Where do we go from here?

Posted on November 18, 2008 by David McKee

Let's say, for purposes of argument, that the casino industry has supped full on meta-megaresort development and needs several years to digest the feast. What then?

The answer, to judge by yesterday's G2E panel of design, construction and development experts, is not to stand still. Rather it's to find the near future within the past.

"We have existing facilities that are allowed to get tired," said architect Joel Bergman. Anybody who visited Luxor at the time MGM Mirage took it over from Mandalay Resort Group knows exactly what kind of dilapidation he's talking about. Prudent operators, Bergman argues, will realize that have to have competitive, well-maintained facilities.

Perini Building's Dick Rizzo went one step farther, positing it as an absolute necessity: "You can't let them get tired or they'll lose business." With operators like Harrah's Entertainment and MGM Mirage cutting back maintenance, this thesis is about to be tested.

Besides, tribal casinos are running up Vegas' back, we were told. Bergman says they're not only becoming more resort-like but, "Vegas has, by participating in these, created its own competition." Since they cater to discrete, relatively isolated markets, Rizzo added, their only competition is the patron's amount of discretionary income.

He also had a CityCenter story. Namely, that even while the foundations were being poured, it was still but a nebulous concept and the decision as to what to build was still in flux. Its hotel, retail and convention components have doubled from the original conception, Rizzo disclosed.

That shift of focus is in line with Rizzo and Bergman's concept of the future. The former describes the current crop of casino designs as "all entertainment-driven" because that's the new profit generator. Atlantic City and Las Vegas, Bergman noted, are "going to have to expand what we do well," by dint of expanding retail and convention offerings.

He sees an early 2010 comeback for the casino industry. But Rizzo warned that things will get worse before they get better: "The best we have now is a bear market really and the bottom is yet to come."

Posted in Architecture, Atlantic City, Economy, G2E, Harrah's, MGM Mirage, Wall Street | Comments Off on Where do we go from here?

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

Posted on November 18, 2008 by David McKee

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.

Posted in Ameristar, Current, Economy, Harrah's, International, Isle of Capri, MGM Mirage, Missouri, Pinnacle Entertainment, Shuffle Master | Comments Off on Case Bets: Ho Tram, Shuffle(d) Master, Ameristar

Butera up to old tricks; Dog days for Ruffin; Fowl play

Posted on November 17, 2008 by David McKee

Grasping at straws in his attempt to wrest control of the Tropicana Casino & Resort back from the New Jersey Casino Control Commission, the CEO of Tropicana Entertainment, Scott Butera, has seized upon a letter from state Sen. Richard Codey. In his Nov. 14, 2007 missive, Codey requests that Unite-Here Local 54 be allowed to intervene in NJCCC hearings against TropEnt owner Columbia Sussex (which, back home, was the beneficiary of some rare — but no doubt welcome — good news).

Codey’s letter, Butera’s lawyers contend, smacks of “political interference” and tipped the scales of justice against ColSux.

But Local 54 was only allowed to make a statement toward the proceedings’ end, not be an Continue reading →

Posted in Atlantic City, Columbia Sussex, G2E, Harrah's, Kansas, Marketing, Mississippi, Regulation, Tropicana Entertainment | Comments Off on Butera up to old tricks; Dog days for Ruffin; Fowl play

Fire sale at Harrah's, MGM?

Posted on November 17, 2008 by David McKee

That was one of the bombshells dropped this morning at Global Gaming Expo. According to a member of a "state of the industry" panel of G2E's Casino Design track, Harrah's Entertainment has several unprofitable properties that were for sale. "Now I believe any of [Harrah's casinos] are on the block," he said, adding that similar things could be said of MGM Mirage.

Architect Joel Bergman revealed that he'd laid off 29% of his staff last week: "Work has simply dried up." Perini Building's Dick Rizzo added that Kerzner International is still "bullish" on City Center II, at the north end of the Strip and its centerpiece will be an exact reproduction of the company's Atlantis Dubai resort (plus casino, presumably).

Dubai and Abu Dhabi were identified by Rizzo as two of the main growth pipelines that continue to flow. So does the California tribal-casino market, along emergent casino markets in New York State and Pennsylvania. He's also working with the Seminole Tribe in Florida, where two Hard Rock-branded casinos will double in size, starting next spring.?

