Gaming Summit, former Harrah's Entertainment COO and current Penn National Gaming President Timothy Wilmott pronounced the last rites for Atlantic City. "That market is in a death spiral. The next two to three years are going to be awful," he said. Wilmott's grave prognosis contains a hidden twist of the knife at his former employer, whom he left abruptly at the start of '07. (Harrah's has four casinos in Atlantic City.)

It's more than rhetorical posturing, too, as Penn has passed on several opportunities to get into that market. Judging from Penn's most recent earnings call, the company's turned the page on its erstwhile desire for a piece of the seaside action.

Isle of Capri Casinos CFO Virginia McDowell, a member of one of several executive teams than have been hustled into and out of Trump Entertainment Resorts in recent years, added that a lack of non-gambling attractions has been Atlantic City's downfall.

We beg to differ ... at least to the extent of noting that Vanessa Williams is playing the Tropicana Atlantic City this weekend. Can't think of a better reason to visit the Boardwalk than that.

Case Bets: Isle exits U.K.; no room at the Trop; Carlino channels Astaire, etc.

Fri, 24 Apr 2009 17:22:00 -0700

Isle of Capri Casinos is coming up for air, literally extricating itself from underneath Ricoh Stadium in Coventry, U.K. As part of CEO James Perry's attempt to refocus a company that spread itself too thin under his predecessor, he's walking away from an ill-starred British venture. Rank Group not only assumes Isle's lease, it gets the casino itself for pocket change, by industry standards: $940,000.

Perry may also be preparing to unload Isle's Pompano Park racino in the disappointing Florida market. At least one analyst is now picking Isle, so recently stuck in the mud, as one of the better bets to emerge intact from the gaming group's crisis.

A house divided cannot flush. Staggering from miscalculation to mishap, the Tropicana Las Vegas has sustained another self-inflicted wound. But don't blame current steward Tropicana Entertainment, predecessor Columbia Sussex or even Aztar Corp. The non-kosher plumbing that got the Paradise Tower shut down dates back to the 1990s, when the Trop was under divided ownership (one of the many obstacles to its redevelopment). The scary part is that it took at least 10 years for the code violations to be discovered.

The real victims, of course, are the hotel guests who are getting bumped from their Paradise Tower rooms. Since it's far and away the nicest part of the Trop, by definition they'll be moving to less-desirable rooms, some of them in truly decrepit parts of the hotel. Given the condition of the Trop's physical plant when I made a "secret shopper" visit, today's news comes as less than a surprise. The resort's advancing years were bound to catch it out sooner rather than later.

Penn's fancy footwork. While not out-and-out denying an attention-getting New York Post story about a possible 'credit bid' play for The Mirage, executives of Penn National Gaming were at some considerable pains to imply that it was all smoke, no fire. CFO William Clifford put it thusly: "... there were quotes and things said that have been pulled all the back to the last year’s Gaming Conference ... I’m not quite sure that the Post article is a very good reflection of anything we’ve ever said at any point in time."

CEO Peter Carlino followed with, "Some of the most interesting quotes were made at a time when none of the stuff that you are all currently thinking about was out there so it’s unfortunate. It’s just a hodgepodge of things pulled together to make a story. We would have preferred not to have seen it that way. Look, common sense says if there’s an opportunity we’re going to follow it but it’s no more exciting than that; enough said." [Emphasis added]

A Bloomberg News report that Penn was pursuing Greektown Casino went unaddressed in yesterday's earnings call. To the extent that Carlino was willing to commit himself on Las Vegas, he said Penn wanted no more than a single property "if we can find one." The consensus of Penn execs was that Vegas would be a "viable" market for the company ... in five years. (The company's strategy is partially predicated on an exodus of Californians relocating to Vegas and jump-starting the local economy.)

Sadly, Atlantic City seems to have slipped off Penn's radar screen altogether. On a happier note, the company promises a new and "exciting" replacement for the Empress Joliet pavilion that was destroyed by fire -- which makes it sound like the previous Ye Olde Egypt theme is now history, so to speak.

Schreckliche Idee! At a time when institutions like Goldman Sachs and Deutsche Bank control ever-larger chunks of the Strip, the Nevada Gaming Commission is seriously considering lowering the threshold of scrutiny even further. (Because if there are any two words that instill confidence nowadays, those words are "Wall Street.")

The man fronting this idea, veteran gaming attorney Frank Schreck, argues that his proposed rule change wouldn't result in casinos ceding managerial or operational control. However, that's already happened at the Las Vegas Hilton, where a Goldman-owned stalking horse holds a sizeable minority interest. What he's proposing would take a bad precedent and codify it.

By linguistic coincidence, schreck is the German word for "fright" and the root of schrecklich or "horrible." Which is what this idea is. But Nevada regulators are already overburdened and about to become more so, once the next budget is enacted. Given that grim future, Schreck's proposed lightening of their workload will be probably be embraced.

Warning signs at Harrah's

Fri, 13 Mar 2009 14:28:00 -0700

Fourth-quarter and year-end numbers from Harrah's Entertainment are out and the report raises several red flags:

• Harrah's absorption of Park Place Entertainment has left the company seriously overexposed in Las Vegas, where revenue was down 20% in 4Q08, compared to much smaller declines in non-Nevada markets.

• Even though most regional markets showed or regained strength in the last quarter (Atlantic City and Illinois being notable exceptions), Harrah's remained weak. This trend continues to be confirmed by revenue reports from individual states. Last month, in Missouri, Harrah's was the only operator to register a decline -- even Isle of Capri is doing better. Something is very wrong here.

• One of the company's top cost-saving measures is to cut jobs. This was a foregone conclusion the moment the Harrah's LBO was consummated but, in such a customer-service-intensive industry, if the reductions are taking place in the front lines of the workforce, expect business to continue suffering.

• Another high priority for reduction: marketing expenses. There's a term for this and it's called "death-spiral marketing." That's where your revenues are down so you reduce your marketing outlays and if business continues to decline so does the marketing budget ... and so on. Which is too bad, because Harrah's has been launching some of the better casino ad campaigns I've seen in the past year. It would be a shame if all that creativity wasn't used to its full potential.

This is your industry on crack

Tue, 03 Mar 2009 18:06:00 -0700

Finally, someone (in this case, Liz Benston) has written the definitive user-friendly analysis of how the casino industry crashed and burned. To try and quote the salient points would require little short of reprinting the entire article (to say nothing of its copious charts).

In essence -- as run through the S&G juicer -- we're dealing with an industry that could be said to have lost its marbles four to five years ago. As I've contended on the Vegas Gang podcasts, captains of the casino industry, borne aloft on a bubble of illusory "wealth," mistook a bubble for a baseline. Instead of paying down debt on acquisitions, they doubled down on extra-super-megaresorts and wholly unncessary LBOs.

And now that the party's ended, the resultant hangover is shaking out the business like a case of the DTs. The irony is that Strip revenues have reverted to 2005 levels ... back when business was pretty darn 'phat,' and MGM Mirage and Harrah's Entertainment were so flush they were able to devour Mandalay Resort Group and Park Place Entertainment, respectively, with scarcely a burp.

One of the few things now standing between insolvent casino companies -- a group that may soon include both Harrah's and MGM -- and outright disaster is that gaming has become "too big to fail." In an otherwise normal economy, collapsing companies like Herbst Gaming, Black Gaming, Colony Capital and even big shots like Station Casinos would probably be staring receivership in the face. But extraordinary forbearance -- in more than one sense of the term -- by lenders is keeping the lights on and the doors open. The bankers and bond markets have obviously decided it's better to keep their wobbly dance partners upright than let gravity take its course. Lord knows, the seismic impact of a cascading series of casino bankruptcies beggars the imagination and not in a good way.

Into this maelstrom, is flung the news that two companies are going to miss their scheduled 10-K filings. In the case of Pinnacle Entertainment, they need some extra time to perform mark-to-market ledger-demain, writing down $275 million-$330 million. J.P. Morgan analysts are sanguine, though, partly because of an 18% increase in fourth-quarter revenue. Also, although Pinnacle's net loss may be as high as $308 million, other results "should be above expectations, reflective of PNK’s strong Louisiana performance at Lake Charles, stable New Orleans trends, and a ramp at Lumiere [Place] in St. Louis. Trends that, generally, should continue."

Also playing for time is MGM Mirage. According to the Sun, last week's draw-down of credit has tapped out the company's liquidity, a statement confirmed in a J.P. Morgan note. Contrarily, the Review-Journal implies there's plenty left.

(Update: MGM tells me, no, there isn't and I was wrong to have concluded otherwise last week. Error duly noted. Self-flagellation in progress.)

Whatever the case, Wall Street is sounding like it's accepted that Chapter 11 is all but inevitable. Slightly less apocalyptic scenarios still include potential defaults, debt-for-equity swaps that would surely cost Kirk Kerkorian his majority ownership, asset sales, a restructured balance sheet and a $7 billion note that's less of a balloon payment than an incoming Hindenberg.

Or, as Morgan analysts write, per their wait-and-see strategy: "We expect to hear from MGM over the next few weeks, and suspect it is or shortly will be working with its banks on amending its bank covenants (leverage covenants now likely tripped after drawing down debt last week and hoarding cash) and looking to restructure its bank debt, among the other options MGM is considering (asset sales, amending CityCenter, etc.)."

Emendations to CityCenter? That would be an extremely bitter pill for MGM to swallow. First the Harmon truncation, now this prospect. In a totally unscientific measurement, page views of our online image gallery of Aria and Vdara were barely a ripple compared to the levels of interest manifested in Encore, M Resort and, good golly, even the Cabana Suites at the El Cortez -- all of which have vastly outpaced Aria/Vdara in viewership. Like I said, unscientific but who'da thunk we'd see an El Cortez ≥ CityCenter equation?

And we still haven't touched upon today's earnings report from Isle of Capri (half good, half bad) or the latest round in the Station-vs.-Boyd catfight, chock full of hissing and spitting. We live in interesting times, to be sure, regardless of whether that's a blessing or a curse.

