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Quick-takes: The month's trends in a glance - June 2008

1 July 2008

By now, everyone in the country "gets it" at a personal level. The economy is not improving, and the price of gasoline is pushing its impact deeper and deeper into the rest of the economy and all of our daily lives. Most travel destinations are experiencing a downturn; airlines are desperately trying to find ways to restructure and avoid devastating losses; gaming stocks, except slot manufacturers, are down, and every state that relies on gaming taxes is looking for some way to make up for the reduced revenues.

It seemed like a can't-miss tourist attraction that would pull in visitors to the nation's capital: a new Madame Tussauds wax museum. But since opening last fall, the attraction featuring likenesses of Barack Obama and Hillary Clinton — among many others — hasn't been a big enough draw. Crowds dwindled after the opening, and Madame Tussauds is cutting prices. Adult tickets, previously selling for $21.15, have been lowered by more than $3, and local residents will be offered even better deals. In a soft economy, Madame Tussauds and other businesses in the tourism industry are starting to feel the pinch. Big cities such as New York and Washington may attract more foreign visitors, thanks to the weak dollar, but ticket sales can be erratic, and Americans are thinking about fewer, shorter, less-expensive trips. "We're really in kind of tenuous territory," said Suzanne Cook, research vice president at the Travel Industry Association. A new Rand McNally survey says two-thirds of Americans planning road trips this summer are either altering their plans to shorten their trips or canceling altogether. AAA predicted the number of Americans planning to drive more than 50 miles over Memorial Day weekend is down by 1 percent. Air travel will decline slightly as well, AAA said. (Associated Press, 5-19-08)

"There is no question the economy is having an impact on our industry. Airlines are cutting service and gasoline prices are impacting markets dependent on drive-in traffic." In the 10 years that the American Gaming Association has been tracking the facts and figures produced by the nation's commercial casino industry, gaming revenues have climbed more than 73 percent…however, …2008 might be the industry's most challenging year. With the nation's economy in a tailspin and spending and confidence levels of consumers reaching all-time lows, the nation's casino companies are feeling squeezed…U.S. commercial casino revenues were up 5.3 percent to $34.1 billion in 2007…Americans spent $29 billion on candy and $9.6 billion on movie tickets in 2007…Fahrenkopf tried to put a positive spin on things; he said in six of the 12 commercial casino states, gaming revenues are up in the first three months of the year. He said casino companies nationwide are investing more than $53 billion in expansions and capital improvements over the next few years in an effort to jump-start revenues in the slowing economy. According to the report, roughly $39 billion of the expansion efforts are in Las Vegas. (Howard Stutz, Las Vegas Review-Journal, 5-15-08)

Publicly owned gambling companies lost 2.5 percent of their value in April, in large part due to economic tumult that has home prices in the basement and oil costs in the stratosphere. Investors watched eight out of 10 gambling stocks lose ground on the Applied Analysis Gaming Index, which was down for the fifth time in the last six months. The index reflects broad, negative sentiment for the short-term prospects of Las Vegas, where visitation, hotel room rates and the amount of money gamblers lose to casinos have declined in recent months. Companies such as MGM Mirage and Station Casinos, the latter of which isn't on the index, have already cut their work forces in response to the slowdown. Brian Gordon, the Applied Analysis principal who compiles the index, said if Las Vegas doesn't pull out of its slump, there could be more job cuts by casino companies…The biggest declines on the index belonged to slot maker International Game Technology, down more than 16 percent, and MGM Mirage, which owns 10 Strip casinos, down 12 percent…Boyd Gaming Corp., which owns the Sam's Town, California Hotel, Main Street Station, Fremont, Gold Coast, The Orleans and Suncoast in Las Vegas, posted $32.6 million in losses for the first quarter. That helped it slide 4.11 percent from last month on the index. Boyd is down 61 percent from last year at this time. (Benjamin Spillman, Las Vegas Review-Journal, 5-2-08)

But even with all of the short-term bad news, long-term gaming, especially in Las Vegas, is generally believed to have a bright future. Investment on a grand scale is ongoing in Las Vegas; operators such as MGM-Mirage, Wynn, Sands Las Vegas, and others with cash are hoping to move ahead of the competition during the downturn. Clearly those with money or access to money are going to be able to gain significantly on competitors that lack that advantage.

