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MGM Mirage To Spend $170 Million on Video Lottery Casino21 June 2005
By Howard Stutz
MGM Mirage will spend $170 million to build and operate a 4,500-machine video lottery casino at the Aqueduct Race Track outside New York City. Although the deal may not mean much for the gaming company's revenue, it could reduce customer traffic to Atlantic City.
Deutsche Bank gaming analyst Marc Falcone predicted that MGM would generate between $10 million and $15 million a year in recurring cash flow from the management contract.
While the contract's terms were not disclosed, Susquehanna Financial Group analyst Eric Hausler said in a note to investors thought the operation would be worth 2 cents per share in annual earnings based on $300 in win per unit per day.
Gaming analysts said an expected 75 percent tax rate could affect MGM Mirage's earnings. Most of the revenue is expected to go to the New York State educational system.
Hausler thought the availability of video lottery terminals at Aqueduct could curtail some visits to neighboring Atlantic City by New York City residents.
"This is good for MGM, but bad for Atlantic City operators as we expect the facility will drain some day-trip business from Atlantic City," Hausler said. "We expect this property to be a slot grind joint with limited amenities, especially given the $170 million price tag and high tax rate. (However), we expect it to draw local day-trip business from Queens and Long Island away from Atlantic City as it will be a more convenient alternative for some slot players."
Video lottery terminals function much the way slot machines do. A player inserts money, selects a combination of numbers, and pulls a lever or pushes a button to play. Numbers are randomly generated by a centralized computer system.
More than a year ago, MGM and the New York Racing Association agreed to place the lottery casino at Aqueduct, which is in Queens. Questions about whether New York could legally operate video lottery terminals held up the deal. But the court eventually decided the machines were legal.
"We are eager to resume work on this long-delayed project," MGM Mirage Chairman and Chief Executive Officer Terry Lanni said in a statement.
Regulatory approval from New York is still pending. Company officials expect the lottery casino to open in mid-2006.
Gaming analysts said the move toward video lottery terminals could benefit gambling equipment operators, such as International Game Technology, Alliance Gaming and GTech, which develop and sell the devices. Yonkers Raceway, north of Manhattan, is also expected to add video lottery terminals.
MGM Mirage shares fell 55 cents, or 1.32 percent, Monday to close at $41.26.
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