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Howard Stutz

Inside gaming: Sparkle seems off neon for Street

15 April 2008

Wall Street has soured on Las Vegas.

Gaming analysts are challenged to find nice things to say about the casino industry in light of poor financial performances in numerous markets, including the Strip, where gaming revenues fell more than 3 percent in February.

The sinking economy, high gasoline prices, airline troubles and other downbeat financial news are causing casino customers to hang on to discretionary income. The impact may be on gaming and nongaming revenues and cash flow, described as earnings before interest, taxes, depreciation and amortization.

Deutsche Bank gaming analyst Andrew Zarnett painted a bleak picture for investors should Las Vegas visitation and gaming spending continue to suffer.

"Looking specifically to an individual property on the Strip, we believe a 10 percent decline in revenues, linear across the board, including room rates as well as casino play, will likely lead to an approximate 20 percent reduction in EBITDA," Zarnett said.

Las Vegas casino operators, Zarnett said, have reduced labor hours. What follows will be a reduction in staffing levels to reduce costs.

Investment firms downgraded gaming stocks recently. Quarterly earnings for the period ended March 31 are forthcoming. Analysts, however, are not predicting good news.

"We see both regional trends and destination markets like Las Vegas and Macau below previous estimates," Wachovia analyst Brian McGill said.

Goldman Sachs gaming analyst Steven Kent said stock prices are weak and operating results over the next few quarters will be challenged.

If you're reading this column, you're probably not a guest at one of Harrah's eight Strip casinos. The company has removed and no longer makes the Review-Journal available to its hotel guests.

The move follows several months of investigative articles by the Review-Journal that uncovered potentially illegal construction procedures by the casino company.

The newspaper was selling roughly 600 copies per day at gift shops inside the Harrah's properties.

Harrah's spokesman Gary Thompson, however, said the company undertook the move as a cost-cutting exercise.

"I know Harrah's executives have been concerned with the coverage, but they've rarely complained," Review-Journal Publisher Sherman Frederick said. " I take them at their word that this is only a business decision, and because of that I am sure we will win their business back. Las Vegas visitors are interested in Las Vegas, and no one covers Las Vegas better and more completely than the Review-Journal."

Howard Stutz's Inside Gaming column appears Sundays.