It is amazing how easy it is for those of us who live in Las Vegas to fail to appreciate the tremendous changes under way on the Strip. By far the biggest change is taking place on the turf just south of the Bellagio and north of the Monte Carlo, at the development MGM Mirage calls CityCenter. We've heard for a few years now that the project is the most expensive private development in the country, and the original $7 billion cost has crept north of $8 billion…But now that we're about one-and-a-half years away from CityCenter's opening I think the scale of the project is really starting to sink in…From a distance the Strip looks like a tightly packed collection of towers, but when you are among them or walking from one to the next you realize that the Strip corridor doesn't come close to matching the density of our biggest cities. Until CityCenter, that is. Driving west on Harmon Avenue from Koval Lane, with Planet Hollywood on the right, I was stunned by the size and density of CityCenter. And amazed by how cool the architecture looks. The next time you have a spare moment, go down to the Strip and take a look at the future of our city. (Jeff Simpson, Las Vegas Sun, 5-12-08)

Even as gamblers, shoppers and diners are clutching to their dollars and Las Vegas reels from the worst economic slowdown since Sept. 11, MGM Mirage is spending billions of dollars on itself. The spree includes more than $1 billion to buy back company stock, plus another billion on new projects and upgrades. This comes as MGM Mirage is building its $8 billion-plus CityCenter…Its financial position is strong, with at least $7 billion sitting in the bank — bonds the company raised years ago, before the economy went south, at mostly fixed rates…MGM Mirage…expects to raise the remaining $3.5 billion it needs to finance the mega-project from major banks that are supposedly eager to work with the company, even as smaller, more leveraged companies can't get appropriately priced loans at all. In part because of its relationship with Dubai World, MGM Mirage can assemble financing more easily than other companies. In the meantime, MGM Mirage has accelerated plans to upgrade rooms at several of its hotels — a seemingly counterintuitive strategy during a business slowdown. The company sees it as akin to a pit stop during a yellow flag in a car race: When the economy returns to full speed, it will be better positioned to make money. (Liz Benston, Las Vegas Sun, 5-12-08)

Steve Wynn, the casino developer credited with changing the way people experience gambling resorts, says he is ready to do the same for another pillar of the Las Vegas economy — trade shows and conventions. Wynn, chairman and chief executive officer of Wynn Resorts Ltd., told investors that he will build a lush and glamorous convention hotel on what is now a golf course behind Wynn Las Vegas. Wynn didn't say how much he plans to spend on the project, but said he intends to build two hotel towers with a combined 5,200 rooms and a convention center with as much as 1.8 million square feet of exhibit space. The convention center would be among the country's largest. Wynn promised elaborate features such as underground trams to take guests to the Las Vegas Convention Center and a lake with fountains similar to those at Bellagio, the $1.6 billion resort Wynn opened in 1998 when he led Mirage Resorts. "The layout of our property lends itself to such a beautiful arrangement," Wynn said Thursday during a conference call to report first-quarter earnings at his Las Vegas and Macau resorts. If he builds the convention center it would be adjacent to both the Las Vegas Convention Center and Sands Expo and Convention Center, creating a cluster of centers with more than 5 million square feet of combined exhibit space. It would put more exhibition space within three blocks just east of the Strip than there is in Chicago, the nation's second-largest convention market in terms of leased space after Las Vegas, according to a national directory of convention halls. "It would attract even more to the city of Las Vegas," said Todd Neely, vice president of Western region sales for Champion Exposition Servces, a trade-show contractor. "I definitely think there is a market." (Benjamin Spillman, Las Vegas Review-Journal, 5-3-08)

The likes of MGM's CityCenter project are enough to move MGM not only ahead of its undercapitalized competitors, but also move Vegas even further ahead of all of the places in the world with gaming – although Macau may in time get closer, as Dubai certainly will (even without gaming it will be a competitor because of its pull on international tourism), and possibly Singapore. An interesting study by the Brookings Institution sees Las Vegas as a model for the world of gaming and entertainment in general – world hubs of entertainment. The level of total investment in Las Vegas and the huge variety of entertainment options make it almost unbeatable. However, Dubai, Macau, and Singapore are going to give it a go. Dubai, of course, has the inside track because of its access to cash and financing from the government investment arm. In total investment Dubai will dwarf Las Vegas in the not too distant future, but that only further demonstrates the truth of the study's conclusions.