As for job cutbacks in the tribal market, Rizzo doesn't think those are economy-driven but "an excuse to get leaner." He defended MGM Foxwoods as a victim of poor timing, saying it can't be judged on current performance. He pointed out that the soft debut of MGM Foxwoods prompted the mothballing of a similar expansion at nearby Mohegan Sun.

Rizzo shrugged off the implications of server-based gambling: "The public sees the casino the same way." And while he saw no prospect of non-gaming Strip resorts, off-Strip ones are conceivable. Given the current condo glut, Trump International and others are looking to convert those properties to pure hotel plays, at least until the market takes a more propitious turn.

Recently, MGM Mirage spokesman Alan Feldman took up President Jim Murren's contention that we may not see new construction on the Strip for a decade (does that make it a "meme"?). Panelist John Restrepo interprets that as a way of saying, "We don't know" where the world is going and "a bit of an overstatement," reflecting what Donald Rumsfeld infamously called "known unknowns."

Per S&G prediction, we're seeing a market correction in the prices paid for land on the Strip. Restrepo says the value per acre has readjusted -25% to -30% and even more so elsewhere in Las Vegas, including the corridor south of Mandalay Bay. Still, lenders are now requiring as much as 50% equity before they'll commit to a project, Restrepo notes

Restrepo also doubts the viability of the "If we build it they will come" paradigm that has so long served Las Vegas. Besides, it still remains to be seen whether Joe the Player is tapped out … and Restrepo hears that a wave of car repossessions is imminent.

That being said, his company is performing feasibility studies for new projects, even if those developments are going to have be put on ice until a few years hence.

Posted in Architecture, California, Donald Trump, Economy, G2E, Harrah's, International, MGM Mirage, The Strip, Tribal | Comments Off on Fire sale at Harrah's, MGM?

Quote of the Day

Posted on November 12, 2008 by David McKee

"I was ahead of the curve." — Columbia Sussex CEO William J. Yung, taking credit for being the first casino owner in Atlantic City to engage in massive layoffs and service reductions.

Posted in Atlantic City, Columbia Sussex | Comments Off on Quote of the Day

Aristocrat @ G2E

Posted on November 11, 2008 by David McKee

Aristocrat Technologies previews its new slot products. Try not to get carried away by President Nick Khin‘s enthusiasm.

Posted in Aristocrat | Comments Off on Aristocrat @ G2E

Indiana: It's all relative

Posted on November 11, 2008 by David McKee

Sifting through my massive pile of unwritten Questions of the Day and unstudied analyst reports, we come to Indiana's October revenues. Ultimately, whether any particular metric is good or bad depends on context and perspective.

To start with the big number, revenue was up 14% from October '07. But that turned into a 1% decline once new racinos Hoosier Park and Indiana Park were sifted out, and goes even lower if you minimize the numbers from the recently augmented Horseshoe Hammond. So, whatever "bounce" Indiana is getting from the smoking ban in Illinois, it's being diluted by gambling expansion within the Hoosier State. So it's good for tax coffers, not so good for individual operators.

Harrah's killed with Horseshoe Hammond, which is more like an aircraft carrier with slots than a casino. But it proved a potent "one-ship task force" (a sometimes sacrcastic nickname given the U.S.S. Boise after it claimed to have sunk six Japanese ships at the Battle of Cape Esperance), more than making up for declines at Horseshoe Southern Indiana. Hammond revenues went up 52% and Harrah's overall take rose 20%.

Despite the panicky attitudes manifested of late at Ameristar Casinos, its East Chicago property was off but 3.5%, despite the Horseshoe Hammond factor, which ate far worse into Don Barden's Gary, Ind., flotilla.

What to make of Blue Chip? To see the glass as half-full, the double-digit revenue declines that began in August '07 are slowly starting to narrow. Business has been off as much as $10 million year/year, and October's 18% decline comes atop a 22% declivity the year before. But it looks like Blue Chip is going to bottom out at 60%-65% of its former market share. And it was Indiana's seventh-winningest casino in October, keeping Boyd Gaming out of the bottom tier.

Down south, only Casino Aztar showed revenue growth (5%), which continues to validate current management's aggressive mindset — but business still hasn't returned to pre-Columbia Sussex levels. As for French Lick, so long hyped as a casino destination, so greatly anticipated, it has proven Indiana's most disappointing market. It's the least-lucrative in the state and continues to give indications of having peaked.

