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Benjamin Spillman

Tax discrepancy led to wider losses at Binion's

10 August 2007

LAS VEGAS, Nevada -- Binion's just can't catch a break.

Through shrewd poker marketing and strong table game play, the historic downtown casino boosted revenue and narrowed losses during the second quarter.

But the Fremont Street fixture gave back its winnings and then some to the state of Nevada to correct an unemployment tax discrepancy that occurred from March 2005 to December 2006.

The old tax charges cost Binion's about $660,000, an amount that inflated quarterly losses from $289,000 to $949,000 according to an earnings report Thursday from parent company MTR Gaming Group of Chester, W.Va.

"It was a mistake of the state but we had to pay for it this year," Binion's general manager Bill Robinson said. "Otherwise we would have been in pretty good shape."

Overall, Binion's net revenue for the quarter was $15.5 million, up from $15.1 million during the second quarter of 2006. But losses widened in EBITDA, earnings before interest, taxes, depreciation and amortization, from $523,000 to $949,000, including the old unemployment tax payment.

An analyst noticed some improvement.

"It looks like operations did get a little better," said Justin Sebastiano, senior gaming analyst for Nollenberger Capital Partners.

Binion's management credited the strong casino performance during the quarter in part to an idea by a poker room employee. The idea was to host a low-limit poker tournament downtown to coincide with the World Series of Poker held earlier this summer at the Rio and broadcast on national television.

The low-limit tournament cost less to enter than the World Series event. And it ran slightly ahead of the World Series pace. That meant people who won enough during the Binion's tournament could theoretically use their winnings to buy into the World Series event.

"Not everybody has the $10,000 to play in the World Series of Poker," said Binion's assistant general manager Tom Pohlman. "We wanted to give the average person the opportunity to win."

The success of the poker tournament boosted the overall performance of the casino.

"We had a real good poker tournament and it overflowed into table games," Robinson said. "We just carved out a niche for people to come downtown."

Although Binion's owned the World Series of Poker from 1970 to 2004, it no longer has a formal affiliation with the event. During a period of financial duress blamed largely on management practices during the tenure of former owner Becky Behnen Binion, Harrah's bought the casino, took ownership of the tournament, then sold the structure and the Binion's name to the current ownership group.

MTR Gaming recently made a deal to sell Binion's for $32 million to Terry Caudill of Las Vegas. Caudill already owns the Four Queens, which is across the intersection of Fremont Street and Casino Center Drive from Binion's.

Like the overall downtown gambling market, Binion's has been losing money for years. Stock analysts who cover MTR Gaming praised the company for agreeing to sell to Caudill.

Overall MTR Gaming's net revenue was up 40 percent to $133 million for the quarter. EBITDA for the company was up 44 percent to $16 million. The company owns racetracks and slot machines in West Virginia, Ohio and Pennsylvania and the Speedway Casino in North Las Vegas. It has another deal to sell the Speedway for about $18 million.

Despite the increase in revenue at Binion's, Sebastiano said MTR Gaming's decision to sell was correct. He also said increasing revenue at a casino doesn't always translate to profits. That's because operators of struggling casinos often use comps, discounts and other costly tactics to bring in action.

Those types of deals can sometimes cost the casino more than it gets back from customers.

"You get all this money coming in but it doesn't flow to the bottom line," Sebastiano said. "It is pretty easy to show a good top line in casino revenue."