Elsewhere in the 'sell block'

Mon, 02 Mar 2009 15:44:00 -0700

Note: Parts of this were published earlier but got devoured by our resident Comment-Eating Server.

The Motley Fool paid another visit to the sickroom and found Las Vegas Sands even sicklier than it when it was first pronounced a "deathbed stock," $61.95/share ago. But despite being down 'merely' 58%, Isle of Capri Casinos was pronounced "gravely ill," following the announcement that it would be temporarily suspending racing at Pompano Park. (Yikes!)

Add that harness track to the list of Goldstein Era show horses that have turned out to be broken-down nags for current CEO James Perry. While the sport of kings is a terminal patient, nobody -- yours truly included -- foresaw that Florida racinos and slot-enhanced parimutuels would be a duff proposition. Even if the Seminole compact is revised to put parimutuels and tribal casinos back on a level playing field, the Seminoles' lead on the private-sector casinos is several furlongs and growing.

Not in Kansas anymore: The messed-up casino-development process in Kansas won't be Gov. Kathleen Sebelius' problem for much longer. But governor, how does it feel to have to take sloppy seconds from D.C. retread Tom Daschle?

Nevada's overreliance on casino taxes has caused yet another leak to spring in the state's budget, a thing of shreds and patches even in the best of times.

Poker: The Musical. At last, the problem of the Tropicana Las Vegas showroom is solved! (Although it would be pretty damn funny in an unintentional way if you booked a tuner called Poker playing a casino that closed its poker room.) The official site can't be bothered to host sound clips, so head on over to Napster for a sample or 10.

Missouri: Dough and "D'oh!"

Wed, 11 Feb 2009 17:34:00 -0700

Silly me. I had the Missouri numbers sitting in my "Inbox" all day yesterday and simply overlooked them amidst a typically frenetic day. A big "thank you" though to reader Bob Bradley, who provided the short and long versions (click on the "January 2009" link for a PDF). The mitigating factors cited in the sixth paragraph of the Post-Dispatch story (such as holidays and number of weekend days) should be taken into account when reading what follows.

The market was up 10% on the nose for January, validating not only Wall Street's renewed faith in regional gaming markets but also eradicating any remaining doubts that the state of Illinois is toxic to casinos. I admire Neil Bluhm's confidence in pursuing that 10th license but can't imagine why anyone would want to be in Illinois right now.

Pinnacle Entertainment's President riverboat has been a floating corpse for sometime now, so -43% comes as no surprise. An ever-so-slight decline at Harrah's Entertainment's Maryland Heights property is an unaccountable disappointment, though, given the liberalized rules that are driving revenue increases across the Show-Me State. Pinnacle's Lumiere Place, a distant third in St. Louis, still has a lot of catching up to do, even with Illinois practically shooing customers into its arms. Penn National, though, leapfrogged Harrah's in Kansas City, moving into the #2 spot. All three Isle of Capri boats posted gains, in a long-overdue piece of good news for that company.

Ameristar Casinos wasn't the biggest percentage gainer in either the St. Louis or Kansas City markets (that would be Lumiere Place -- which saw a 25% higher influx of foot traffic -- and Penn's Argosy Riverside, respectively). But in terms of sheer dollar amount, Ameristar remains the dominant operator in both. The future course of this company may be hazy but you have to admire how well they're maintaining the status quo.

Going down in Illinois

Tue, 10 Feb 2009 17:56:00 -0700

When it comes to Upper Midwest casinos, there's Illinois and then there's Everyone Else. Except that, in this case, you want to be "Everyone Else." Being Illinois sucks.

January numbers for Missouri aren't out yet but Iowa is up 3%, Indiana is seeing a 12% surge ... and Illinois is -9%. That's on top of the -18% hammering the Land of Lincoln took a year ago, when smoking in casinos became a no-no. Whatever impact the recession is having on neighboring states' casinos, refugee players from Illinois riverboats are more than compensating.

The news isn't quite as good as it could be for Indiana, where the gain is more than offset on a same-store basis by the dilutive effect of two new-ish racinos and Harrah's Entertainment's Horseshoe Hammond behemoth. These ill-timed (for their competitors, that is) expansions have left everybody else slicing the ham thinner, in Fred Harvey's dying words. (The restaurant mogul's last utterance was alleged to be, "Slice the ham thinner." And, no, he wasn't an F&B executive at Station Casinos.)

Some salient Indiana facts ...

• Expansion of Horseshoe Hammond is not only a positive (+16%) in itself, it's more than making up for softening at Horseshoe Southern Indiana (-3%). Was taking the Caesars brand off the latter a good idea? Just asking.

• French Lick is licked (-14%). Somebody has to be in last place and Indiana's only land-based casino is "It."

• Ameristar East Chicago is feeling the Hammond Effect (-4%) but surpasssed analyst expectations nonetheless.

• Grand Victoria is in freefall -- eight straight months of double-digit declines, including last month's -26%. Will it hit bottom before it passes French Lick on the way down? Speaking of the bottom ...

• Congratulations to Boyd Gaming's Blue Chip (-2%), which is finally pulling out of a protracted skid. If Boyd can live with 65-70% of Blue Chip's pre-2008 performance, the future -- thanks to a newly augmented casino-hotel -- inspires hope.

• Majestic Star II needs to be moved (an idea that's getting kicked around by various governmental bodies). While its sister ship is hanging in moderately well, Majestic II's year/year comparisons are almost as dreadful as Grand Victoria's.

• The turnaround of Casino Aztar (off but three-tenths of a point) remains 2008's #1 success story in the industry.

Racinos were less of a factor in Iowa, were they were flat while riverboats nudged their revenue up 4%. The three tracks, though, do generate roughly a third of the state's casino revenue, while 14 riverboats divvy up the rest, not counting tribal casinos (which don't report revenue).

• Harrah's Council Bluffs (+4%) stole market share from Ameristar's rival facility (-6%), but the latter still does nearly double the business ($13.4 million to $7.7 million).

• Positive comparisons at two of Isle of Capri's four Iowa casinos were more than offset by declines at the other two, for an aggregate of -2%.

• Two smallish riverboats, Diamond Jo and Mississippi Belle, enjoyed spectacular improvements in January, +104% and +51%, respectively.

All generalizations about Illinois are false in the sense that there are exceptions that prove the rule. For instance, while the smoking ban has quantifiably been death for Illinois casinos, the first one to open as a non-smoking casino -- Casino Rock Island's new facility -- has been up 118% and 112% in the last two months. Is there something about not being able to smoke in a casino that still smells of cigarettes that's worse for business than not being able to smoke in a nice, fresh facility?

Another paradox is that the casino one would think most likely to feel the brunt of St. Louis-area competition, East St. Louis-berthed Casino Queen, was the last to experience the downturn that was sweeping the rest of Illinois and is now almost back (-3%) to year-ago figures, which themselves were only -2% from January '07.

With Boyd's Par-A-Dice (-5%), Harrah's Metropolis (-9%) and Penn National's Hollywood Aurora (-7%) decelerating from last year's precipitous declivity -- when they were -10%, -19% and -16%, respectively -- one would like to believe that the bottom is near for Illinois, but the Penn boat is the only bright spot in Chicagoland and the same company's Alton Belle (-15%) is still taking it on the chin from Missouri.

Case Bets: James Packer, Isle of Capri

Mon, 09 Feb 2009 18:30:00 -0700

Geez, maybe the Nevada Gaming Control Board shouldn't have been in such a hurry to green-light James Packer's purchase of Cannery Casino Resorts. (In a bow to noblesse oblige, Packer wasn't even required to put in an appearance at the Nevada Gaming Commission's vote on the matter.) At least the NGCB might have wanted to see how the Harry Kakavas scandal plays out, especially when Kakavas purports to have Crown Ltd. execs committing improprieties on tape. And since one of the people in the hot seat is Crown CEO Rowen Craigie -- with whom Nevada regulators have become quite familiar -- close attention is warranted.

Regulators from Pennsylvania -- a state not heretofore known for the thoroughness of its casino due diligence -- are taking this matter a little more seriously. In fact, they're sending a deputy Down Under to hear Kakavas' sub rosa recordings in person. Having dropped the ball on Don Barden and Louis DeNaples, the Pennsylvania Gaming Control Board clearly doesn't want a third botched background investigation on its ledger.

Packer, money soon parted: A $300 million writedown of other stateside Packer casino investments is on the way. Reuters' dispatch implies that some of Packer's Fontainebleau stake may be written off. That's neither a vote of confidence for Packer or F'bleau, which looks more and more like the wrong project in the wrong place at the wrong time. At the time Packer bought in, it'd looked like he'd found a "steal" -- and that F'bleau had been hard up for investors. Well, the second part may still be accurate.

Update: Then again ... maybe both still hold water. All though all of Packer's U.S. casino holdings (exclusive of Cannery) may be only worth $65 million combined, getting 20% of F'bleau for 65 mil still qualifies as a steal.

Isle bags U.K. venture: Even had it stuck to its knitting (U.S. regional casinos), Isle of Capri Casinos would still be in the doldrums -- its revenues weren't growing on a same-store basis. A duff casino project in the bowels of Coventry's Ricoh Arena just made things worse and now its end is nigh. Perhaps, as Isle contends, Britain's regulatory regime is partly to blame, but that's an excuse which suggests Isle didn't quite know what it was getting into -- nor would a strong performance in Coventry have cured the company's underlying malaise. Couple this with a 'debacular' Bahamas venture and Isle can't come home soon enough.

Dancing Tsar? No, not he: Normally admitting to be an ABBA fan wouldn't be a problem ... unless you happen to be Vladmir Putin, that is. Bjorn Again probably never imagined they were onto the publicity coup of their careers.

Colorado casinos: Four votes, four wins

Wed, 21 Jan 2009 18:47:00 -0700

After a statewide vote approved 'round-the-clock operation at Colorado's non-tribal casinos (along with a 20X increase in betting limits and a wider repertory of games), the measure wasn't home and dry. It had to be voted through in Cripple Creek, Black Hawk and Central City. I heard some skepticism voiced about whether the citizens of Central City were on board with a gambling expansion but they sure were. The proposed liberalization racked up an overwhelming victory yesterday.

