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Quick-takes: November's trends in a glance.30 November 2006
Another great month for the economy. Gas prices still going down; the price of crude oil closed the month under $60, almost $20 lower than its high point in July; interest rates are stable and the DOW moved over 12,000 for the first time ever. Retail sales should be up based on Halloween sales; Halloween sales were the largest ever, nearly double last years. There are some weak spots in the economy, but in general it is tailor made for an election, whether it helps incumbents is another issue entirely. The economy does not seem to be among the top issues in this election. The healthy economy is certainly reflected in gaming revenues, and with Hurricane Katrina factored into last year's results, even Mississippi is up for the first time in a year. Four states even recorded double digit growth; Delaware, Indiana, Iowa and Michigan.
Gaming stocks did well in October, driven, according to analyst Brian Gordon, by the buy-out offer for Harrah's. In the month just before the election, except for the majority of the earnings reports and the installation of slot machines in Pennsylvania and Florida, there wasn't much other industry news to drive stock prices.
Gordon was right about the importance of the buy-out offer; but there are actually two very big stories floating around the gaming world this month. The first has to do with Harrah's. Two groups of private equity investors made an offer for Harrah's; that offer has sparked a great deal of speculation about the consequences.
Much of the speculation was about the fate of a local property, the employees, projects in the planning or construction phase, and the impact of competition.
Other speculation dealt with the possibility of other private equity offers for other public gaming companies; some even created lists of targets and prices. Just as when the major mergers started years ago, the Wall Street analysts can see a trend and imagine all of the possibilities it might include. A bigger question might have to do with strategies and goals. The nature of Wall Street and the pressures of a public market have created business models for the major gaming companies built on quarter over quarter growth and expansion. A private company might have different goals; it might want to sell off a great part of the company and require higher margins on the remaining properties. The first and only, truly national casino brand could be fated to follow the dodo bird into oblivion. The second major story dominated the news for the entire month of October. On the last day of September Congress passed the Unlawful Internet Gambling Enforcement Act of 2006; and on October 13th President George W. Bush signed Security and Accountability for Every (SAFE) Port Act, which included the Internet bill. The bill started a rush to exit the United States by the major Internet gaming companies, abandoning their American players and retreating to safer shores. Two companies sold the American operations to unnamed private operators for a dollar each. Most simply declared they would no longer take bets from Americans, while they talked of selling all of their gaming operations to private investors – investors who presumably are willing to ignore the American justice system, avoid traveling to the United States and find third party methods of collecting and paying wagers. Betcorp got the best price, $11 million, not much for a business that was producing that much a month.
Up to this point this is a major story for the gaming industry, but an interesting thing happened on the way to the casino -- the entire country took notice of the bill. There are very few federal laws that directly legislate gaming, the National Indian Gaming Regulatory Act and the Unlawful Internet Gambling Enforcement Act of 2006 are the latest major exceptions. The rest of gaming legislation is specific to each state, and while it occasionally gets some national coverage, gaming legislation isn't terribly important to anyone outside of the industry and its major opponents. The Internet gaming act is an exception. Nothing in my memory compares to this bill and the attention it has received. And it is not only the American press that has taken notice. The entire world has been covering this bill. The perspective of coverage varies according to the country. All of the countries that have passed legislation permitting Internet gaming have been very critical. Those that have taken the opposite position are supportive. Cynics in Europe are saying the American law is a conspiracy intended to drive the publicly traded British companies out of the market and create an opportunity for American companies in partnership with American states to come in and take over. The coverage that really got my attention and startled me came from two national publications, the New York Times and Newsweek. Both publications carried opinion pieces that took issue with the act and predicting unfavorable and presumably unintended consequences. Charles Murray in the New York Times predicted a political backlash for the Republican Party. George Will in Newsweek compared the act to the federal law prohibiting the sale of alcohol in the aftermath of the First World War.
Will and Murray are not the only ones predicting dire consequences of the Unlawful Internet Gambling Enforcement Act. A good many of the others are connected in one way or another to the industry. That fact makes their predictions a little less weighty than two writers known for their sophisticated understanding of the American culture. Still the other warnings bear mentioning. It is a certainty with $15 billion at stake this year and estimates of $50 billion in another ten years, there will be many attempts to by-pass American efforts to strangle Internet gaming.
It is much too early to play taps for Internet gaming. It is also too early to say for certain what the impact of this legislation will be. It is even too early to even guarantee that the act will survive the next Congress or the one after that. That is, after all, how the act finally passed, because the same two people introduced it every year, year after year after year. And at least one of them may not be back in Congress as a result. There is a major move to unseat Senator Kyl in Arizona, driven by opponents of the act. Everyone wants to be Steve's partner, or so it seems. Most of us are content to buy some stock in Wynn Resorts, although we may have some nagging regrets that we didn't buy the stock at $13 and find the current $72 or so stiff. However, the gaming elite may covet a closer, and of course, more lucrative partnership with Wynn. Jack Binion has moved from just a board member with a couple of billion dollars in his pocket from the merger to ruling Wynn's eastern empire. And now Donald Trump and James Packer are looking to make deals, joint ventures and other transactions to pick up a bit of Steve Wynn's magic dust. In the meantime, Wynn is the one richer for his friendship with the Packer family (James' father was a legendary gambler who often played at one of Steve's casinos). As of this quarter his company will record an additional $900 million that Packer's company paid for part of Wynn's concession to operate a casino in Macau.
So we end the month of October and head to the annual gaming show in Las Vegas with two major stories still floating around creating a great deal of speculation about their impact, but no concrete answers. Neither story is going to go away soon. A story that may just go away is the Wynn and Trump story. The Donald may be over-playing his hand (if you can believe that) and may fade back into his usual anonymity. Over-played his hand? Well, lets look at one two-week period. First, Trump attended one baseball game with Steve Wynn. Within a week, he called a press conference and threatened a woman who had refused to sell her property to Penthouse years ago. She still lives there in what would be part of any planned casino project. Trump hopes Wynn will use that land to make him richer – so he threatened (on behalf of himself and Wynn) to build the building around her. And finally, he co-opted his own company's earnings press conference. Trump, always the star of the show, acted as if he was responsible for 80 percent of the growth in profit in the company's Atlantic City casinos. It was enough to frighten investors and make them think he was making operational decisions - the price of his stock started to fall immediately. Copyright GamingWire. All rights reserved. Recent Articles
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