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Quick-takes: The month's trends in a glance – July 2007

15 August 2007

The raging battles make the news frequently. The stories usually come from Iraq, Afghanistan, Gaza or Lebanon and they are about the fierce fight for the hearts and minds of the citizens of the subject country. But those are not the only battles that make the evening news or affect the price of stock on Wall Street. Business in the United States is no stranger to battles, either – as the competition between businesses is often seen and described as being a battle. Business battles too are for hearts and minds of customers. Of course, there are many important differences between the two types of battles (there are others in sports and politics, for example, but they aren't the focus of this report.); the words we use to describe fighting in Iraq are not the same words we use in business, and the casualties are different, too: the businesses suffer from the fighting, not the customers. And finally the rewards for the victor are money and loyalty, not land and power. As gaming spreads, the competition in gaming is spreading also and it's heating up to the point where the battle metaphor is going to be more common.

Atlantic City is fighting the competition from Pennsylvania. Nevada is fighting the competition from California. Connecticut casinos are expanding to fight back against the competition from Pennsylvania and in anticipation of casinos in Massachusetts and New York. In gaming, unlike many other less restrictive industries, the business is not always located where the customer lives. The casino has to attract the customers, inducing them to travel sometimes hundreds of miles to stay and play at the casino. That is why the battles for casino customers are particularly intense and expensive. When new legislation or changing conditions allow new casinos to locate closer to the customer it is very expensive and difficult to compete and to draw as many customers as previously.

To fight back a casino has to spend a great deal of time, effort and resources to attract the customer; it also has to continually improve the product to exceed that of the closer casinos and it has to give the customer moreincentives to come and to stay than it did previously. The casino may also band with others in the same region and lobby for more favorable legislation, lower tax rates or some other advantage to offset the disadvantages of distance. That process produces casualties; Reno, Nevada, for example, has about 20 casinos less in 2007 than it did in 1988 before any of the neighboring states had any legalized casinos. Competition is relentless; every time one casino gets the opportunity to move closer to the customer base it puts instant pressure on others farther away.

Even in Pennsylvania there is already talk of the decreasing revenues due to competition. As each new property opens, win-per-day in others has often gone down. In Florida the win-per-day on slot machines has also been decreasing. The culprit there too is said to be competition, and in Florida that means Indian casinos.

Officials from Presque Isle Downs & Casino in Erie County are enduring gambling competition from the south and west that they didn't have when opening Feb. 28, but they insist their future is secure. The officials told the Pennsylvania Gaming Control Board at its meeting in Pittsburgh yesterday that the Sept. 1 opening of a state-of-the-art, synthetic surface racetrack at their facility will draw additional patrons… Presque Isle Downs has been bringing in about $3 million weekly in revenue shared by the operator and state, which is ahead of long-term projections. But as more competition has arisen, its daily win per machine -- the amount retained through customers' losses -- has dropped from $308 in March to $240 in April, $233 in May and $208 last week, the first week of operations of The Meadows Racetrack & Casino. (Gary Rotstein, Pittsburgh Post-Gazette)

Even lotteries are experiencing the pressures of competition and struggling to find ways to respond. A lottery game in Massachusetts is hoping to break even on one of its games – break even, that doesn't sound like much of a success, does it? And in Oklahoma the state is hoping to use television in a kind of reality TV.

Bresnahan said the Lottery is anticipating a last minute rush and is confident sales will be able to reach 2 million, the mark needed for the lottery to break even on the game.
The Massachusetts Lottery's Star Spangled Sweepstakes is shaping up to be a Yankee Doodle disappointment. With just four days remaining until the game ends on Saturday, prior to the July 4 drawing, sales of the $20 ticket have been significantly below expectations, said lottery spokeswoman Beth Bresnahan. Through Monday sales hovered at about 30 percent of the game's 4 million tickets, or about 1.2 million tickets, have been sold. "It's a little slower than expected," said Bresnahan. (Lottery Post, 6-27-07)

