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Gaming Guru

Joe Weinert
 

Atlantic City Round-Up

10 March 2003

ATLANTIC CITY -- Mother Nature may have dealt Atlantic City casinos their worst month ever in February.

The brunt of the snowiest winter on record, most of which fell over the usually high-volume Presidents Day weekend, caused a 12.8 percent decline in citywide gaming revenue, according to preliminary results. The 11 casinos grossed $299.3 million, or $44 million less than the year-earlier period.

Only good luck for the casinos at the gaming tables kept the results from being even worse. They won 16.2 percent of the money wagered compared to a more typical 15.6 percent a year earlier.

The official figures, due out this week, likely will show the steepest revenue decline in the industryís 25-year history, surpassing the 13.6 percent drop in January 1994. The official figures are usually worse because the preliminary results do not include the amounts casinos deduct for contribution to progressive-slot jackpot trusts.

"Although the February results were relatively weak, we remain encouraged about the long-term future for the Atlantic City market," CIBC World Markets analyst Bill Schmitt said. "The scheduled opening of Borgata, a joint venture of Boyd Gaming and MGM Mirage, in summer 2003 as well as significant investments at Aztarís Tropicana property, Harrah's Showboat property and Park Place Entertainmentís Caesars, could drive meaningful growth in the market going forward."

Every casino reported a revenue decline for the month, from 1.3 percent at Harrah's to 26.6 percent at Sands. Harrah's stood out because it's still getting a big return on its hotel and casino expansion that opened in phases last year.

Harrah's General Manager Dave Jonas is hoping some gamblers who couldn't make it through the snow to Atlantic City are saving their gambling budgets for another time.

"We had a really good first weekend in March. There was some pent-up demand in the market, but I don't know if there's enough to recover the whole amount. The good news is, we still have 10 months to figure it out," Jonas said.

Jonas' boss, Harrah's Eastern Division President Carlos Tolosa, said he's confident that the steep revenue loss wonít prompt Atlantic City casino operators to start a marketing war, as happened in 1996.

"Everybody's so conscious of that today. I think all of the operators are much more disciplined than they were in the past," Tolosa said.

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Donald Trump's casino company is sweetening the offer to get investors whipped up about its proposed bond sale.

The Trump Casino Holdings unit is now offering an 11.375 percent interest rate, up from 11 percent, at a discount of 94.85 cents, down from par, according to two sources familiar with the deal. Such an equation would give investors a 12.5 percent yield to maturity.

Trump has reduced the face value of bonds it intends to offer, to $400 million of first-mortgage notes and $65 million of second-mortgage notes. Both represent a reduction of $5 million.

Sources said that Trump has lined up investors who have preliminarily agreed to buy about half of the first-mortgage notes. That could give Trump the confidence to start formally shopping the deal this week.

Trump would use proceeds to refinance debt backed by the Trump Marina and Trump Indiana casinos.

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Atlantic City casino executives are keeping an eye on gaming developments in neighboring Pennsylvania, which supplies the casinos with up to one-third of their customers.

In his budget address to legislators last week, Gov. Ed Rendell fulfilled a campaign pledge by calling on lawmakers to legalize racetrack slots this year.

He said Pennsylvania can't afford to let $3 billion in annual gambling revenues go to gaming outlets in New Jersey, New York, Delaware and West Virginia

"I am sensitive to the concerns that legislators and others have expressed about the moral dilemmas posed by gaming. But we can no longer close our eyes to the fact that, on this issue, hundreds of thousands of our fellow citizens are voting with their feet every year, traveling to our neighboring states and depositing hundreds of millions of dollars into those states' treasuries," Rendell said.

A bill introduced two weeks ago would allow 3,000 slots at each track. Pennsylvania has four operating tracks, another approved and up to three more possible.

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Nine casinos are appealing their Atlantic City property-tax assessments, which if entirely successful could cost the city $350 million in back taxes. City officials, saying itís difficult to assess the value of a casino, said the city's finances could be in disarray if casinos win all of their appeals.

(Joe Weinert covers the gaming industry for The Press of Atlantic City. He can be reached at jweinert@pressofac.com.)