Don't gas up for a drive to Colorado just now. The widened operating rules don't kick in until July 1. Although neither Ameristar Casinos nor Riviera Holdings is directly affected by the Central City vote, Wall Street finally got a clue as both stocks traded slightly upward today. Ditto Penn National but not Isle of Capri. Congratulations to all Colorado operators, who definitely could use the relief.

Buyback at Isle

Wed, 14 Jan 2009 14:48:00 -0700

As reader Bill Jones pointed out, Isle of Capri is making a first-come, first-served offer to retire 28% of senior debt at 55 cents on the dollar. (Official version here.) Wall Street wasn't impressed, with Isle stock -16% as of this moment. But then what's with the market today? Voters in Black Hawk, Colo., OK'd expanded games, hours and betting limits, and yet both Ameristar Casinos and Riviera Holdings (which operate in Black Hawk) are down roughly 12% in today's trading. The Black Hawk bulletin is a not-inconsiderable positive -- but you wouldn't know it from Wall Street's glum reaction.

The sky is (not) falling!

Mon, 12 Jan 2009 15:06:00 -0700

Another weak month for Nevada casinos, another "It's the end of the world" story. Revenues are regressing, we're told, to levels not since -- like, OMG! -- the dusty, ancient days of July 2004.

Yeah, those really were some parched, hard-up times. If we take the Wayback Machine out for a spin to that desolate era, we'll find that MGM Mirage is following up on a June takeover offer to Mandalay Resort Group that would eventually cost $7.9 billion. And on 7/15/04, we'd see Harrah's Entertainment -- in an apparent effort to keep up with the Joneses -- make a $9.4 billion takeover play for Caesars Entertainment. Yes, times were so lean in July '04 that the big boys on the Strip were feeling their oats, flush with liquidity and ready to expand in a big way.

Several years -- and a few over-optimistic decisions later -- MGM Mirage is applying an icepack to a $1.2 billion Mandalay-related hangover and Harrah's (by piling additional LBO-related debt onto an already encumbered balance sheet) would regard just staying out of Chapter 11 as a great victory. But it's worth remembering that both companies were riding high in mid-2004. Had they not gotten subsequently carried away, sailing atop what proved to be an economic bubble, they'd be weathering the present crisis much better, with scant talk of bankruptcies or asset sales.

You wanna talk "bad"? Atlantic City, now that's bad. Shockingly so, in fact. But, with Pennsylvania racinos up 21% in December, not entirely surprising.

Speaking of companies that took a ride on the crazy train, Isle of Capri Coventry is up for two design awards. Unfortunately, neither comes with a cash prize that would erase this writeoff from Isle's ledger of bad business decisions.

Capt. Casino sails again

Fri, 09 Jan 2009 17:03:00 -0700

Usually, when I'm on the receiving end of some "how-to" book about best business practices, it's some buzzword-laden, drearily packaged tome that can't get to the bookshelf fast enough. That will not be the case with Conrad on Casino Marketing, which arrived in today's mail.

Waaaaaaaaaaaaaay back in the days when I was laboring on Casino Executive Magazine (we're talking Clinton Administration here, folks), there was always at least once piece of copy that we looked forward to reading every month. It was "Conrad's Corner," written by industry veteran and Raving Consulting President Dennis Conrad (whose considerable repertory of experience includes teaching table games to newbies under the nautical moniker of "Captain Casino").

One reason that Dennis' column was always read with alacrity and pleasure was that he writes just as he speaks -- excellently, memorably and personably. The same Dennis Conrad you meet in the flesh is the one who materializes on the page. He's unpretentious, self-deprecating and a gold mine of anecdotage. (Knowing Dennis, he'd say it's not anecdotes, just dotage.)

True to form, he accompanies preview copies of Conrad on Casino Marketing with a cover letter that reads, in part, "A lot of work went into this latest effort, particularly in touching up my photos. It's hard to look like an interesting person who might be worth reading." No, not hard at all when you write like Dennis.

And one way to do that is to write not like an industry insider but like a customer. Because, for all his varied experience, Dennis is an executive who thinks and reacts like a consumer or a player. Which is a rare commodity in this industry ... except at Raving, where a braintrust of like-minded veterans has been mustered. The core of Raving's philosophy is the seemingly radical notion (at least in casinos) to apply simple common sense. Or, to use the old Cactus Jack's business model: "Find out what your customers want. Give it to them."

Just from skimming the new book, I'd say most of the pieces -- many of which ran in Casino Journal or Native American Casino -- are in the 600/1,000-word range. Dennis is a skilled communicator, always getting to the point speedily, memorably and with an enviable economy of words. (A skill I have never mastered.) Just read any of his periodic iterations of "I Am Your Customer" and you'll see what I mean.

The current collection (Dennis' second anthology) reflects the 2004-2008 period. If it goes to a second printing, perhaps footnotes or dates of publication could accompany certain chapters, when relevant. For instance, the very first chapter "I'll take Isle" was obviously written during ex-CEO Bernard Goldstein's tenure at Isle of Capri Casinos, before his business plan ran aground and he abandoned ship. This disjuncture, coming right at the start, induces a momentary "time-warp" sensation. (A couple of chapters on Harrah's Entertainment -- whose Total Rewards was voted both the best and worst "Comp Club" program in the recent "Vegas Trippies" -- should spark healthy debate.)

Minor quibbles aside, Conrad on Casino Marketing promises to be a valuable and necessary counterpoint to (LVA's own, I must admit) Casino-ology by Bill Zender, with its rigorously empirical approach. (Don't take my word for about Zender; ask UNLV's David G. Schwartz.)

One might say Zender writes from the perspective of the eye in the sky, Conrad from that of the consumer on the floor. Each complements the other and regular doses of Conradian common sense are not only illuminating for the layman. They're captain's orders for any casino executive who's losing touch with what it's like to be a customer.

21

Wed, 31 Dec 2008 11:39:00 -0700

That's the number of predictions for 2009 issued by Spectrum Gaming Group, an Atlantic City-based outfit. They are, in no particular order:

• Advancements in technology that impact revenues and cut costs will continue to be attractive to operators even in an economic downturn.

Continued ...

• ... conversion of racetracks to racinos, as well as non-gaming expansions to existing racinos.

• ... elimination of jobs, both through cuts and attrition.

• ... moratorium on development of big-box gaming resorts due to economic downturn.

• Convenience-based gaming continues to achieve better year-over-year results than destination-based gaming.

• Corporate and property debt restructuring in wake of declining revenues.

• Eastern European countries will increase their efforts to meet EU regulations, including smoking bans.

• Gaming companies increase efforts to export their brands globally.

• Gaming equipment manufacturers continue to invest in games that appeal to a younger demographic, including lotteries, bingo and server-based technology.

• Increased legislative acceptance of allowing the deduction of issued electronic promotional gaming credits from the gross revenue tax/fee calculation.

• Increased use of electronic games, including the emergence of scalable electronic table games in which players at different locations on the floor wager on a single outcome.

• Increasing alliances between commercial gaming operators and outside investors, as well as between commercial and tribal operators.

• Internet gambling in U.S. will be a hot federal issue for the new administration and Congress; gaming companies will fund lobbying efforts on both sides.

• Major gaming operators commence deleveraging by selling off properties to emerging operators.

• More pronounced shift in market share among suppliers as operators attempt to shift away from IGT participation games.

• Native American tribal gaming revenue estimates remain on track to surpass U.S. commercial gaming totals.

• Prices for hotel rooms, shows and food and beverage will return to lower levels at large gaming resorts as operators need to fill their properties.

• Slow but continual advancement toward server-based gaming, as operators remain skeptical as to the potential financial returns on investment.

• States consider expanding or legalizing casino-style gaming to help fill state budget gaps.

• Support from China to ease visa restrictions, increasing flow of visitors into Macau.

• Uncertainty in various European countries concerning regulation, thus increasing cases being referred to the European Court of Justice.

We'll have to check back in a year, God willing, and see how clear Spectrum's crystal ball proved to be. There's nothing on that list that strikes me as off the beam and much of its seems dead on target. The only "WTF?" comes courtesy of a Spectrum exec who told a reporter, "In times like this, it's not like these are company-specific problems that can be attributed to some glaringly bad decision by the company."

I respectfully beg to differ. Choosing unreliable and/or overcommitted business partners (Boyd Gaming) was a decision. Opening in far-flung markets while your core properties were losing market share (Isle of Capri) was a decision. Taking on preposterous amounts of debt (Harrah's Entertainment) or simply assuming more debt than your cash flow and lavish spending tendencies can support (Station Casinos) were decisions. Trying to build metaresorts all at once (Boyd, MGM Mirage) was a decision. Rashly demolishing the Atlantic City Sands and thereby leaving yourself with empty, non-revenue-producing land (Pinnacle Entertainment), that's a decision.

Launching major projects that aren't fully capitalized (Las Vegas Sands, Cosmopolitan, Majestic Star) is a decision. Stubbdornly jeopardizing the license of the property that generates 40% of your cash flow (Columbia Sussex) is a decision. Making not one, but two major acquisitions at a time when your cash cow -- slot routes -- is giving less milk and then overpaying for some of the new assets (Herbst Gaming) is a decision.

Opening a $2.3 billion, years-in-the-making megaresort at the nadir-to-date of the economy (Wynn Las Vegas)? Now that, that was not a decision. That's playing the hand you were dealt.

Illinois: No country for big casinos

Tue, 30 Dec 2008 12:20:00 -0700

So Illinois had a casino license up for bid and the only pursuers were three no-name outfits (Canadian Trilliant Gaming, even more obscure Waukegan Gaming and Midwest Gaming & Entertainment -- one of Neil Bluhm's innumerable corporations)? Where were the big boys?

Hors de combat, it seems. A press release from 2004, when it looked like that 10th license might finally be back on the market, shows that Isle of Capri Casinos was kicking the tires and Harrah's Enterainment was pitching itself as the savior of Waukegan, Ill. (Home town of Jack Benny and now fallen on hard times.)