Scroggins says lottery revenues have been hampered by competition from tribal casinos and horse racing tracks, the need for additional gaming options and illegal gambling. The Oklahoma Lottery plans to start a television game show and offer an additional multi-state game in hopes of improving lower-than-expected revenues. The new television game show would be filmed in Oklahoma City and begin airing in October. Next year, Oklahoma would join ten other states in offering the Hot Lotto game, which features a minimum jackpot of $1 million. Lottery Commission Executive Director Jim Scroggins says he hopes the additions will help generate excitement for the lottery, which is expected to fall far short of its revenue projections this year. (Lottery Post, 6-27-07)

The truth is, competition requires decisive responses and that usually means investing in new products and spending a lot more on marketing. Both of those options make casino gaming increasingly more expensive; more expensive to enter and more expensive to operate with smaller profit margins as a result. Two markets, St Louis and Detroit, are both reporting investment in excess of a billion dollars as casinos in those two cities attempt to be more competitive.

The chief of another Las Vegas-based casino company was in town this week to take a peek at the millions of dollars his firm is investing in the region's growing gambling machine…Much of the region's attention has been focused on the $495 million project, Lumiére Place, being built by Las Vegas-based Pinnacle Entertainment Inc., a company that also happens to believe it will have the region's top luxury hotel — this one is expected to be a Four Seasons. Pinnacle also is building a $375 million project in Lemay. Across the Mississippi, in East St. Louis, the folks who own the Casino Queen are investing $150 million to upgrade the operation, with a land-based casino set to open later this summer. Ameristar's own $265 million expansion features a 400-room hotel, 2,000-car parking garage, 7,000-square-foot spa, and a new indoor-outdoor pool complete with waterfalls. (Tim Barker, St. Louis Post-Dispatch, 6-22-07)

This is Neros, a restaurant so upscale it needs no apostrophe, and an important upgrade to Casino Windsor's dining options. Casino Windsor, which will become Caesars Windsor in early 2008, and Detroit's MotorCity Casino, MGM Grand Detroit and Greektown are spending big to build hotels and new amenities to lure a more upscale customer. In Detroit alone, the three casinos are spending a total $1.25 billion. (Susan Whitall, Detroit News, 6-22-07)

Atlantic City is caught in the middle of increased competition from Pennsylvania, new legislation making smoking illegal, union activities, increased pressure for subsidies for race tracks to avoid legalizing slots at the tracks, and the escalating costs of expanding and operating. Donald Trump is currently caught on the horns of that dilemma. He wants too much money to sell and his properties need too much money to make them competitive. Meanwhile, margins across the board are eroding as the properties increase marketing expenses.

Another Wall Street gaming analyst is pessimistic that Donald Trump's financially ailing casino company will be able to find a buyer. Carlo Santarelli, of Bear, Stearns & Co. Inc., predicted Thursday that Trump Entertainment Resorts Inc. will have a hard time selling itself, although its falling stock price in recent weeks could make it more attractive to suitors. "We continue to believe an outright sale will be difficult, but believe current levels make a sale more realistic," Santarelli wrote in an investor note. Earlier this month, analyst Dennis I. Forst, of KeyBanc Capital Markets Inc., said a sale of the entire company would be complicated by the enormous amount of money a buyer would have to spend to upgrade Trump's three aging casinos. Forst said the "only scenario we see that might make sense" is if the Trump casinos were sold off individually to gaming companies looking to establish a presence in the Atlantic City market. (Donald Wittkowski, Press of Atlantic City, 6-29-07)

One clear victim of the pressures of competition is horse racing. Gaming is expanding in popularity, much of it fed by popularity of poker and televised blackjack and poker tournaments. However, the popularity and the spread of casinos to many traditionally non-gaming states has not impacted one segment of the industry – racing. Strictly speaking, horse racing is not dependent upon wagering, but people rarely pit their horses against someone else's without something at stake. Once one of the largest and most popular forms of gambling, betting on horse (or dog) racing is on a very long slide down hill – with no end in sight. The one redeeming event in the last 25 years has been the addition of slot machines to the tracks. The revenue from slots allows the racing to continue, subsidized, but still the horses run. The purses are large enough to justify the costs associated with breeding, buying, training and racing.