Slots are tight at Belterra. How else to explain a 10% win increase on -14% handle? The last time somebody managed a feat like that He fed a large crowd with but a few loaves and fishes.

Posted in Ameristar, Boyd Gaming, Columbia Sussex, Don Barden, Economy, Harrah's, Illinois, Indiana, Pinnacle Entertainment | Comments Off on Indiana: It's all relative

Shut up yourself

Posted on November 10, 2008 by David McKee

New York-New York‘s obnoxious new ad campaign, “comes right out of an honest voice,” says ad exec David Angelo. “Stop your whining and have a great time.”

It’s “an honest voice,” all right: That of Phil Gramm, who famously called us a “nation of whiners,” victims of a “mental recession.” And that message resonated so very effectively, didn’t it?

I’m guessing Angelo and MGM Mirage decided the slogan “Give us your money, chump” was excessively subtle.

A third-quarter loss is hardly good news, unless you’re Sheldon Adelson and your company’s red ink actually narrowed from 3Q07. Too bad about St. Reggie’s, though.

Then there’s Ameristar, which increased revenues by $56 million, turned a profit — and yet all it can talk about is cutting jobs and sweating comps even more than it already has. Ameristar’s embrace of “death spiral marketing” is further evidence — if any were needed — that this company is adrift, lacking any forward-looking strategy.

Posted in Ameristar, Marketing, MGM Mirage, Sheldon Adelson | Comments Off on Shut up yourself

Gaming bosses step up

Posted on November 7, 2008 by David McKee

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.

Posted in Atlantic City, Boyd Gaming, Isle of Capri, MGM Mirage, Sheldon Adelson, TV | Comments Off on Gaming bosses step up

Aztar sale flops

Posted on November 7, 2008 by David McKee

Tropicana Entertainment President Scott Butera had a $225 million deal to sell Casino Aztar in hand. Not good enough, he said. Thus, a second round of bids was solicited. The grand total number of offers received: one.

This lays the groundwork for Butera to do what I think he’s been meaning to do all along: Declare the lone bid inadequate (maybe even a “fire sale”), much like the previous Eldorado Resorts deal he’s trying to vacate. The next step would be to petition the State of Indiana to be allowed to resume control of Casino Aztar.

Whether the state plays ball is another matter. Evansville‘s mayor, Jonathan Weinzapfel told WEHT-TV he “looks forward to a new owner.” Maybe my English is rusty, but that sure sounds like he wants no part of TropEnt, even in its post-William J. Yung III incarnation. Having been singed aplenty ever since the Aztar Corp. sale went through, Weinzapfel’s “once burned, twice shy” frostiness is quite understandable. Butera’s persuasive skills are going to be tested in the weeks ahead.

Having also scuttled the sale of Horizon Vicksburg, Butera’s plan is obviously to reconstitute TropEnt at full strength (including the Atlantic City Tropicana). Not only would this increase the potential for cross-marketing the merged Columbia Sussex/Aztar portfolio to consumers, it’s undoubtedly crossed Butera’s mind that TropEnt is a much better resale proposition if kept intact … not peddled off piece by little piece, as Yung was doing.

Posted in Columbia Sussex, Indiana, Mississippi, Tropicana Entertainment | Comments Off on Aztar sale flops

Sanguine in Singapore

Posted on November 7, 2008 by David McKee

Marina Bay Sands: proceeding on schedule.

Las Vegas Sands executives huddled with Singapore officials yesterday earlier this week to, as JP Morgan puts it, “discuss topics … including the pace of construction.” In other words, they were bracing Singaporean leaders for yesterday’s SEC bombshell.

As far as discussing “the pace of construction,” normally I’d take that to mean that a delay in the schedule was about to be announced. But the tea leaves indicate the message was that Marina Bay Sands is still Project Numero Uno for the company.

It’s unclear whether Venetian doge Sheldon Adelson was at the aforesaid meeting (the wording is fuzzy but implies he wasn’t there). However, he did release a statement in which he characterized work on MBS as “rapid.” He also heard the good news that Singaporean regulators have deemed the MBS slot floor up to snuff. Already Sands is talking about going from 600 to 1,000 slot machines, so they must be pretty sanguine about their prospects along the Johore Strait.