Flash forward to 2008 and it's unlikely -- more like impossible -- that either company could even scrape together the $125 million or so in front money that it would take to have been a serious contender for the license. Too much acquisition by Harrah's, too many irons in too many fires and then an almost insanely ill-advised LBO have left it teetering on the precipice. (Though it got good news this morning when S&P raised Harrah's credit rating.) Isle, for its part, would pursue an expand-expand-expand strategy that really did seem insane at times ... I mean, Coventry and Singapore?

MGM Mirage appears to have stuck to its guns re J. Terrence Lanni's vow not to expand in Illinois until Gov. Rod Blagojevich's (D-The Big House) punitive tax regime was relaxed. Besides, it's having enough trouble coming up with "end money" for CityCenter. All the other logical players are either equally strapped for cash or heavily committed in the Land of Lincoln -- usually both. Which leaves Steve Wynn and "Wynn Des Plaines" just doesn't have that certain je ne sais quoi, does it?

Pinnacle's Bahamas debacle

Fri, 19 Dec 2008 18:22:00 -0700

It wasn't so long ago that Pinnacle Entertainment was the fair-haired boy of the casino industry, especially after it hit a home run in the Lake Charles, La., market with tony L'Auberge du Lac. Then it nearly followed Columbia Sussex over the precipice in the crazy Aztar Corp. bidding war. Its much-anticipated Lumiere Place in St. Louis is now regarded as a succes d'estime, a budgetary overindulgence. (It's certainly failed to make any significant dent in proximate Ameristar Casinos and Harrah's Entertainment operations.)

Pinnacle paid a bundle to agglomerate land on Atlantic City's Boardwalk that it now can't afford to develop -- and may be regretting the precipitate fashion with which it shut down and demolished the Sands, which could have been generating a modest revenue stream all this time. A Baton Rouge riverboat project is behind schedule, and now ...

Isle of Capri Casinos and Harrah's now can welcome Pinnacle to the club of U.S. casino owners who have found nothing but a dead end in the Bahamas. (In fairness to Harrah's, it never got a chance to operate there, its Baha Mar project having fallen victim to internecine plotting and counterplotting that still haven't been sorted out.) The torrent of red ink from Exuma has done a number on Pinnacle's bottom line, which really doesn't need any more bloodletting right now.

It seems that Pinnacle decided last summer to either sell or outright close its casino on Exuma and will draw the blinds on Jan. 2 (which tells you just how bad business must be). Given that the Bahamas also turned out to be a fiscal graveyard for "Pile of Debris" (one of the bad decisions that ushered out the Goldstein Era), no wonder Pinnacle's Exuma casino is wanting for takers. Yes, they couldn't even get James Packer to take this turkey, so things must be very dire indeed. The ill-starred property has even been purged from Pinnacle's corporate Web site. "Bahamas casino? What Bahamas casino? No, we never had one of those. Where did you read that?"

I'm tempted to say this is the end of U.S. casino operators trying to reinvent the Bahamas as a market for Vegas-style gambling. But this is an industry with no shortage of persistence and optimism, mostly justified but sometimes not.

Last-minute reminder: The final episode, "Vegas" of Stargate Atlantis -- partly shot on the Strip -- airs tonight at 9 p.m. Eastern and Pacific. I'm just sayin'.

Analyst: Station, Harrah's "worthless"

Tue, 16 Dec 2008 13:22:00 -0700

James Packer can kiss $414 million goodbye, according to a Citigroup analyst who writes that Crown Ltd.'s ownership stakes in Station Casinos and Harrah's Entertainment are now "worthless." That's according to a Sydney Morning Herald story picked up by the Las Vegas Review-Journal. (The R-J needs to retitle its "Business Matter" blog "Gaming & Tourism," because the rest of its business desk isn't doing squat, blog-wise.)

Harrah's, Station, Isle of Capri Casinos and a few others are in the situation faced by the submariners of Das Boot. Their U-boats are stuck in a crash drive, headed for the bottom of the Straits of Gibraltar and nearing "crush depth." Those three have got some time but Herbst Gaming is probably hearing the hull plates crumpling right about now. Whoever believed that three mostly rundown Primm Valley casinos were worth $131 million apiece (on top of an undigested $119 million Sands Regent acquisition, to boot) certainly ought to be shot out the nearest torpedo tube.

Isle of Capri Biloxi previewed

Mon, 15 Dec 2008 17:07:00 -0700

Ironically, now that Isle of Capri has put its Biloxi plans on hold, we finally get a look at what the revamped Isle (minus the "of Capri" and the parrot) would look like. It's not beauty-contest winner but, if it can be financed, would be an improvement on the very sparse-looking hotel-casino presently on the site. The current Isle Biloxi has been dubbed "the Tropicana of Biloxi," which is almost the worst insult anyone can level at the place.

Meanwhile, Isle's market cap continues to dwindle ($88.6 million as of today), as the executive makeover continues. It's difficult to foresee a turnaround scenario for Isle that doesn't involve a stopover in Chapter 11, given the size of the hole dug by previous management, but Glenn Curtis thinks Isle's an attractive takeover target (for whom, I wonder?) and a bargain play among current stocks.

Case Bets: Stanley Ho in Vegas?, HRH grows but Morgans shrinks

Thu, 11 Dec 2008 13:47:00 -0700

A local columnist raises the spectre of Stanley Ho getting back-door access into Las Vegas via James Packer's acquisition of Cannery Resorts. This isn't the first time I've heard this question raised and, call me complacent, but I believe it stems from confusion. Namely, a conflation of Crown Ltd., the umbrella under which Packer's U.S. casino investments are huddled, and Melco Crown Entertainment, his joint venture with Lawrence Ho, son of dear old Stan.

While the Packer and Ho heirs do business together in Macao (and belatedly tried to get into Singapore), there hasn't been a whiff of Lawrence Ho being involved in Packer's U.S. ventures. (Obviously, because we're talking about discrete companies here.) Concern about Stanley Ho getting his mitts into Cannery are not only a stretch, but far more of one than the worries that were aired when MGM Mirage built a casino in Macao that was half-financed with money borrowed -- by Pansy Ho -- from the ancient casino vizier.

Doom, gloom in context. While the headlines are full of apocalyptic pronouncements on the subject of October's Nevada casino revenue decline, note where it says these numbers are the lowest "since April 2005." That was when the Las Vegas economy was on an upward trend that would make "bargain" and "Strip" virtually oxymoronic. So 2005's good numbers become 2008's panic-inducers ... of course, Las Vegas' ability to sustain its ensuing merge-n-splurge spree (and the ensuing Excedrin headache of ebt) on 2005-level revenues is a whole 'nother story.

April '05 would postdate the point in our economy where Americans started saving money at a negative rate and living off credit. At the time (i.e., March of that year), then-Council of Economic Advisers Chairman Ben Bernanke said, as recounted in the Dec. 1, 2008 issue of The New Yorker, "the main source of imbalance in the global economy was not excess spending at home but, rather, excess saving in China ... "

Darn those party-pooping Chinese! Everything would be just ducky if it weren't for them! But seriously, folks ...

Hindsight being 20/20, this was probably the point where the casino industry ought to have recognized that the U.S. economy (goaded by three-plus years of easy-money policies at the Federal Reserve) was on an unsustainable course and started curbing its growth projections -- and development plans. Instead, it stomped on the gas pedal and we got (in no particular order) leveraged buyouts of Station Casinos and Harrah's Entertainment, crazy land inflation on the Strip -- peaking at over $40 million/acre, CityCenter, Echelon, Palazzo, Viva, umpteen failed or undersold condo projects, bankruptcy at Tropicana Entertainment and the Cosmopolitan, potential bankruptcy at Herbst Gaming and Isle of Capri, and now a loud screeching sound as the brakes are belatedly applied.

Morgans' Faustian pact. What doth it profit Morgans Hotel Group to acquire the Hard Rock Hotel & Casino only to sell it back to the bank in little bits and pieces? Morgans' stake in the exponentially expanding HRH barely exceeds 14% and is on track to get smaller still. Some of us thought from the start that Morgans had bitten more than it could chew. Or, to look at it another way, what a long, strange trip Morgans has taken to wind up with a glorified management contract.

Chrysler cars getting worse? Yup, it looks like another triumph for private equity buyouts.

Too late for Isle?

Wed, 10 Dec 2008 18:44:00 -0700

A change in management may not have come soon enough for Isle of Capri Casinos. Its debt has been downgraded on "unfavorable profit trends." The company's market cap of just over $100 million is dwarfed by its nearly $1.9 billion in debt. Regardless of the quality of its current leadership, the combination of weak property openings (a legacy of the previous regime), hurricane-related disruptions, and smoking bans may be more than Isle can outrun.

Casino bailout no joke

Thu, 04 Dec 2008 15:53:00 -0700

American Gaming Association President Frank Fahrenkopf may have made light of it at G2E. But the days of joking about a federal bailout are officially over. New Jersey Gov. Jon Corzine (D), during an Atlantic City visit, made some vague rumblings about the necessity for aid which "stops this slide ... I mean, we don't need to wait until there's a 30% decline in revenues and there's another series of layoffs in Atlantic City or in the financial services industry that undermine the overall health and well-being of the American people."

So it begins; not with the ringing of a bell but the rattling of a tin cup. But remember, when federal business-relief money was being directed at the Gulf Coast in the wake of Hurricane Katrina, bluenoses in Congress made sure to 'redline' casinos out of the list of intended beneficiaries.

Isle slows down. Expansion of the Biloxi Isle of Capri Casino is on the backburner again, in another manifestation of the company's newfound prudence. Unfortunately, that wasn't enough to save Isle from having its credit rating cut.

Herbst Watch, Day One. Yesterday was D-Day for overextended Herbst Gaming. Still no word on what went down.

Case Bets: Ho Tram, Shuffle(d) Master, Ameristar

Tue, 18 Nov 2008 12:17:00 -0700

Tout le monde may be at G2E (albeit 10% less le monde than last year, I'm told) but the big news is happening elsewhere.