Any state that has horse racing but does not allow slot machines is under pressure to allow slots. The argument is always the same: without the slots, this valuable, traditional, indeed honorable industry will disappear. Every year it seems another one or two states authorize slots at the tracks. Lastyear Pennsylvania and Florida jumped on the bandwagon, this year Indiana approved slots for their tracks and Michigan, Massachusetts and Maryland are once again having the debate. The horses are out of the gate and I have my money on at least one of the three to finish this year. Which one? That of course is the question, and you will have to choose your own candidate and then find a bookie.

Slots at the track may not always solve the problem: the tax rate might just be excessive and then there is the possibility that people would rather play a slot machine and not a pony. In that case, the whole thing was simply a Trojan horse and the slots are now inside the walls.

The possible gaming option at Michigan horse tracks stems from a recent meeting between Granholm and executives from Canada-based Magna Entertainment, which plans to open a horse track in Romulus near Detroit Metro Airport. Potential changes to Michigan's casino and horse track lineup are renewing the debate over the expansion of gambling in the state. Gov. Jennifer Granholm, looking to boost the state budget and offset an expected decline in government revenue from casinos, is considering a plan to allow a few Michigan horse tracks to install gaming machines that would let customers bet on previously run races at other tracks. A key question is whether it would be legal without a vote of the people. A 2004 Michigan measure called Proposal 1 requires most new gambling operations, except those run by Indian tribes or at Detroit's three casinos, be approved by voters at both state and local levels. It's not immediately clear how the horse track proposal might be affected by that law, but it's a good bet courts would be called upon to figure it out. Detroit casino owners and Indian tribes with gaming operations could challenge the proposal. (Tim Martin, Associated Press, 6-5-07)

The state's auditor is the latest high-ranking official to get behind the idea of expanded gambling in Massachusetts. Joe DeNucci tells the Boston Herald that he thinks the state should move ahead immediately with allowing slot machines at Massachusetts racetracks. He also predicts a full-scale casino will be up and running here in the next three to five years. The auditor says without slots the racetracks will not survive. (Associated Press, ABC 6, 6-5-07)

New Yorkers may soon be able to start placing bets on horse races in many bars around the city. The city's Off-Track Betting commission is considering placing automated betting terminals in bars and pubs. The terminals would be similar to the video lottery machines already in place in some bars, with customers using a swipe card instead of cash. Bettors could then follow the race on the machine's 20-inch flat screen. The proposal is part of a new plan designed to help the OTB boost profits. Betting online and through blackberries and cell phones is also in the works. (New York One, 6-5-07)

For the third time since the state approved video lottery terminals six years ago, the operators are in Albany fighting to lower the state's effective tax rate on racetrack casino revenues — a sliding scale from 60 to 70 percent that is the highest in the nation. The operators of the state's eight racetrack casinos contend that they do not make enough money to pay for the kinds of advertising, prizes, buffets, entertainment and free promotions — or "comps" — needed to attract gamblers and compete with Indian casinos or gambling operations in surrounding states. More promotion will mean more gamblers, and more gamblers will increase the state's revenue for education, even at a lower tax rate, operators assert. (Charles V. Bagli, New York Times, 6-5-07)

Pennsylvania Thoroughbred Horsemen's Association released figures today showing a 26.3 percent decline in live horserace betting at Philadelphia Park for the month of April, the largest monthly decline since slot machines were introduced at Philadelphia Park in December 2006. Simulcast betting…also declined by 18.1 percent for the month compared to April 2006…The live racing handle at Philadelphia Park dropped 21.5 percent to $6,988,149 million in the first four months of 2007. (PRNewswire, 6-5-07)

The Internet is changing the way we act; that statement is almost a cliché at this point, so frequently do we hear it. But to give the devil his due, behind the superficiality of the words there are some very profound changes taking place in the world culture based on the Internet. The most common one that most of us experience is in the field of news and information; watching television or listening to the radio for news is passing into history, as is, and even more quickly, reading a newspaper. The news from those sources seems almost to be frozen in the ice of time, like a mastodon uncovered frozen in ice in Siberia. The Internet gives us access to the news much, much faster – just push a refresh button to get the latest update.

