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Howard Stutz

Gaming Industry: Casinos Back to Winning Ways

13 September 2006

LAS VEGAS, Nevada -- After statewide gaming revenue decreased in June, the first time in more than two years that Nevada casinos had a down month, analysts were braced for a similar result when July's numbers were released Tuesday.

The bad news, however, never materialized.

Fueled by the Strip's megaresorts and a booming business at casinos catering to locals, the overall state gaming win was $1.04 billion in July, a jump of 8.4 percent from $958.5 million in July 2005, according to the Nevada Gaming Control Board.

On the Strip, casinos won nearly $532 million from gamblers in July, a 10 percent increase from $483.5 million a year ago. The Strip's July 2005 win had been energized by the opening of Wynn Las Vegas the previous April and was a 23 percent increase from what casinos won in July 2004. That caused some concern among analysts.

"Going into the month, we knew there was going to be an extremely tough comparison from last year," said Gaming Control Board senior research analyst Frank Streshley, adding that the statewide win a year ago was almost an 18 percent increase. "Obviously, the results were much better than expected."

Streshley said casinos benefited from July Fourth falling on a Tuesday, allowing some gamblers to extend their holiday for a four-day weekend. In addition, the July 15 championship fight between Shane Mosley and Fernando Vargas at the MGM Grand helped drive customers into Strip casinos.

In addition, July 2006 had one less Friday compared with July 2005, which Streshley said usually foretells a slower-than-average month for gaming win.

"We had an issue with hold percentages in June. July was just a very strong month all the way around," Streshley said.

Increases in the Las Vegas locals casino market helped offset year-over-year losses by casinos in other parts of the state, including Reno (down 2 percent), South Lake Tahoe (down 6.6 percent) and Carson City (down 7.8 percent).

On the Boulder Highway, which also includes parts of Henderson, casinos won $75.2 million in July, a 16 percent increase from $64.7 million in July 2005. In the balance of the county, which includes Station Casinos' new Red Rock Resort and Boyd Gaming Corp.'s South Coast, casinos won $106.4 million, a 30 percent jump from $81.6 million last year.

Gaming analysts said results suggest that the market is beginning to absorb the new casino capacity from the South Coast, which opened in December, and Red Rock, which opened in April.

Deutsche Bank gaming analyst Bill Lerner said he estimated the Las Vegas locals market improved 22 percent when North Las Vegas casinos are factored in.

"We believe the impressive July numbers could suggest that near-term disruption caused by new supply could be beginning to wane and the Las Vegas locals market and underlying economy remain quite robust despite investors' concerns to the contrary," Lerner said in a note to investors.

Matthew Jacob, who analyzes the gaming industry for Majestic Research, said the July numbers may signal that the new properties are having less of a cannibalistic effect on casinos operated by their parent companies. Red Rock, he said, has drawn customers away from other Station Casinos properties since it opened, something that seems to be decreasing.

"The data we're seeing for August seems to be that the month will be more like July," Jacob said. "Investors have had lower expectations about the third quarter, with concerns about the market absorbing the new properties. Our data is also showing the Strip to be much stronger than expected."

Dennis Farrell Jr. of Wachovia High Yield Research said results from Strip casinos will always be an indicator of the state's overall revenue health.

"In our view, revenue growth will continue on the Strip, but at a slower pace," Farrell said. "Nonetheless, July's results exceeded our expectations on the Strip and in the locals' markets."

Laughlin casinos' revenue decreased 1.6 percent in July, but downtown casinos reported revenue of $49 million, off 5.3 percent compared with $51.8 million in July 2005. Streshley said the closure of the Lady Luck in February affected that market segment.

Statewide, the total amount wagered by gamblers during July was $14.5 billion -- $2.5 billion on table games and $12 billion in slot machines.