MGM Mirage has emerged as the "angel" for the Ho Tram Strip in Vietnam. It's a sweet deal for MGM, as Mike Aymong's Asian Coastal Development Ltd. ponies up the $4.2 billion construction cost, while MGM lends its brand name and operational expertise (in return for a fee) to an 1,100-room hotel but is spared any exposure. ACDL will also receive the benefit of MGM's marketing abilities. An empty stretch of Vietnamese beachfront suddenly looks a great deal more like a viable resort project.

Per Joel Bergman's remarks, given on Monday, about MGM putting property on the block, Marketwatch confirms it. MGM President Jim Murren says "non-core assets" are for sale, including undeveloped land on the Strip. So maybe City Center II, including "Atlantis Vegas" isn't happening after all.

Shuffle Master gets shuffled. The deck of executive cards at Shuffle Master just got run through the shoe. Senior VP Brooke Dunn is being placed on leave, at least for now. The SEC is recommending civil litigation against him pursuant to alleged insider trading. Dunn's accused of tipping an unidentified third party to Shuffle Master inside dope.

Splitting kings. The chairman and CEO roles at Shuffle Master are being cleaved apart, with board member (and former Greenspun Corp. exec) Phil Peckman assuming the chairman's gavel. Outgoing CEO Mark Yoseloff stays in that role, as the company's search for a replacement continues ... and continues. Presumably to further ensure stability, three veteran Shuffle Master execs -- Perry Lopez, General Counsel Jerry Smith, and Roger Snow -- have all been named executive veeps.

Ameristar Casinos continues to run up the white flag, laying off over 5% of its Missouri workforce. This is ironic, considering that Ameristar was the author and prime backer of the constitutional amendment that will remove the state's "loss limit" -- a change that will redound to Ameristar's financial benefit. Although the amendment's passage is expected to widen the gap between the "haves" (Ameristar, Pinnacle Entertainment, Harrah's Entertainment) and the "have-nots" (Isle of Capri and several independent operators), Ameristar is acting like it came out on the losing side.

Gaming bosses step up

Fri, 07 Nov 2008 18:33:00 -0700

While some casino companies we won't name (coughBoyd Gamingcough) are responding this week to the bad economy with downsizing their workforce, others are setting a nobler example.

Executives at both Isle of Capri Casinos and Trump Entertainment Resorts are literally taking it in the wallet, sharing the pain that is customarily meted out to line employees. Trump spreads the sting of a 5% salary decrease across 21 executive positions. But even that noble gesture pales next to what happened at Isle. CEO James Perry, COO Virginia McDowell, Chairman Bernard Goldstein and Vice Chairman Robert Goldstein imposed a 25% -- 25%!!! -- pay cut on themselves, retroactive to Nov. 1. (You see why these are some of the most admired executives in the casino biz.)

Both companies are in serious turnaround mode and leadership is really putting its money where its mouth is with these sweeping moves, which should be a tonic for corporate morale. Isle will also be a little heavier in the wallet now that Executive Vice President Allan B. Solomon has stepped down and no replacement has been named. Solomon was part of the old Goldstein crew that led Isle to prominence but arguably stuck around too long while other companies caught up with and passed them.

Recently, MGM Mirage made a big show of forgoing end-of-year bonuses but, as you read here, that was a sham. Show me some Vegas bigwigs who did what the Isle and Trump brass did and then we'll talk. So might ex-Borgata dealer Stanley Silow, who took issue with management's resort to the meat-cleaver approach: "They're kind of cold about it. I know business has declined and all that, but they didn't even attempt to reduce hours. They just cut."

The morale-boosting gesture at Trump couldn't come at a timelier juncture. Third-quarter numbers were horrible, representing 74% of the $188 million TER has lost this year, including a $46 million markdown on the sale price of Trump Marina and a further $62 million, Marina-related writedown. The company says it hasn't laid off any employees this year (though some attrition appears to be taking place), which bolsters CEO Mark Juliano's contention that staff can't be reduced any further without shuttering big chunks of the operation. If there's a silver lining, it's that most of the lumps taken were in the nature of one-time charges and most of whatever bruising is likely to be done to TER this year has been done.

A guy who 'gets it.' Few TV reporters display any degree of expertise when covering the casino industry. A sterling exception is KVBC-TV's Steve Crupi, as this report on the potential collapse of Las Vegas Sands demonstrates. Very thorough. Crupi really knows his shit -- though I don't think he'll put that quote on his resumé.

Goldstein makes Hall of Fame

Fri, 05 Sep 2008 14:24:00 -0700

Having spectacularly blown it last year with its ill-advised election of Clifford Perlman to the Gaming Hall of Fame, the American Gaming Association did a good deal better this time around. It chose Bernard Goldstein, an important transitional figure in the casino industry.

Let's get the obvious out of the way: Goldstein's Isle of Capri Casinos didn't keep pace with the times (eventually earning the company the nickname "Pile of Debris"); ventures into international waters -- including a truly baffling run at the Singapore market -- were an outright flop; and Goldstein and his executive team were too slow to relinquish power.

Bernard Goldstein, pioneer

But credit Goldstein with having the grace to step aside in favor a strong successor, James Perry. The latter brought Argosy Gaming to the forefront of the "second wave" of Midwestern riverboat casinos, capitalizing on the markets Goldstein was instrumental in expanding, taking the product to the next level.

Midwestern casinos used to be pretty rudimentary (some probably still are) and Isle made its reputation on its amenities and decorative flourishes -- including the ubiquitous water features that came to define "Isle style'. It also spotlit them in marketing campaigns that made Isle one of the stronger brand identities of the Nineties.

What makes this more impressive still is that Goldstein did this starting at the same AARP-ready age at which Aztar Corp.'s top honchos were looking for a cushy payout en route to the golf course (leaving the company in hands that would prove its ruination). The former scrap-metal dealer parlayed a Bettendorf, Iowa riverboat into a 17-year career as a casino mogul. Few of us will be so enterprising at age 62, I daresay.

As for the other inductees, one of the poster children of the post-Mirage wave of "affordable elegance" was Emeril Lagasse. Since the Nineties' reinvention of Las Vegas can't be discussed without mentioning Emeril's name, he was a natural choice. Not being a student of the sweet science, I will leave the merits of Bob Arum and Don King elections to others better versed in the subject.

If mob ties are no barrier to admission to the AGA's HoF, then why not induct the recently deceased Allard Roen? At least he did good things (like help desegregate the Strip) and his influence on Las Vegas' development extended well beyond Las Vegas Boulevard, something that could not be said for casino moguls more famous than he.

Isle reports

Thu, 04 Sep 2008 17:50:00 -0700

Not a lot new here, so I'll try to be brief. Losses are down and cash flow is up, particularly impressive in a quarter in which Mississippi River flooding forced the temporary closure of two casinos. An Oregon expansion was written off, and capital is being concentrated on the improvement of core assets in Mississippi.

Florida, England and the Bahamas look like a total bust, while the Iowa riverboats are getting surprisingly modest "bounce" from the Illinois smoking ban. (Note the big improvement at the re-branded Lady Luck Caruthersville, however, formerly a Casino Aztar boat.) Analysts seem happy with the numbers, which never hurts. It's going to take a while to get this boat turned around, but it's definitely moving in the right direction.

Just skimming the overall Iowa numbers for August, I see that Harrah's Entertainment lost market share, while Penn National, Ameristar and Isle of Capri all grew. An extra weekend day helped the state to a 5% gain over August '07. Judging by the stories that disenchanted Diamond and Seven Stars players share with me, it doesn't come as a shock to see Harrah's losing business to its competitors.

"A bizarre situation"

Wed, 03 Sep 2008 16:55:00 -0700

That's how a CNBC anchor describes the boats-in-moats regime that's prevalent throughout the Midwest and Mid-South, and I couldn't put it better myself. I believe the word "hypocrisy" was also deployed, and that's right on point, too. (Analyst Robert LaFleur also has some thoughts regarding Macao, in the online video, that are worth hearing.)

One of the few things that was well and truly put right in the aftermath of Hurricane Katrina was the relocation of most of the Mississippi Gulf Coast's 11 casinos. It cost Gov. Haley Barbour (R) some political capital and stirred up the ire of the churchy set, but he pushed it through the Lege, and for that he earns at least this vote of thanks.

True, Hurricane Gustav struck a relatively glancing blow at Biloxi-Gulfport -- and when we're talking hurricanes, that's a mighty big "relatively." So we didn't have to find out how the newly land-based casinos would have withstood the brunt of hurricane, thanks be. Still, the fact that what damage was inflicted was but a minor impediment to reopening is vindication of Barbour's initiative.

The perfect is forever the enemy of the good, and Mississippi's casinos still bob in rivers and sit atop pilings in man-made lagoons. Which is damned silly and ought to have been addressed post-Katrina. But I fear the Mississippi solons could only be moved so far and it will take another natural catastrophe or two before the lightbulb comes on.

Same in Lousiana, where neither current governor Bobby Jindal (R) nor his ineffectual predecessor, Kathleen Blanco (D), has shown the gumption to get the state's casinos off the water and onto dry land. In Jindal's case, he's been too busy trying squelch casino expansion instead.

A good thing Gustav wasn't a stronger hurricane, seeing as the Lake Charles market lay in its path. Pinnacle Entertainment gets 80% of its cash flow from Louisana and Isle of Capri Casinos draws 15%, and most of that comes from Lake Charles. Which means that, had this been another Katrina, it could have taken out both Pinnacle and financially ailing Isle of Capri in one fell swoop. If Louisiana's solons are going to continue to predicate their budgeting on casino $$$, or if they see themselves as pro-business or if they just want to preserve jobs, they need to stop shooting dice with Mother Nature and hoping their luck doesn't run out.

Props to Harrah's Entertainment for closing its New Orleans casino on mid-Saturday, exercising the discretion that is the better part of valor. Harrah's also shuttered its Biloxi casino early Sunday morning (4 a.m. to be precise), three hours before the edict came down from the capitol. Others were not so proactive.

First as tragedy, then as farce. It just wouldn't be a cataclysmic weather event without some predictable buffoonery from New Orleans Mayor Ray Nagin, the single most ridiculous figure in the Katrina debacle (beating out some tough competition).