At least Boyd Gaming execs can take some solace from Adelson’s plight. Sands has raised the prospect of putting its unfinished “St. Reggie’s” condo literally and figuratively under wraps for the time being. That’d be a broken front tooth on the Strip possibly even harder to ignore than the partial skeleton that is Echelon.

Posted in Boyd Gaming, Sheldon Adelson, Singapore, The Strip | Comments Off on Sanguine in Singapore

Five years ago today …

Posted on November 6, 2008 by David McKee

 … Columbia Sussex came to town. Considering that CEO William J. Yung III purchased a dead, disreputable hotel-casino and put $90 million into reworking it into an attractive property (people whose judgment I trust swear by the comfiness of its beds), he got off on the right foot here. Later, he would venture out of his niche and try to be a Strip operator, and … let's just say it didn't go so well. Turn the page in your textbooks to Chapter 11.

Speaking of ColSux, comes shocking news today that Las Vegas Sands is in danger of bankruptcy. The company's debt-to-earnings ratios are out of kilter (or, in proper financial parlance, gone all skeewumpus). That's an event which, like ColSux's loss of the Atlantic City Tropicana, will set in event a cascade of other defaults, should it come to pass.

In the short term, this means Sheldon Adelson needs to find some loose change in his sock drawer, pronto, and will have to apply the brakes to several developments. According to Liz Benston, both the Marina Bay megaresort in Singapore and what's left of Sands Bethlehem will be finished. Everything else … not so much.

Adelson: Little about which to smile.

This is bad news for the Cotai Strip™, unless you're of the persuasion that Sands expanded in Macao far past what the market would bear. So a forced slowdown is a blessing in disguise. I should add that the Motley Fool warned of this very scenario last June, when it pegged Sands as a "deathbed stock.

Elsewhere in Adelsonia, the candidate for whom Freedom's Watch stumped the hardest, Sen. Gordon Smith (R-OR) waved the surrender flag.

All in all, this is one shitty day to Sheldon Adelson.

Posted in Columbia Sussex, Economy, Election, Macau, Politics, Sheldon Adelson, Singapore, The Strip | Comments Off on Five years ago today …

McCain's destination revealed

Posted on November 6, 2008 by David McKee

Maybe you saw that B-roll of Sen. John McCain hitting the road in an emerald SUV yesterday, with Sen. Lindsey Graham riding shotgun, ostensibly en route to planning “legislative initiatives.” (I couldn’t find the footage in that “series of tubes” that Alaska’s most famous felon otherwise knows as “the Internet”; sorry about that.)

Uh-huh.

An S&G listening device had been implanted in the aforesaid emerald-colored car. Now, since S&G is a no-frills operation, our bug quickly fritzed out. But the following fragments of conversation were salvaged via a painstaking process Wayne Brady would call “making #%it up.” Here’s what we were able to piece together:

“Craps … legalized … Colorado … new casino in Cripple Creek … where the [inaudible] is that? … Move over, Stanley “Golden Arm” Fujitake: It’s game on!“

Posted in Colorado, TV | Comments Off on McCain's destination revealed

Winners! We've got winners!

Posted on November 6, 2008 by David McKee

Yesterday’s Columbia Sussex contest produced an unprecedented flurry of responses — and I learned a lot about the bond market, too. Our S&G readership is a veritable V-8 engine of knowledge. As you’ll recall, the question concerned the “defeasance” of a $967 million Columbia Sussex bond.

The first reader across the finish line with an answer to this abstruse question is Tom De Martini of Phillipsburg, N.J., who wins hard-copy and e-book versions of Bill Zender‘s Casino-ology, our newest Huntington Press title. But four other readers submitted correct answers.

What to do? A solomonic solution has been devised by our own Bethany Coffey. To wit: Runners-up will receive e-book copies of Casino-ology, thereby allowing you to enjoy the latest in cutting-edge LVA technology. (I’m reminded of the line in the 1987 Dragnet movie, in which Dan Aykroyd‘s Sgt. Joe Friday relates, in a hilariously uninflected voice-over, “After losing the two previous vehicles we had been issued, the only car the department was willing to release to us at this point was an unmarked 1987 Yugo, a Yugoslavian import donated to the department as a test vehicle by the government of that country and reflecting the cutting edge of Serbo-Croatian technology.”

Whatever happened to the Yugo? (No, you don’t get a prize for answering that.)