Las Vegas' success in becoming a nexus of entertainment and gambling is a model that American cities would do well to emulate in other businesses, a new Brookings Institution report concludes. The local "cluster" of entertainment and gambling, writers of the Brookings study say, typifies the regional connections among similar businesses essential for the United States to remain competitive internationally. That conclusion is not a new one for A. Somer Hollingsworth, president and chief executive of the Nevada Development Authority. Las Vegas is so attuned to the idea of clusters, Hollingsworth said, that his decade-long mission to diversify the local economy is taking root, with the region forming clusters in at least two other industries, biotechnical research and alternative energy. "I don't know that we'll ever have a cluster as solid and big as gaming," Hollingsworth said. "If they stop growing, it'd be hard to catch up. But I think we're seeing finally more of our local clusters developing. And over the next five to 10 years, these things will really start to happen." If the Brookings Institution, a Washington, D.C.-based think tank, gets its way, "clusters" will become a word as common as "taxes" to those in state capitols and federal governmental arenas. (Joe Schoenmann/ Jack Sheehan, Las Vegas Sun, 5-2-08)

Detroit is not Las Vegas, not even close, and the distance is increasing with the struggling economy. The three casinos in Detroit were doing very well – until the going got tough. Greektown, traditionally the poorest performer in the market, filed for bankruptcy this month, a fact that has made the members of the Sault Ste. Marie Tribe of Chippewa unhappy and the city council of Detroit very nervous. Detroit is actually suffering a double hit: the automobile industry is one of the hardest hit industries in the country, and it is a major driver of the Detroit economy. The rising price of gasoline is very much impacting Detroit car makers; the years of building and selling SUVs, trucks, and luxury cars may just be at an end. However, one of the Illitches, a family that owns Motor City Casino, has had an epiphany: Detroit needs more business, so instead of going to Vegas for a party or a meeting, he and his employees and friends are going to stay home.

Greektown Casino L.L.C. filed for Chapter 11 bankruptcy protection … in U.S. Bankruptcy Court in Detroit the Sault Ste. Marie Tribe of Chippewa Indians announced …"the casino will continue to operate normally for all guests, player's club members, employees, vendors, suppliers and contractors, as we work through the reorganization process." (Robert Ankeny, Crain's Detroit Business Journal, 5-30-08)

A Detroit City councilwoman said she was stunned by Greektown Casino's bankruptcy protection filing…"This is very sobering. I am very concerned," said Sheila Cockrel, who added the fiscal woes of Greektown now make "dead" any plan by Mayor Kwame Kilpatrick to earmark casino revenues for any capital improvement projects. "The wagering taxes make up a major part of the city's general fund revenue. "If we lose that revenue, it will have a very profound impact on Detroit." (David Josar, Detroit News, 5-30-08)

Sometimes an idea comes along that is so brilliant in its simplicity that people ask, "How come nobody thought of that before?" So it is with the brainchild of Christopher Ilitch, president and CEO of Ilitch Holdings Inc., who has put 2 plus 2 together for one of those "eureka!" moments that is virtually certain to quickly bring millions of dollars of economic benefit to the Detroit region. Southeast Michigan, Ilitch realized, is in the midst of adding 2,000 new high-quality hotel rooms. Southeast Michigan, he also realized, is home to lots of businesses large and small, that stage lots and lots of meetings and conferences in places like Las Vegas, Orlando, New York, even overseas. Thus was born "Let's Meet in the D!" a new initiative being rolled out today by Ilitch and the Metropolitan Detroit Convention & Visitors Bureau, which he is chairing this year and next. To kick off the program, Ilitch himself has made the first pledge, to move the annual worldwide conference of Little Caesars pizza franchisees from Las Vegas – where it has been held in recent years – to Detroit in 2009. That meeting alone will bring more than 1,500 attendees and 50 exhibitors to Detroit for about four days each, enough to fill several large hotels. The result: $1.43 million of direct spending in our town that would otherwise go to Vegas. (Tom Walsh, Detroit Free Press, 5-20-08)