Simply put, Nagin freaked out. (Again.) "This is the mother of all storms. I am not sure we have seen anything like it ... This is worse than Katrina," he overreacted. Then, reverting to Nagin-esque every-man-for-himself form, he proclaimed, "If you decide to stay you are on your own."

Yup, when it comes to abdicating responsibility in the face of a crisis, there's nobody quite like Ray Nagin. (Maybe he'd been listening to the meteorologist Bloomberg News quotes as predicting widespread failure for the Crescent City's levees and having a meltdown of his own.) I kept tabs on Gustav via that normal hotbed of hysteria, cable news, and heard no Nagin-like levels of panic, least of all from the Weather Channel.

And it sure looks as though every responsible agency and public figure performed with both competence and continence. Except Ray Nagin. As usual. Then again, New Orleans voters re-elected this bungler right after Katrina, so they've not much room for complaint.

On the other hand ...

Mon, 25 Aug 2008 18:01:00 -0700

... if Illinois casinos are sucking wind (which they are), why hasn't this redounded more to the benefit of neighboring states? For instance, it looks like Indiana had a good July, but once you back out two new racinos, a 2% gain turns into an -11% retreat from last year's numbers.

And the northern Indiana boats ought to be doing better, even if Horseshoe Hammond's revenues (-18%) were depressed by a temporary closure and Boyd Gaming's beleagured Blue Chip (-40%) is a drag anchor on the regional average. Still, a -15.5% year/year comparison -- even with those two factors taken into consideration -- doesn't suggest floods of nicotene-deprived gamblers storming the gangways.

Only Majestic Star, of all unlikely vessels, had a revenue-positive July. Year to date, Ameristar Casinos is doing the best of any single company, which makes its recent decision to run up the white flag and sack 244 employees, fretful over a newly expanded Horseshoe Hammond, look doubly defeatist. Current Ameristar management just doesn't look like they're in it for the long haul (read "not cut out for it" or "lack the stomach for it").

A change of brand, to Horseshoe, isn't doing the trick -- yet -- for Harrah's Entertainment's Glory of Rome. The glamorously named Horseshoe Southern Indiana (formerly Caesars Indiana) is the only casino in the Hoosier State's southern reaches to post negative revenue comparisons for every month of 2008. The others either swing like weathervanes or, in the case of Casino Aztar, improved dramatically with a change in management.

If French Lick isn't licked, it appears to have crested. The turnaround at Casino Aztar (currently under state trusteeship) blunted its revenue growth, as did the debut of the Indiana Live and Hoosier Park racinos. Until the economy improves, it looks like it's maxed-out at $8.5 million-$9 million per month.

Missouri is another puzzle, down 3% once the effects of Pinnacle Entertainment's nascent Lumiere Place are subtracted. The St. Louis market, closest to Illinois, was -8%, while Kansas City -- the market with the least to gain from Illinois' troubles -- was up 2%. Go figure.

All companies except Harrah's had a revenue-positive July, even Isle of Capri Casinos. Harrah's lost market share in St. Louis and Kansas City, and Ameristar gained in both markets. (See previous comments about unwarrantedly panicky Ameristar execs.)

And see them again once we note that Ameristar had the best July of any publicly traded company in Iowa, +3%. (Harrah's and Penn were flat, Isle down almost 6%.) Ameristar had the third-highest performing casino in the market, trailing Harrah's Horseshoe-branded racino and the Prairie Meadows track. A good month at the tracks offset a flat one on the riverboat, making Iowa revenue-positive for the month.

This was the first full month of year-over-year comparisons for Isle's newest casino, in Waterloo, which was down over 13%. Wow. The bloom went off that rose fast. The previous Isle regime's business model of growing revenues by opening more and more casinos is well and truly out of gas.

Isle's Bettendorf casino, however, was the only one of the company's quartet of Hawkeye State riverboats to increase revenue in July. Could it be ... the Illinois smoking ban coming into play? I'm going to opt for Occam's Razor and say, "Yes."

From bad to worse

Tue, 19 Aug 2008 14:56:00 -0700

British Reuters lays out a dire scenario for casino bonds, the second-most-distressed sector of the junk-bond market (only media firms are doing worse).

"We believe it probably hasn't hit its bottom," is the grave verdict of Moody's Investors Service analyst Keith Foley. His formula for highest risk: lone-property operators with heavy debt burdens. Stateside, this would seem to spell "Las Vegas Sands," where debt is approaching $10 billion and Palazzo has been a dud, at least by the benchmarks expected of a new Strip megaresort. (Morgans Hotel Group, which staked its future on the Hard Rock Hotel & Casino, probably ought to be worrying, too.)

So far, one could argue that recent wave of casino bankruptcies has had a Darwinian effect, singling out the bottom-feeders (Columbia Sussex) and market laggards (Greektown). The deeply distressed bond status of Trump Entertainment Resorts may portend yet another visit to Chapter 11, but Station Casinos' bonds are doing little better.

Other danger signs identified in the article include ...

• Debt-to-cash flow ratios of 9- or 10-to-1 (five times in excess the ratio deemed "investment grade"); Harrah's Entertainment, with its $29.7 billion buyout tab, is singled out, a poster child for ...

• LBOs conducted "at the worst possible time."

• "Financing for casinos is also in dire straights [sic], a concern for companies that depend on expansion to drive growth," like Isle of Capri, at least under its previous regime.

Well worth repeating: "With this heinous act of sheer unadulterated corporate greed and disregard for customers, Harrah's has proven that they don't care at all about our 'fun' regardless of how they have sold the concept of gambling being 'paying for entertainment.' This is all about Harrah's making Harrah's a profit even if Harrah's spokesmouth Gary Thompson tells Liz Benston in the LV Sun that the games were removed because they weren't popular with players. Wheel of Fortune? Not popular with players? How truly out of touch are these numbskulls?" -- Chuck Monster of VegasTripping.com, inveighing against Harrah's decision to start removing IGT's Wheel of Fortune from its casino floors.

Stiff drink, limp journalism; Kansas City conundrum

Tue, 12 Aug 2008 14:58:00 -0700

While the Las Vegas Review-Journal may think its drinking-at-CityCenter exposé is hot stuff, this report is pretty weak tea. (Assuming that one can follow the mumbling, sometimes incoherent voice-over.) Worst of all are its snide insinuations that six workers died at CityCenter because they -- or someone else -- was boozing it up. Talk about drawing a conclusion not supported by facts in evidence.

Let's review, shall we? The story involves "a handful of construction workers" (out of 7,700) and covers the period June 13-July 24. Over those six weeks, R-J staff made visits to bars near CityCenter on eight occasions, observing four incidents of drinking involving 10 workers, total. The cover-your-ass caption verbiage about "apparent construction workers" (emphasis added) doesn't inspire confidence, either.

Obviously, the thought of liquored-up ironworkers at CityCenter is disturbing in any number of ways (especially if, like me, you're ever found yourself the hood ornament on a drunk driver's car). But the rapidly anti-regulation R-J is a very poor messenger. As its own coverage has noted, this problem falls outside of Nevada OSHA's mandate. So much for the glories of deregulation.

Since R-J owner Stephens Media mandates drug testing without probable cause for all potential hires, maybe it's on some kind of temperance crusade to gin up (pardon the pun) legislation to enshrine that practice in law. (That's the central thrust of this story.)

In any case, whereas the paper's reportage of the renegade renovations at sundry Harrah's Entertainment hotels was admirably thorough, this is slapped-together stuff, trying mightily to imply a cause-effect relationship it can't factually support. The Harrah's series had eyewitness testimony, reams of supporting documents and on-site professional inspections to buttress its assertions. The CityCenter series, by contrast, is so heavily reliant on a small amount of anecdotal evidence that I still can't quite believe it made it into print.

Kansas City half-full or half-empty? Fewer people are going to Kansas City's casinos. So that's bad, right? But revenues are ever-so-slightly up. That's good, right? Well, it's good if you're Penn National or Ameristar, who are pulling business away from Harrah's and Isle of Capri in droves.

It's not surprising to see Isle bringing up the rear but I'd think a brand as strong as Harrah's wouldn't be in the same pickle (in fact, its decline is actually worse than Isle's). Then again, when it comes to riverboats, Ameristar has been one of the strongest brands around, second to few save Argosy (now owned by Penn National). Score one for the niche operators.

Isle reduces risk in Florida

Tue, 05 Aug 2008 15:37:00 -0700

As we're seeing, it's not always a bad idea to scrap or delay an expansion. Such is the case with Isle of Capri's decision to allow the expiration of an agreement with Florida Gaming Corp. to turn Miami Jai-Alai into a slot parlor. Isle couldn't even be bothered to announce the news. (Can't imagine why.)

With the various Seminole casinos ramping up their offerings something fierce, Isle has its hands full defending market share at Pompano Park. The non-tribal Florida market just hasn't been the bonanza anyone expected and Boyd Gaming's decision to hold off converting its own jai-alai fronton now appears prescient. Wall Street reacted favorably, with ISLE continuing to trend upward.

Perhaps we should have foreseen this. The Seminoles had a track record, a customer base, a brand name (Hard Rock) -- and now they have table games. Newcomers to the market had a tough row to hoe before and now it looks darn near impossible, unless the Seminoles have to revert to Class II gaming (and that's unlikely to happen anytime soon). Florida Gaming Corp., meanwhile, will try to find other takers for its faded fronton. Good luck with that.

Bury this in Boot Hill. It looks like yet another Kansas casino proposal may be about to bite the dust. Butler National Corp., a manufacturing concern that's trying to take a flier into casino ownership (shades of Galaxy Entertainment, right to down to renting the Navegante Group braintrust) is pitching a low-budget, smallish (800 slot) casino. Trouble is, Butler's a wee bit short on cash and needs an equity partner who will rescue the project but agree to take a back seat.

From Rick Alm's description, this is a Hail Mary play by a penny-stock company -- a big red flag. However, the Boot Hill Casino that Butler is proposing for Dodge City sounds far more aesthetically appealing that the tacky-looking, theme-park-ish competing proposal. But the latter has the not-inconsiderable advantages of a larger upfront investment and previous in-house casino experience.