There are other ways that the Internet affects our lives, although some may not have reached all of us in quite the same way news reporting has. Here are a couple of Internet stories that illustrate how gaming is being impacted in unpredictable ways. Just a couple of years ago, these events would have been unimaginable. A hotel developer in Las Vegas has moved to a digital, virtual world – Second Life – to improve his designs for an analog, real world – Las Vegas, Nevada. Second Life is picking up many real-world companies wishing not only to test their products and services, but to make a little (with a potential worldwide audience, "little" is strictly tongue-in-cheek here) money along the way. The second story is another way to use the Internet to predict the future, this one to predict the next president of the United States, but just a year or so ago, the Department of Defense suggested using the same techniques and technology to predict terrorist attacks.

Aloft, the latest "lifestyle" hotel brand from Starwood Hotels and Resorts Worldwide Inc., is reaching further afield than any of its competitors in the hotel or casino industries to cultivate in-demand Generation X and Y customers. In fact, Starwood is drawing from a different universe - the digital world known as Second Life - to generate buzz for aloft, a midpriced hotel chain that will launch next year. The hotel company is one of several businesses opening in Second Life…Input from Second Life customers on color palette, furniture and other details has been incorporated into the latest plans for a chain of hotels it plans to build across the country. Spiraling land and labor costs have made Las Vegas a tricky place to do business, even for the hippest, most exclusive brands. High construction costs in Las Vegas helped derail plans for Starwood's more expensive W brand…Paradise Road may be the answer for enterprising developers because it's less expensive than the Strip. (Liz Benston, Las Vegas Sun, 6-28-07)

Political insiders have long understood that if you really want to know what's going on in a campaign, you can't just look at the opinion polls. You have to talk to the bookies. Get the odds. And this time around, they're telling a story. Political bookmakers report a surge in betting on Hillary Clinton to secure the Democratic nomination and to go on to win the November 2008 presidential election. Barack Obama's support has faded dramatically since early spring, they say…These days political betting doesn't rely on old-fashioned odds. Instead it uses online betting exchanges which operate like a regular financial market. You buy and sell "futures" in individual candidates just as you would oil futures or shares. The contracts pay $1 if the candidate ends up winning, and zero if they lose. So prices fluctuate between 0 and 100 cents, reflecting the candidates' perceived percentage chance of winning. (Brett Arends,, 6-28-07)

Atlantic City May gaming revenue fell 5.5% to $408.8 million. (Alan R. Woinski, Gaming Industry Weekly Report, 6-18-07)

Colorado May gaming revenue rose 6.8% to $70.1 million. (Alan R. Woinski, Gaming Industry Weekly Report, 6-25-07)

Detroit gaming win fell 1.6% in May with MGM being the only property to post a gain, up 5.6%. (Alan R. Woinski, Gaming Industry Weekly Report, 6-18-07)

Connecticut May gaming revenue fell 5.5% with Foxwoods down 7.2% to $67.3 million and Mohegan Sun down 3.9% to $75 million. (Alan R. Woinski, Gaming Industry Weekly Report, 6-25-07)

Illinois May gaming revenue rose 2.8% to $166.1 million. (Alan R. Woinski, Gaming Industry Weekly Report, 6-18-07)

Indiana May gaming revenue rose 5.8% to $220.7 million but on a same store basis was up only 1.8%. (Alan R. Woinski, Gaming Industry Weekly Report, 6-18-07)

Iowa May gaming revenue rose 9.4% to $113.2 million but on a same store basis was down 0.2%. (Alan R. Woinski, Gaming Industry Weekly Report, 6-18-07)

Louisiana May gaming revenue rose 0.1% to $220.5 million. (Alan R. Woinski, Gaming Industry Weekly Report, 7-2-07)

Mississippi May gaming revenue rose 20.1% to $237.7 million. (Alan R. Woinski, Gaming Industry Weekly Report, 6-18-07)

Missouri May gaming revenue was up 4.7% to $135.4 million. (Alan R. Woinski, Gaming Industry Weekly Report, 6-18-07)

Nevada April gaming revenue rose 6.4% to $1.053 billion. (Alan R. Woinski, Gaming Industry Weekly Report, 6-18-07)

Gaming revenue is generally up.Although Atlantic City is showing the effects of slots in Pennsylvania, the industry appears to be on very solid footing. A report by PricewaterhouseCoopers forecasts continued growth in gaming, in the United States and the rest of the world. That report was released on the 21st and as if to prove it correct a report on Indian gaming revenues for 2006 was released on the 28th. Indian gaming growth has slowed, but it is still increasing at a healthy rate, and with major expansion due in California and Florida in the next year, it is likely to continue to grow over the next couple of years.