Pennsylvania has not reported any downturns or slowing of slot revenues yet, but then there is no year over year comparison as everything (i.e., the casinos — properly called racinos — that have opened) is still brand spanking new. . The others — the ones as yet unopened, unbuilt, and uncelebrated — are still fighting to get approval and get on with the business of building, opening, and counting the revenues. When the first couple of race tracks got approval and opened within months, it seemed Pennsylvania was off and running. But then things slowed down as the politicians stepped in and, in Pittsburgh and Philadelphia, did everything possible to slow things down. Of course that put at least one of the would-be casino operators, Don Barden, right in the path of the economy. Philadelphia and Pittsburgh are not the only places still fighting over where, when, and if a casino should be built. Valley Forge – yep, the home of the famous winter encampment – is still in the midst of talking about it.

Don Barden's quest to secure permanent financing for his North Shore casino by Monday took another turn yesterday, as he asked the Pennsylvania Gaming Control Board for more time to complete the deal. Board members unanimously agreed to postpone a public hearing into the financing while Mr. Barden seeks to negotiate final terms and conditions with lenders. In a motion filed with the board his lawyers said the terms and conditions had not yet been finalized. "It's a complex matter. There are a lot of variables and this is taking time," said Bob Oltmanns, a spokesman for Mr. Barden. (Mark Belko, Pittsburgh Post-Gazette 5-15-08)

Opponents say more people would have argued against the slot plan if they were aware of the proposed deal. They claim it has flown largely under the radar. The aging Valley Forge Convention Center is in line for a 100-million dollar makeover. And today, investors pitched a plan to add a slots parlor to the project. Business leaders love it and locals seem to like the idea, too. You come to King of Prussia to shop, or to Valley Forge to enjoy the historical park. But something is missing and the people who run the Valley Forge Convention Center hope 24-hour-a-day, seven-day-a-week slot machine gambling is what you're looking for. "For us to stay competitive, this would be a tremendous amenity for our property," said Ira Lubert of the Valley Forge Convention Center, one of three groups vying for two resort casino licenses. Valley Forge wants to fill a corner of their exhibit hall with a circular bar surrounded by 500 slot machines. It's smaller than other casinos but it is still projected to add $1.5 million to the tax coffers of Upper Merion Township. (John Rawlins, ABC News, 5-21-08)

There is also the issue of proper regulation. The gaming commission, in its initial haste, granted licensure to someone later indicted by a grand jury for allegedly having ties to an organized crime figure. That has put pressure on the regulators to tighten up the process and put the fear of God into would be licensees.

Stephen Hilbert, the flamboyant former chief executive of Conseco Inc. and would-be part-owner of a racetrack casino in Lawrence County, is asking Pennsylvania's casino regulatory panel if he can withdraw his application for a casino license, a move that would minimize the need for state investigators to dig into his personal and financial history. Mr. Hilbert and his Indiana-based MH Equity investment group still would be able to extend a line of credit to Centaur Inc., the racing company that is building Valley View Downs in Lawrence County. But Mr. Hilbert is backing out of an option that would give him "the contractual right to acquire an equity interest in Centaur."…Last year, Centaur closed on a $1 billion financing package that will pay for the $428 million racetrack casino west of New Castle, as well as projects in Colorado and Indiana state. M.H. Equity supplied $200 million of that $1 billion package. Mr. Hilbert formed M.H. Equity five years ago with billionaire friend John Menard, who founded the self-named Midwestern home-improvement store chain…Even a superficial probe into Mr. Hilbert's life and finances would have turned up his ill-fated stint as the head of insurance and investment giant Conseco Inc., which filed for bankruptcy after jettisoning its founder in 2000. (Bill Toland, Pittsburgh Post-Gazette, 5-13-08)

And while legislators and regulators trade barbs, cities and would-be operators arm- wrestle over locations, and would-be investors wonder about the process, there are those already trying to expand gaming to include table games. They are already worried that the tracks in West Virginia and the casinos in Atlantic City will have a competitive advantage if Pennsylvania can't have table games.