And now the winner(s):

8:52 P.M. EST, 11/5/08

Defeasance allows an issuer (the company) to collateralize outstanding debt with a portfolio of risk-free government securities (usually U.S. Treasuries) which ostenibly removes the debt from the balance sheet. It can also be accomplished with cash.

So, in this case, the Columbia Sussex bond has already gone through this process, reducing the outstanding value by 90%.

I covered the bond market for eight years … I knew it would evenutally come in handy.

1:42 A.M. EST, 11/6/08

A defeased bond is a bond that is rendered void by a party by pledging a security or cash in order to pay the tems of the bond.  In addition, all covenants and contract provisions are removed from the bond.  Simply put, Columbia Sussex pledged  cash or some other asset in order to defease (make payments) on  the roughly $890 million principal balance and was released from the covenants and provisions which may have triggered a default on Columbia’s part.

4:37 A.M. EST, 11/6/08

In simple terms, Fitch, the bond rating agency, is lowering the ratings on certain parts of ColSux debt. The lowering is due to potential litigation costs, which could affect ColSux ability to pay the debt off. The effect of lower ratings is a higher cost for capital for the company in the future. 

As for the debt being defeased by 92%, this link will provide a full explanation, but it means the amount defeased is not a liability on the balance sheet when the company places cash or other assets with an escrow agent to cover the amount of defeased debt.

12:53 P.M. EST, 11/6/08

Securities that have been secured by another asset, such as cash or a cash equivalent, by the debt-issuing firm. Firms that have created defeased securities, which are typically bonds, will have sufficient cash set aside for retirement of the debt upon maturity. For example, the U.S. government could place the funds necessary to pay off a series of Treasury bonds in a trust account specifically created to pay the outstanding bonds upon maturity. The government sets aside these funds to ensure that it has enough cash to pay its bonds when they are due. Commonly, defeased securities are retractable.

Securities than can be defeased will often carry a lower yield than comparable securities, as the option to retire the debt early favors the issuer and caps the potential investment return for the bondholder. However, for a risk averse investor, this feature proves beneficial because it lowers the default risk of the security. The document you referenced really has little bearing on Columbia Sussex itself.  It’s actually pertaining to Asset Securitization Corp. and the bonds they issued to cover mortgages. It seems that on this particular loan, they’ve paid off 92% of the mortgage. It would sound like a positive sign to me, anyway.

12:54 P.M. EST, 11/6/08

The company “Asset Securitization Corp” has pooled together multiple commerical mortgages. The mortgage payments “pass through” this company. In other words, they collect the payments and send them onto investors. This pool of assets is what is being downgraded. “[O]ne loan remains in the pool” means that all other mortgages have been paid off with the exception of ColSux.

Here’s another link with an excellent definition of defeasence. Downgrading the pool of mortgages of which ColSux is the only remaining mortgage doesn’t have any direct effect on ColSux.

President-elect Obama is on Line Two, guys. He says he needs you to help him sort out the mess at Treasury. But seriously folks …

Congratulations to everyone who participated. I think we’ve started something. And I’ve learned a lot of somethings. A day without new knowledge is a day wasted, IMO.

Posted in Columbia Sussex, Movies, Wall Street | Comments Off on Winners! We've got winners!

Casino Vote '08: Dan Lee's the big winner

Posted on November 5, 2008 by David McKee

JP Morgan has proclaimed Pinnacle Entertainment “the biggest winner this election day.” By voting to both lift the cap on buy-ins and the close Missouri to additional casinos, Show-Me State voters delivered a gift to Pinnacle CEO Dan Lee, who has massively invested in the greater St. Louis market and can now reap the benefits of higher wagers and artificially limited competition. Anybody contemplating the investment risk that Pinnacle has been lately (with at least $2.85 billion in outstanding projects) can sleep a little more soundly tonight.

But, as Morgan analysts point out, the stomping of a pro-casino initiative in Ohio redounds to the benefit of Pinnacle’s Belterra casino (and Penn National‘s Argosy Lawrenceburg riverboat). While the Ohio vote reflects a certain amount of anti-casino sentiment, this was one of those ballot measures where the devil was in the details. It polled well in the immediate region, which has been hard-hit with job losses (5,000 of which casino backers promised to replace) but it was “no sale” upstate. An otherwise leftward-trending electorate was unpersuaded.