If would-be casino operators keep dropping out at the present rate of attrition, the lottery commission's selection process will become downright Darwinian.

Gold Coast buffet

Fri, 18 Jul 2008 15:19:00 -0700

Our ongoing buffet crawl took us to the Gold Coast last night. After applying a Pocketbook of Values coupon, it came out to $11.80 for two people, which definitely counts as a bargain play, provided you manage your expectations somewhat. For instance, anticipate fewer items per category ... but also a few categories you might not expect, like "Mongolian."

The food offerings aren't identified, unless you count some places where things like "Spicy Carrots" have been scrawled haphazardly onto the glass -- and the scrawling doesn't always match the food that's beneath it. I'm forever trying to lose a few pounds, so I hewed mostly to the fish and seafood offerings, and you can't go wrong there.

So many iterations of chicken were on offer, across the board, that it was pretty surprising to arrive at the carving station and -- in lieu of turkey or ham -- find, yes, more chicken. The alternative was (very salty) corned beef, which makes me wonder if economic stringencies aren't taking a toll here. My better half loved the ribs, although I respectfully dissent.

With so much good Mexican food in town, I'm not sure why you'd go to a casino buffet for it. What Gold Coast had in that department lacked "curb appeal," particularly the industrial-strength guacamole. Only the mashed-potatoes, which had that school-cafeteria appearance, looked comparably off-putting.

Anyway, you'll want to pace yourself, because the Gold Coast buffet's greatest strength is its dessert counter. The sheer variety was impressive and I can vouch for the espresso cake.

As Boyd Gaming buffets go, Suncoast is still the leader of the pack, IMO, but Gold Coast's -- while obviously not in the class of either of The Rio's buffets -- is a better deal that the distinctly underwhelming one across the street at the Palms. Besides, you'll work off some of the calories making the long trek from the parking garage and back again.

Isle of Capri Casinos inched up a bit today, on news of a large buy-in. So somebody out there likes the stock.

Nice Try Dept. The lead story in today's Biloxi Sun Herald [registration req'd] concerns the Mississippi Gaming Commission's unanimous rejection of the proposed South Beach Casino. The would-be casino owners' land didn't reach clear down to the water's edge and, in a smooth move, they argued it didn't matter: The seawall consituted the "water's edge," whether any waves dampened it or not.

Give 'em credit for ingenuity. The commissioners weren't biting, though, pointing out that such an interpretation would run a cart and horses through the law that brought casinos onshore in the first place. Besides, if there's anything that would unravel the fragile detente under which Mississippi casinos exist, it would be this kind of creative circumvention of the law, and the sudden growth spurt that might ensue. (And it sure sounds like Biloxi could use the economic stimulus, judging by the comments of Mayor A.J. Holloway, who says he's seeing investors losing interest in the area.)

Mind you, it's a silly law. In fact, the whole 'boats in moats' concept that prevails through the Midwest and Bible Belt is profoundly ridiculous. It's just a way for the bluenoses to accept {shudder!} that icky gambling money while keeping the industry at arms' length and holding their noses simultaneously. This preposterous, hypocritical fantasy allows state legislatures to pretend that casinos aren't in the state, they're "on the water" -- but subject to taxation all the same, natch.

But if you're going to challenge that ridiculous regime, make a frontal assault (as is being done in Missouri with the loss limits). Don't go trying to tiptoe in through the back door, because it's just going to set off a backlash.

Not a good Friday

Fri, 18 Jul 2008 13:25:00 -0700

Last weekend, I was out at Lake Las Vegas -- as were precious few other people. So this sad news didn't come as a great surprise. (This report doesn't offer a lot of hard facts but it's generous with labored metaphors.) The official press release makes it sound like LLV has fallen behind on its maintenance, too.

Given the struggles faced over the years on the casino, hotel and residential fronts (including the Ritz-Carlton whose owner can't find any buyers), this add-water-and-stir attempt to force a resort community into existence is probably going to enter the history books as a failed experiment.

Harrah's debt took a whack yesterday from Moody's Investment Services, which lowered its rating on bonds it deemed "already weak." At least Moody's hasn't put Harrah's into the "Not Worth the Paper on Which It's Printed" category. (Yet.)

Was there ever a good rationale for the Harrah's LBO other than that a couple of private equity funds were momentarily flush with borrowing capacity and didn't know where to park it? Was it a case of "use it or lose it"? If so, they used it and now Harrah's is losing it.

With all due respect to Nevada's congressional delegation, it's full of it with regard to its opposition to a bill that would legalize and tax Internet gambling. (Which we should have been doing with regard to narcotics and prostitution long ago. There. I've said it. I feel better now.) Rep. Jon Porter (R-Nev.) hasn't a clue under the best of circumstances but it's particularly discomfiting to see Rep. Shelley Berkley (R-Nev.) still carrying water for the American Gaming Association's lame proposal for a one-year taxpayer-funded study of Internet gambling, which would presumably provide cover for politicians who'd like to legitimize Internet gambling but don't yet have the cojones. Not on my dime, thank you.

Rep. Jim McDermott (D-Wash.) has it right when he says, "My experience has been that, generally, studies are a way of wasting a year." Would anybody like to revisit the farcical, didn't-accomplish-a-thing dog-and-pony show that was the Clinton administration's contribution to the national gambling debate? Didn't think so.

Good news, guys! It's true, Salma Hayek's single again. Well ... we can dream, can't we?

The Ameristar war begins

Thu, 17 Jul 2008 18:49:00 -0700

Just a quick hit on my way out the door to spend an evening prepping for The Dark Knight by watching Batman Begins ...

Ameristar's in play. No news flash there and, for the life of me, I can't figure out why the Motley Fool thinks MGM Mirage will be the ultimate acquirer. The company doesn't seem particularly interested in regional markets these days and has been pulling back from some of them -- the same outstate-Nevada kinds in which Ameristar currently operates.

On the other hand, as the article points out Crown Ltd. has $5 billion burning a hole in its pocket after the Las Vegas Tower deal went limp. I don't know offhand what the seven-times-cash flow number for Ameristar is, but $5 billion should cover it with room to spare. The Fool lays out a compelling case for how Crown could use Ameristar's properties to funnel customers to Fontainebleau -- much as Harrah's Entertainment did with The Rio, back in the Phil Satre era.

Then again, there's Penn National, which has about $500 million in mad money (after stock buybacks) right now, thanks to the breakup fee from its busted IPO. With another $775 million promised to Penn, it ought to be able to ante up the acquisition fee without breaking a sweat. Ameristar's Missouri properties have been money-spinners and, as the Fool points out, the acquisition of the Ameristar brand would enhance Penn's persistent second-tier image. A combined Penn-Ameristar would give Pinnacle Entertainment a run for its money in St. Louis, and could regain ground being lost to MGM and Harrah's in the greater Chicago market.

Whoever loses needn't feel too bad. The Atlantic City Tropicana is still out there and debtors will probably force a sale of the rag-tag remnants of Columbia Sussex's casino 'empire.' With its market cap languishing around $837 million, Boyd Gaming looks vulnerable and if you're in a thrift-store mood, Isle of Capri's fallen to near-micro-cap status, at $157 million. Then again, you have to figure out how to turn around 'Pile of Debris.' So maybe it's not such a bargain after all.

Isle of Capri: The song remains the same

Thu, 03 Jul 2008 17:31:00 -0700

Whatever improvements the new management team at Isle of Capri Casinos can be expected to effect, they can't be blamed if the latest quarterly report was more of the same. Once new properties are excluded, same-store revues are down almost 10% and the company's ill-advised move into Great Britain has proven to be a vast, black hole into which nearly $80 million has been sucked. And Isle's commitment to a Florida racino appears to have cut the legs right out from under its Bahamanian market.

To be fair, this particular quarter was further hammered by a cluster of events, some predictable, some aberrant (Mississippi flooding, the Colorado smoking ban, increased competition in Biloxi). However, despite some gloomy prognostications and even gloomier numbers, Isle is sending the right message by rebranding its smaller casinos under the Lady Luck imprimatur. And the decision to commit $175 million-plus to refurbish casino-hotel product that is perceived as tired and out of date is welcome under any circumstances.

Isle's story looks like one of the "things will get worse before they get better" genre. And Wall Street appears to understand this. Besides, it took many years for Isle to dig this hole for itself, so a dose of patience is probably what the doctor ordered.

The sooner Isle can extricate itself from its British fiasco, the better. Let's hope that when the company talks about exploring strategic options that's a nice way of saying, "Let's sell this boondoggle and not be too picky about it."

Denial in the suites

Tue, 01 Jul 2008 18:16:00 -0700

Gary Loveman must be working on his stand-up act. In today's Wall Street Journal, he calls the present economic pickle "the toughest environment we've faced." It might not be quite so difficult had Loveman not steered Harrah's Entertainment (and its apparently sheep-like board) into a leveraged buyout, an act for which Loveman was handsomely compensated by new owners Apollo Management and Texas Pacific Group.

It gets better. Loveman tells the WSJ, apparently with a straight face, that Harrah's is "profitable." Somebody must have hid the most recent 10-Q from him. That little piece of paper shows a March 31, 2007 profit of $185.3 million swinging to a $187.8 million loss one year later.

And if you're "boosting visits to its regional casinos by chartering airplanes to fly in loyal customers," it sounds like something's wrong. I could understand that strategy if we were talking about getting them to Vegas, but why should you have to fly players to Caesars Windsor or Harrah's Tunica? Wasn't the beauty of the regional strategy that it brought the casino to the customer? And if you're having pay the freight for your loyal customers, what does it take to get the more fickle ones through the door?

As a savvy industry observer put it, "The timing of the leveraged buyouts of several companies increasingly appears to have been exquisitely bad." Station Casinos is having to use its Aliante opening, in part, to make a new home for workers forced out by a recent spate of layoffs.

Meanwhile, like Captain Ahab hot on the trail of Moby Dick, Penn National continues to pursue an LBO. Of course, if you were a Penn stockholder, you'd love this deal, as your shares would be bought out at more than double their current value ($67/share for a stock that closed at $29.73 today). If Penn were to abandon this LBO folly and think in terms of growth, it could probably pick up a lot of low-hanging fruit, from Harrah's, Columbia Sussex, Isle of Capri and other overextended companies, thereby penetrating a plethora of new markets.