An executive of the Mohegan Sun casino near Wilkes-Barre urged the state Legislature today to allow Pennsylvania casinos to add table games such as blackjack, poker, dice and roulette. But with Gov. Ed Rendell, a Democrat, and many legislative Republicans opposed to an expansion of gambling at this time, it doesn't appear table games will be coming anytime soon…He said casinos would add hundreds of jobs, and produce millions more in tax benefits for the state, if they had table games…The panel is chaired by Rep. Harold James, D-Philadelphia, an ally of House Democratic leader Bill DeWeese of Waynesburg. Mr. DeWeese has sponsored House Bill 2121, which would allow Pennsylvania casinos to add table games, as the two casinos in northern West Virginia, near Mr. DeWeese's district, have already done. (Tom Barnes, Pittsburgh Post-Gazette, 5-15-08)

All of the stories about downturns, recessions, and a troubled economy are just abstractions without the monthly results, which are not as bad as the rhetoric would have one believe. But they are also not the glowing reports of the go-go days of the mid-1990s, nor are they likely to be again any time soon. The worst results are from the states that banned smoking this year, giving the casinos a second reason for revenue declines.

Atlantic City April gaming revenue fell 7.9% to $365.5 million. (Reuters, 5-12-08)

In Detroit, MGM had $46.9 million in revenue in April, up 14.2 percent from 2007. MotorCity had $40.7 million up 3.5 percent. Greektown had $28.6 million, down 5 percent. (Crain's Detroit Business, 5-14-8)

In Connecticut, Foxwoods revenue dropped to $58 million from $65.2 million in April. Mohegan Sun declined to $70.2 million from $73.9 million a year ago. (New London Day, 5-15-08)

Colorado April revenues dropped 12.5 percent to $58.7 million. (Associated Press, 5-17-08)

Florida racinos generated April slot revenue of $21.4 million, down from $25.8 million in March. (Gaming Industry Weekly Report, 5-26-08)

Illinois April gaming revenue plunged 19.3% to $135.1 million. (Gaming Industry Weekly Report, 5-12-08)

Indiana April gaming revenue fell 3.5% to $216.1 million. (Gaming Industry Weekly Report, 5-12-08)

Iowa April gaming revenue rose 8.8% to $120.5 million while same store revenue was up 3%. (Gaming Industry Weekly Report, 5-12-08)

Louisiana's 13 riverboat casinos, Harrah's New Orleans land casino and the four slot machine casinos at horse racing tracks took in $213.1 million in April up from $205 million. (Associated Press, 5-20-08)

Mississippi casinos took in $210 million in April down $31 million, 12.8 percent from 2007. (Associated Press, 5-20-08)

Missouri gaming revenue was up 3.2% in April but on a same store basis was down 6.6%. (Gaming Industry Weekly Report, 5-19-08)

Nevada March gaming revenue fell 1.5% to $1.039 billion. Reuters, 5-10-08

New York VLT revenue jumped 21.2% in March with Yonkers driving much of the upside. Despite a large increase in the number of VLTs statewide, win per day rose to $205 from $190. (Gaming Industry Weekly Report, 4-13-08)

Macau April gaming revenue rose 46.4% to over $1.1 billion. (Gaming Industry Weekly Report, 5-12-08

Pennsylvania March slot revenue rose 74% to $142 million. Gaming Industry Weekly Report, 4-13-08)

West Virginia Lottery's April slot revenue fell 12.6%. (Gaming Industry Weekly Report, 5-12-08)

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.