Specifically, there was a “trap door” in the enabling language that might have let Lakes Entertainment slip its tax obligations if tribal casinos open in the Buckeye State (a long shot, but one voters weren’t willing to hazard), not to mention that the casino was to be allowed to operate with scant oversight. Oh, and the license fee ($15 million) wasn’t chicken feed, but it’s considerably less than what casinos are ponying up elsewhere — like Kansas — where no monopolies are promised. The face-saving spin was that “misleading ads” were to blame — like that’s anything new in politics.

Details were the bane in Maine, too, where Olympia Gaming found itself on the losing end of a casino plebiscite. Maine voters have taken a go-slow approach to casino expansion in their state, also voting down a racino at Scarborough Downs. There also seems to have been some “payback” involved — from Down Easters who had seen their own casino aspirations crushed five years ago. If they couldn’t have a casino, those upstart resort communities were going to be SOL, too. So there!

Pat LaMarche expresses her considered opinion of Maine’s electoral process.

Lowering the legal gambing age to 19 stuck in voters’ craw, as did certain other special privileges which were to be extended to the Oxford County casino and to Gary Goett‘s Olympia. Project booster Pat LaMarche sniffed that folks in Maine were “very unfriendly” and says she’s going to take her ball and LaMarche right next door to New Hampshire.

On the other hand, LaMarche is the bete noire of intolerant religious wack jobs, so that’s something in her favor.

Having a win/win day, was also the good fortune of Ameristar Casinos, which will see some relief in Colorado, in addition to prevailing in Missouri. In return for helping the state’s community-college system, Colorado casinos get some new goodies that — we hope — will ameliorate the effects of the state’s smoking ban.

It’s a mixed bag, albeit more positive than negative, for Penn National. It headed off the Ohio threat but finds its flagship property in West Virginia facing competitive pressure not only from Pennsylvania but soon from Maryland, even though the latter’s ramp-up is roughly four years away. Penn astutely protected its flank by optioning strategically placed real estate near Baltimore, in its first move after its LBO imploded last summer.

(Amusingly, both sides in the Maryland fight used President-elect Obama as a “product placement” in their literature. They knew a good “branding opportunity” when they saw one.)

Hopefully the Maryland Lege will revisit (read: reduce) the confiscatory 67% tax rate. Otherwise, brace yourself for Ye Olde Shack O’Slots, as no sane businessman would invest heavily in a casino with such a narrow operating margin. By establishing a Maryland beachhead, Penn is probably thinking more in terms of capturing “leakage” from its other nearby properties, not having visions of $$$ dancing in its head.

Former governor, sometime racino proponent and “Casino Jack” Abramoff beneficiary Robert Leroy “Bob” Ehrlich Jr. (R) hoped to “see us kill this turkey,” but that sounds like sour grapes from the one-term blunder, er, wonder. Gov. Martin O’Malley (D) moved the ball across the goal line with 59% support, whereas Ehrlich couldn’t get it upfield in four tries — even in the post-9/11 economy. It may nearly be Thanksgiving but the only turkey in sight is Ehrlich (or is that a thinly disguised Steve Carell?)

Speaking of “Casino Jack”, add him to the “losers” column of our S&G “Winners & Losers” with a capital “L.” From the jailhouse, convicted felon Abramoff tried to ‘Swift Boat’ his archnemesis, John McCain, but the effort sank without leaving the pier. What a schlemil.

Loose change: Voters also gave their assent to a lottery in Arkansas and expanded table games at Greenbrier Resort in West Virginia. So I’d score that as two lost battles (Ohio, Maine), one decisive victory (Maryland) and incremental wins in four other skirmishes.

On balance, a good day.

Posted in Ameristar, Colorado, Current, Election, Gary Goett, Horseracing, Indiana, Maryland, Penn National, Pennsylvania, Pinnacle Entertainment, Politics, Regulation, Taxes | Comments Off on Casino Vote '08: Dan Lee's the big winner

Columbia Sussex contest

Posted on November 5, 2008 by David McKee

I’ve got to confess that bond-market lingo is hardly my strong suit. So can anyone out there explain what this bulletin means for casino industry pariah Columbia Sussex?

One loan remains in the pool: Columbia Sussex, which has been fully defeased and has an anticipated repayment date in 2015. As of the October 2008 remittance date, the transaction’s outstanding principal balance has been reduced by 92.0% to $77.3 million, from $967.2 million at issuance.

Be the first one to answer and a free copy of Bill Zender‘s Casino-ology shall be your reward.

