Case Bets: Pinnacle, Pennsylvania, Harrah’s & Sands

Third quarter at PNK: 3Q09 numbers are out for Pinnacle Entertainment and the comparisons cover the spectrum from very good (Lumiere Place up 19%), good (+5% at L’Auberge du Lac) and lousy (-13% aboard Boomtown New Orleans). Once a free-spending company, Pinnacle is now demonstrating the virtues of thrift. The combined budgets for its River City (greater St. Louis), Sugarcane Bay (on Lake Charles) and Baton Rouge projects total $998 million … slightly more than Station Casinos spent on Red Rock Resort alone, which one S&G subscriber pithily dubbed, “a tourist property for locals.” Come to think of it, wouldn’t Station creditors be better served by a Pinnacle takeover than by further Fertitta Bros. stewardship? Pinnacle’s practices draw a rave review from J.P. Morgan‘s Joseph Greff: “We believe, at current levels, investors are getting River City (as well as its Sugarcane Bay and Baton Rouge projects, which we have not modeled) for free.”

Pinnacle is also patching up the hull of its President riverboat, hoping the old gal can eke out a few more years on the Big Muddy. (The President brings in so little revenue that Pinnacle’s we’re-staying-put-indefinitely explanation is difficult to accept at face value.) It’s a damn shame for would-be Missouri casino owners that they have to rely on Show-Me State regulators being able to wrest the President‘s license away in court — but that’s what was to be suspected when voters (unwittingly?) cast ballots that gave Pinnacle and Ameristar Casinos a protected oligopoly.

Do you write off your gambling losses on your income taxes? A proposal in Pennsylvania would have made that easier, in the form of monthly win-and-loss statements, issued at casino expense. Unfortunately, the idea’s backers are coming at it from a “pro-family”/anti-pathological gambling slant. Whereupon the casino industry got its dander up and raised all manner of semi-spurious privacy concerns. I strongly suspect the opposition is driven more by laziness and cheapness (imagine having to hire people to tally up and generate all those statements) than principle. Too bad, as it’s a practical idea that might make April 15 slightly less dread-ful.

Casino markers? Horrors! Keystone State moralists offer poorly reasoned opposition. That’s fine. Pennsylvania gamblers who can’t get casino credit can always go to Atlantic City instead. This is a rare win-win situation.

Harrah’s loses $1.6 billion and it’s just “another ho-hum event” to Forbes, even as it notes that Harrah’s Entertainment may soon be drawing down its cash reserves. It tells you how badly the casino sector is struggling when staying just one step ahead of the bill collector is a hailed as a triumph of ledger-demain. One of the beauties of being the CEO of a private equity-held casino company is you’re the only guy on the board of directors who knows where the car keys are kept. Thus, no matter how badly your LBO has turned out, you’ve got the Leon Blacks and David Bondermans of the world at your mercy.

Sands reports a loss. Missing analyst projections and losing $123 million was an unfortunate 0-for-2 for Las Vegas Sands. The company whined that it was impaired by $74 million in “increased income taxes.” Well, boo frigging hoo. When your two growth markets of choice are either steeply taxed (Macao) or usuriously so (Pennsylvania) and you seek even greater exposure there, this is inevitable. If Sheldon Adelson wants low taxes, maybe he should build in Atlantic City instead.

The upside of a recession. Following a doleful news bulletin about economic malaise at Caesars Windsor, here’s the flip side. The border-crossing hassles that have driven business away from Windsor are helping Detroit casinos ride out the recession. Value-oriented messages and new product don’t hurt, either. Given how badly the Michigan economy has been hammered, a 2% revenue decline constitutes a silver lining amidst a very dark cloud. When you consider the tax benefit to the state, then-Gov. John Engler‘s frenetic exertions to keep casinos out of Motown look doubly stupid in retrospect.