Global gambling revenue is estimated to hit $144 billion in 2011 after growing at an annually compounded rate of 7.2 percent a year, according to a PricewaterhouseCoopers LLP report being released Thursday. Gambling revenue is expected to rise from $101.6 billion in 2006…Revenue in the United States is expected to grow 6.7 percent a year to $79.6 billion from $57.5 billion, while in the Asia Pacific region it is forecast to grow 15.7 percent annually to $30.3 billion from $14.6 billion…the region encompassing Europe, the Middle East and Africa is expected to rise 1.9 percent a year to $27.8 billion from $25.2 billion. Gambling revenue in Canada is seen rising to $5.9 billion from $4 billion, while in Latin America, revenues are expected to climb to $495 million from $278 million…In the United States, Nevada revenues are projected to grow 7.5 percent a year to $18.2 billion, but Atlantic City, N.J., revenues are forecast to slip 0.1 percent a year to $5.2 billion…U.S. tribal casinos were seen generating $36.5 billion in 2011, up 7.6 percent per year from $25.3 billion in 2006. (Associated Press, Philadelphia Inquirer, 6-21-07)

Indian gaming revenue grew 11 percent in 2006 to about $25.5 billion, slower than the average annual pace of 15 percent in the past decade, as fewer facilities opened…Gambling enterprises on tribal lands employed about 327,000 people, led to about $80.7 billion in output to the U.S. economy and generated $11.7 billion in taxes, according to the Indian Gaming Industry Report by Alan Meister, an economist with the Analysis Group consulting firm in Los Angeles. (Adrian Sainz, Associated Press, Houston Chronicle, 6-28-07)

And just in case you thought the private-equity takeover thing had run its course, two more major deals made the news. One, Kerkorian's bid for part of MGM, ground to a halt almost as quickly as it surfaced; the other, an offer for Penn National, seems to have more legs. Both illustrate the growing sense that gaming is as much real estate – except of course in Second Life – as it is an operating business. The news on this front isn't all positive: there are some rumors starting to surface that some of the previously announced deals may be in trouble as the private-equity people scramble to find the funding. And Columbia Sussex, one of the early non-casino companies to buy into gaming, is catching a lot of flack for doing what everyone said was necessary, cutting expenses and improving staffing. Unfortunately for Columbia Sussex, that has brought out lots of opponents accusing the company of cruel and inhuman treatment of employees – firing them; in Indiana and New Jersey even regulators are getting into the fray. It is interesting because many of the critics cite the company's lack of gaming experience in their criticism – even though they purchased the gaming properties from a gaming company that by all accounts was underperforming and not successful. In one report a former employee said they bought the Tiffany of the Strip, the Tropicana, and made it the joke of the Strip. I am not sure when the last time that employee updated his information on the Strip, but the Trop has not been much more than an old tired joke waiting to be torn down to make room for something to match the rest of the Strip for a long, long time.

"Fortress and Centerbridge are both leading private-equity firms with proven track records and strong reputations," Penn National CEO Peter Carlino said in a statement. "This is a very attractive valuation for our shareholders, at a time when the financial markets are recognizing the strong investment rationale for gaming companies."
National (acquisition) - - Casino operator Penn National Gaming agreed to be acquired by Fortress Investment Group and Centerbridge Partners for $67 a share, representing a 31% premium to the stock's close Thursday. The deal value totals $8.9 billion, including about $2.8 billion of outstanding debt. Penn National owns casinos and racetracks across the U.S., including Charles Town Races & Slots in West Virginia and the Argosy group of casinos in Iowa, Indiana and Missouri. (Nicholas Yulico,, 6-15-07)