Open mouth, insert foot. That’s”President-elect Chickenshit” to you, Congressman.

Great moments in journalism. The Wall Street Journal‘s editorial page can be pretty hardcore. But it seems to strike exactly the right, measured tone today, rising to the occasion with grace.

Las Vegans, on the other hand, can be ever so proud of the example set by the Review-Journal, whose editorial writers — as is so often their wont when vox populi is not vox R-J, curl up in the corner kicking and screaming in impotent, infantile rage.

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Winners & Losers

Posted on November 5, 2008 by David McKee

And now the obligatory post-Election, What’s-it-all-about-Alfie roundup …

Culinary Union 1, Casino CEOs O: True, the Culinary tripped all over its own feet in the early going, leading to Democratic caucuses that weren’t so much “Barackular” as “debacular.” But D. Taylor & Co. backed the winning horse and did it early, which earns some chits down the road, plus they have a new Capitol Hill friend in Rep.-elect Dina Titus. Messrs. Lanni, Loveman, Wynn, Adelson and Trump made a variety of presidential wagers, losing every one.

Ameristar Casinos/Pinnacle Entertainment: They wanted a protected oligarchy in Missouri and now they’ve got it — and at relatively little additional tax burden to them.

Slot manufacturers: OK, so Ohio and Maine didn’t come through and the Missouri market is frozen. But 15K new slots in Maryland ain’t chicken feed. Plus a West Virginia casino expansion that flew under the radar got voted in. Inexplicably, slot stocks traded downward. Stupid Wall Street.

Colorado casinos: They didn’t so much “win” as get a hefty lifeline thrown to them by Rocky Mountain State voters who approved 20X higher betting limits, ’round the clock operations, and roulette and craps. (No Sen. John McCain sightings in Cripple Creek yet, though.)

Freedom’s Watch: So far F-Double-U is 6-9-1 (with Sen. Gordon Smith [R] of Oregon momentarily in the “tie” column) in its top-priority races. I’m feeling generous and crediting the Adelson front group with “wins” in the case of self-destructing Rep. Tim Mahoney (D-FL), who continued the scummy tradition of predecessor Mark Foley, and in that of Sen. Saxby Chambliss (R-GA), who faces a December do-over, thanks to Georgia law. And veering off at the last minute to spend money attacking not-up-for-reelection Sen. Chuck Schumer (D-N.Y.)? Adelsonian political acumen at its finest. Winner? Loser? Let’s call it a draw.

Poker: Just when it looked like the poker phenomenon was about to jump the shark, Continue reading →

Posted in Alaska, Ameristar, Atlantic City, California, Colorado, Current, Donald Trump, Economy, Election, Florida, Gary Goett, Harrah's, IGT, Internet gambling, MGM Mirage, Mississippi, Missouri, Pinnacle Entertainment, Politics, Sheldon Adelson, Steve Wynn, Taxes, The Strip, Tribal, Wall Street | Comments Off on Winners & Losers

Senate prediction: feeling good

Posted on November 3, 2008 by David McKee

I've been checking Intrade's election "futures" markets and, if you "buy" Sen. John McCain at 9.9 you could collect on the longshot of a lifetime. (I'm of the pessimistic "I'll believe an Obama win when I see it and not one second before" persuasion.) Unless, that is, you want to go waaaaaaaaaaaaaaaay out an Aleutians-length limb and buy Ted Stevens "futures" (which is an ironic term, seeing as Sen. Stevens appears to have no future whatsoever — at least none that don't involve a long series of numbers across his back).

I notice that Intrade's odds have reversed on the Al Franken/Sen. Norm Coleman slugfest in Minnesota, while the trends in all the other ones I profiled last week have solidified. (Reform Party candidate Dean Barkley is a respected figure and has made a robust showing in the polls but is doomed to be an also-ran yet again.)

So I see no reason to amend my prediction: Dems gain six seats, for a total of 55 (plus Bernie Sanders), but Coleman comes from behind late in the fourth quarter to prevent further GOP erosion.

Forget Tim Pawlenty; if Coleman pulls this out I expect him to be the Minnesotan to start showing up on the futures markets as a contender for 2012.