Isle had the invidious distinction of making the Motley Fool's list of "Deathbed Stocks," with an Altman Z-Score that shows the company to be in very ill health indeed, hitting a nine-year low recently. (Some, though, maintain Isle is undervalued.) More of the old guard are being moved aside, too.

Of even greater significance, the recent reintroduction of the Lady Luck brand was couched as part of a new strategy "focused on increasing free cash flow through organic growth opportunities" In other words, no more growing revenue by simply opening new casinos ... and no more chasing chimerical revenue opportunities overseas. Tomorrow's Isle conference call should tell us if the new leadership team has other tricks up its sleeve for coping with the present adversity.

Trop Trojan Horse barred from gates

Mon, 02 Jun 2008 11:52:00 -0700

Much to the dismay of senior debtholders, perhaps, a Delaware bankruptcy judge OK'd $67 million in additional borrowing by Tropicana Entertainment, money the company says it needs for operational expenses. However, the court backhanded an even bigger loan offer from Canada's Onex Corp.

The latter was what you might call a "hostile" loan. So far only UNLV's David Schwartz has twigged to this story. Basically, Onex would try to roll a $100 million loan into an equity position, as the first step in a takeover attempt. It has even retained former MGM Mirage President Alex Yemenidjian to advise it on casino-sector acquisitions. Had Onex's ploy been successful, I wonder how Yemenidjian's former MGM colleagues would have felt about "Count Dracula" (the nickname he acquired when running the MGM film studio in Hollywood) setting up shop right across the street.

"If [the gambling sector] is overbuilt and in some difficulty right now it's a good time to look at it," Onex CEO Gerald Schwartz told the Toronto Globe and Mail. Onex used the hostile-lending ploy to take over Loews Cineplex Entertainment and he's already signaled that, should the ploy of lending to Columbia Sussex be rebuffed, he'd pursue low-hanging fruit on the Isle of Capri and Harrah's Entertainment vines. $100 million won't get him very far, but if he ups the ante then Isle needs someone to bail it out of its overseas over-extension and Harrah's could use a near-term cash infusion, too.

An Isle too far?

Wed, 16 Apr 2008 15:32:00 -0700

Whatever Isle of Capri Casinos thought would be accomplished by buying into overseas markets, it hasn't worked out, and new Morgan Joseph & Co. analyst Justin Sebastiano's advice amounts to "Yankee, come home."

Isle stock bottomed out around $6.50/share before rebounding. Isle's overseas investments are simply sucking money out of the balance sheet, at a time when the Iowa and Louisiana markets have flattened, and Florida isn't living up to expectations. (To say nothing of spring floodwaters that are probably going to swamp the next quarter's financials.) New CEO James Perry's main task appears to be the unenviable one of retrenchment -- and perhaps devising a way to breathe new life into a brand that hasn't aged well.

Somebody gives you a statue of Julius Caesar. Where do you put it? In the barn, apparently.

Score one for Mohegan Sun. It increased its slot handle in March and narrowed its year-over-year decline (-1.4%) in revenues. No such luck for Foxwoods Resort Casino, which was 12% off on both fronts. Did MGM Mirage back the right horse? We'll find out next month, when MGM Grand at Foxwoods opens.

Scant comfort for smokers. When Atlantic City players threaten to take their business to other states that let them light up on the casino floor, they may be ... blowing smoke. It's illegal in Delaware and at non-tribal casinos in New York, and it might be outlawed in Pennsylvania soon.

Whatever the Keystone State does, it's already a moot point in Philadelphia: No public puffing allowed there. Were I a betting man, I'd say the Lege will compromise go with a version of the 25/75 ratio that was tried in Atlantic City -- and, if that happens, that there will be a more urgent attempt at compliance this time around.

Atlantic City might be holding a stronger hand than we thought.

Photo/PDF snafu corrected

Thu, 06 Mar 2008 11:54:00 -0700

It seems that our two computer servers here at LVA HQ were having a bit of a snit and not communicating with one another. As a consequence, some of you were unable to see a lovely photo of Isle of Capri's Waterloo casino water feature, and renderings of PBL Melco's City of Dreams, Pinnacle Entertainment's St. Louis County project and the Prasada condo-hotel recently announced for Atlantic City. Also, PDFs of two initiative-and-referendum petitions to freeze Las Vegas Convention & Visitors Authority funding at 2006-07 levels were unavailable.

All these links have, I'm happy to report, been fixed. My apologies for any frustration or disappointment that readers may have experienced. We'll try not to let it happen again.

Isle: Goldstein out, Perry in; Trump pummeled

Wed, 05 Mar 2008 16:32:00 -0700

Compared to last night's political gloom (at my pad, anyway), today's corporate news seems downright cheery ...

Isle of Capri announced widening Y/Y losses today, along with the retirement of CEO Bernard Goldstein after 16 years at the helm. He gives way to board member James Perry, former CEO of Argosy Gaming and (briefly) Trump Entertainment. Along with COO Virginia McDowell, Perry presided over Argosy's glory years, ones in which it emerged as the Rolls-Royce of riverboat-casino companies, eventually making it a takeover target for Penn National.

Perry faces a daunting task at Isle, whose stock is trading at a seven-year low. According to Isle, Perry has a turnaround plan in place, whose components include reintroducing the Lady Luck brand (to connote second-tier markets), upgrading amenities -- not currently regarded as one of Isle's strengths -- and a downsizing at the corporate level.

However, in a possible allusion to the scorched-earth business methods of competitor Columbia Sussex, McDowell says, "We recognize, however, that companies cannot save their way to success and we continue to reallocate our resources in order to improve the overall guest experience," etc.

Isle's net revenues were up, but largely on the strength of newly opened or acquired properties (like its Waterloo, Iowa casino, above). One of those is the Casino Aztar boat in Caruthersville, Mo., which the state wouldn't let Columbia Sussex acquire in the Aztar buyout.

Back out the new properties and the balance sheet looks a whole lot worse, with revenue down 11% instead of up 17%.

Louisiana and Mississippi revenues are down, as casino competition returns to pre-Katrina/Rita levels. In Iowa, Isle is experiencing the same malaise as nearly everyone else -- a plight that's bound to worsen if the state approves as many five new casinos. Nearly $5 million went down the tubes in a doomed tilt at the Pittsburgh market and a foolish run at Singapore.

Trump Entertainment Resorts was also feeling the pain today, as losses grew a jaw-dropping nineteen-fold (yes, 19X) on a 6.4% slip in revenue, coming in 2% below analyst expectations. The loss was swollen by a $147.4 million in "intangibles," plus a $91.3 million write-off on the declining value of Trump Marina. "There's no question Atlantic City is a difficult environment to operate in, and some properties had a difficult fourth quarter,'' remarked Bear Stearns analyst Carlo Santarelli, displaying a genius for understatement.

Those whom God wishes to punish, he sends them months and months more of America's un-fun couple, the Clintons. Remember what I said about the fabled Conventional Wisdom doing an about-face should HillRod pull an Ohio/Texas victory from the jaws of defeat? Sure enough, today you can read how her campaign "validated a last-ditch strategy," as though it had any alternative. Yup, those 11 straight losses were mere rope-a-dope, luring the Obama camp into a March 4 ambush.

Yeah. Right. Hindsight is not only 20/20 inside the Beltway; it's just had Lasik surgery, too. (Speaking of rope-a-dope, this might be the time for Sen. Obama to start landing a few shots instead of just taking them. I've no appetite for Kerry: The Sequel.)

Adelson hits snag in Macao; China betting on 'Net?

Mon, 03 Mar 2008 18:43:00 -0700

According to the Macau Daily Times, Las Vegas Sands "has yet to receive government approval to develop more than half of the parcels of land it has commenced developing in Cotai." According to the company, part of the problem is that it hasn't processed its own paperwork yet.

If (and it's probably a really big "if") the concessions aren't granted, Sands can wave bye-bye to its Shangri-La-, St. Regis-, Sheraton-, Raffles-, Fairmont-, Hilton- and Conrad-flagged hotel projects -- not to mention all the money invested in them thereto, to the tune of as much as $623 million. Sands is probably erring on the side of alarmism here, seeing as the Macao government strung PBL Melco along right into February on its City of Dreams project (below). In Macao, it seems, one must build first and hope Peking smiles upon you.

Then again, it would be a mighty cruel joke if -- after predicting there would be fewer casinos in Macao -- it was Adelson's casinos that were the ones to get the kibosh.

Sheldon Adelson's erstwhile business partners, meantime, are positioning themselves for potential legitimization of online gambling in China. If that happens (and, again, it's a stretch), China will eat the Western world's lunch, where 'Net-betting action is concerned.

But not if MGM Mirage, Harrah's Entertainment, GTECH and Station Casinos have anything to say about it. Along with the American Gaming Association, they dropped well over $800K into the lobbying kitty during the last six months of 2007 alone. Much or (in some cases) all of that went into the Internet Gambling Regulation & Enforcement Act, along with the Internet Gaming Study Bill. I'm in favor of the first bill but, as for the second, I'd just as soon the companies and associations in question paid for it out of their own pockets instead of John Q. Public's.

30,000 jobs? That's how many Massachusetts Gov. Deval Patrick says will be created by casino construction in the Bay State. However, he may be getting there via some fuzzy math. Las Vegas Sands, hardly known as a member of the Glass Half-Empty Club, projects roughly 21,000 new construction jobs.

Isle of Capri may start looking like an attractive takeover target, now that its stock is at its lowest ebb in seven years. Isle's Florida racino has been a disappointment and a brand that was considered something of a trendsetter in the early years of non-Vegas casinos is now derided as "Pile of Debris." (The Motley Fool finds cause for optimism, though.)

The question is, are there any potential buyers other than James Packer who'd have the scratch to start scarfing up 18 mid-market casinos, mostly in the Mississippi River basin, and who'd want them -- as a strategic play, that is?