Private equity continues to place big bets on casino operators. The latest buyout target is Penn National Gaming, which agreed Friday to be acquired by Centerbridge Partners LP and Fortress Investment Group LLC in an $8.9 billion deal. The $67 per share bid includes $2.8 billion in debt. "It shows that private capital continues to place a higher valuation on gaming cash flows than public investors," J.P. Morgan (JPM) analyst Harry Curtis said in research note…The world's largest casino company, Harrah's Entertainment (HET), is being acquired by private equity firms for $17 billion. Management is leading a buyout of Station Casinos (STN). MGM Mirage (MGM) is considering an offer from Kirk Kerkorian's Tracinda Corp. to buy two of its Las Vegas properties. The offer for Penn represents a 31% premium on Thursday's closing price. (Ben Steverman, Business Week, 6-15-07)

When Columbia Sussex muscled aside other casino giants for control of Aztar Corp. and its Tropicana casinos, competitors were skeptical that a Cincinnati-area operator of midpriced hotels had the experience or flair to pull off a major renovation of the Tropicana - its biggest and most ambitious casino acquisition to date. Months later, it's not just the company's plan to create Las Vegas' largest hotel and casino complex that has critics buzzing. Since acquiring Aztar in January, Columbia Sussex has laid off hundreds of workers - at least 300 people in Las Vegas alone - as part of a strategy to slash operating costs. Besides angering workers, the layoffs are riling unions and lawmakers and attracting scrutiny from regulators…In this highly regulated world, layoffs that might otherwise be routine can become politically significant - especially in smaller communities more dependent on a single property…Casino consultant Jeffrey Compton is among the skeptics…When companies were bidding for control of Aztar, competitors were anticipating layoffs as a way to help pay for the purchase of a company with some of the most inflated employee rolls in the industry, Englehart said. (Liz Benston, Las Vegas Sun, 6-29-07)

It is not likely that the private-equity move into gaming has completely run its course, but we have had at least a glimpse into a future where it is not the "be all and end all" of gaming financing, mergers and acquisitions that it has been lately.

Ken Adams

Ken Adams is the principal in the gaming consulting firm, Ken Adams and Associates. Formed in 1990, Ken Adams and Associates specializes in information, analysis, and strategic planning for Indian tribes, casino operations and gaming manufacturers.

Ken spent over 20 years in the hotel-casino industry, prior to founding Ken Adams and Associates. He held the positions of: Director of Casino Operations, Casino Manager, and Keno Department Manager. During this time, he developed numerous innovative marketing and customer development programs and systems for evaluating casino performance. Some of those programs, such as slot clubs and tournaments, have become industry standards.

Ken is also actively involved in gathering and disseminating information that is important to the gaming industry. He is editor and publisher of and the Adams' Report, a monthly newsletter specializing in identifying trends in casino gaming, regulation and manufacturing, the Adams Daily Report, an electronic newsletter that provides electronic links to the key gaming stories of the day, and the Adams Review, a special report distributed by Compton Dancer Consulting that provides editorial commentary on gaming trends.
Ken Adams
Ken Adams is the principal in the gaming consulting firm, Ken Adams and Associates. Formed in 1990, Ken Adams and Associates specializes in information, analysis, and strategic planning for Indian tribes, casino operations and gaming manufacturers.

Ken spent over 20 years in the hotel-casino industry, prior to founding Ken Adams and Associates. He held the positions of: Director of Casino Operations, Casino Manager, and Keno Department Manager. During this time, he developed numerous innovative marketing and customer development programs and systems for evaluating casino performance. Some of those programs, such as slot clubs and tournaments, have become industry standards.

Ken is also actively involved in gathering and disseminating information that is important to the gaming industry. He is editor and publisher of and the Adams' Report, a monthly newsletter specializing in identifying trends in casino gaming, regulation and manufacturing, the Adams Daily Report, an electronic newsletter that provides electronic links to the key gaming stories of the day, and the Adams Review, a special report distributed by Compton Dancer Consulting that provides editorial commentary on gaming trends.