Eighteen months later … Believe it or not, it's been 18 months since Michelle Obama made her first campaign visit to Nevada. Yours truly was detailed to cover that June '07 stump speech — actually more of a marketing effort to raise people's comfort level with the Obama "brand" — which I sandwiched between CineVegas screenings. So how does today's visit compare to what seems like 18 years ago?

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Missouri amendment to pass: JP Morgan

Posted on November 3, 2008 by David McKee

Analysts at JP Morgan like the chances for a Missouri constitutional amendment largely bankrolled by Ameristar Casinos and Pinnacle Entertainment. While Ameristar stands to benefit in tangible ways, JP Morgan focuses on what it could for Pinnacle: a 15% increase in Lumiere Place cash flow and perhaps another $2 per share (at $5.41 as of this moment).

Other takeaways from today's investor note: 1) Lake Charles, La., which Pinnacle dominates, looks good to buck the national trend and keep growing its casino revenue; 2) the heretofore disappointing Lumiere Place is at "an inflection point" in which its Four Seasons hotel starts to become a contributor instead of "a drag on earings"; 3) Pinnacle is holding its ground, at Belterra, better than most of its southern Indiana competitors — Penn National's Argosy Lawrenceburg in particular.

There's still the matter of the $600 million River City project in suburban St. Louis and Pinnacle's stymied Atlantic City megaresort. Pinnacle appears to have let spending get pretty exuberant (only in its $250 million Baton Rouge riverboat casino do budget and market really seem to square up), so it'd premature for CEO Dan Lee to take any victory laps — not that it would be in his nature.

Update: Only in the convoluted logic of the Las Vegas Review-Journal would a constitutional amendment that bars new casinos from Missouri be blithlely described as "Gaming expansion." So, if Ohio voters approve Lakes Entertainment's proposed casino, will that be "gaming contraction"?

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'Show Me' more money

Posted on October 31, 2008 by David McKee

Missouri voters are being asked to approve a constitutional amendment, submitted by Ameristar Casinos executive Troy Stremming, which would make a couple of significant changes in how business is done in Show-Me State casinos. (The full version is here, but the précis tells you what you most need to know.)

There are three salient features to this amendment, which might be summarized as The Good, The Bad and The Neutral.

The Neutral: Taxes on casinos would be raised 1%, for a total rate of 21%. In and of itself, this is not such a big deal, as I’ll explain below.

The Good: The amendment repeals the state’s loss limits, a paternalistic measure which doesn’t actually limit how much you can lose (like that’s any of Jefferson City’s beeswax) but how frequently you can buy in. This should have been history a long time ago or, better yet, never enacted.

The Bad: The amendment would close Missouri to new casino licensees. Anybody already licensed or building in Missouri (read: Pinnacle Entertainment) would be grandfathered. After passage of the amendment, the only way into Missouri would be if an existing riverboat were sold, went out of business or lost its license.

That’s a pretty sweet deal, especially if you’re Ameristar and probably want to bat your eyelashes at potential suitors. Ameristar’s two Missouri casinos did a combined $160 million in cash flow last year and the company, using its 2007 financials, is conservatively worth $2.1 billion. A freezing of the Missouri market would make Ameristar more valuable still.

But the amendment anti-competitive on its face. Nor have I heard any compelling argument for closing Missouri to additional operators — other than protecting the ones already there from an environment that will be somewhat more competitive as Kansas’ casinos begin to enter the fray.

And … this may be more cracker-barrel philosophy than economic theory, but if Ameristar, Pinnacle, et. al. are going to enjoy protected-oligarchy status, the citizens of Missouri ought to get more than an extra percentage point of tax from those sinecures. If voters are being asked to slam the door in the face of prospective casino developers (such as one in Cape Girardeau), then existing operators ought to reciprocate by agreeing to a new tax rate that’s not one but several points greater.

As it stands, the best-case estimate is that the 1% increase will bring an extra $156 million per year to state and local kitties. Ameristar’s riverboats alone represented $117 million in gaming-tax revenues last year. Missourians will have to weigh the $156 million bird in the hand against the bird-in-the-bush economic impact that one or more additional casinos would represent. For once, I’d take the bird in the bush.

Correction: Yesterday, I passed along a Center for Responsive Politics assertion that presidential campaign donations from the defense industry favored Sen. John McCain. According to OpenSecrets.org, it’s the other way around and they’ve got the numbers to back it up. (It seems to have more to do with longstanding resentment of McCain among defense contractors than with enthusiasm for his opponent.)

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