Quick-takes: The month's trends in a glance - March 2003

Las Vegas-based R&R Partners, which in January launched the first phase of its $17.2 million, 20-month ad campaign on behalf of the convention authority, said Wednesday it will not purchase any television ad slots on behalf of Las Vegas until at least Wednesday.  . Chris Jones, Gaming Wire, Las Vegas Review-Journal, 3-20-03

The happy-go-lucky advertisements of Connecticut's two casinos were pulled from television airwaves because of war with Iraq, casino officials said.  The "Come Play" and "Have Yourselves a Ball" slogans were removed last week after the U.S. military campaign began in Iraq.  Associated Press, Aberdeen News, 3-24-03

In a move to tone down its marketing campaign, last week and this week the casino [Harrah's Cherokee] pulled in North Carolina, South Carolina, Tennessee and Georgia radio spots that featured its "Oh Yeah!" campaign.  "It's not a good time, nor for that matter an appropriate time, to run a message of excitement with such an exuberant feeling to it"…  Jon Ostendorff, Asheville Citizen Times, 3-25-03

The American Association of Advertising Agencies, a trade organization, told its membership last week to prepare for changes in reaction to the war.  "People are certainly careful of two things," organization spokesman John Wolfe said. "They don't want to put anything on the air that would appear inappropriate, that would seem to be too light-hearted or over the top with humor."  Jon Ostendorff, Asheville Citizen Times, 3-25-03

The travel industry may well be one of the first casualties of war.  The prewar anxiety over terrorism and the threat to fuel supplies continues as the war progresses.  Both the fear and the actual costs of travel are keeping more people close to home, and in some cases going to the movies instead.

The travel industry's grim outlook worsened Monday, as airline and hotel stocks gave back some of last week's heady gains, on fears that a war could be more drawn out than investors originally anticipated.  Delta Air Lines, the nation's third largest carrier, said it would shrink its network by about 12 percent, reducing service domestically and internationally as a result of fewer travelers since the war began in Iraq.  Brad Foss, Associated Press, Yahoo Finance, 3-24-03

Average gasoline prices hit records in six western states and are within a penny of records in five other states across the country as overnight price increases continue to drain motorists' wallets and threaten a nascent economic recovery.  James R. Healey, USA Today, 3-5-03

More Americans than ever escaped fears of terrorism and talk of war by going to the movies last year, seeing an average of 5.7 films each and paying an average of $5.80 per ticket.  …president of the National Association of Theatre Owners, said the 1.6 billion tickets sold nationwide made 2002 the best movie-going year since 1957.  Ken Ritter, Associated Press, LV Sun, 3-5-03

In the meantime some casinos are taking steps to protect their customers.  For the first time ever, going to a casino can be compared to going to the airport: be prepared for delays and searches.  The largest impact could be on riverboats; riverboats are also regulated by the Coast Guard in addition to normal gaming regulation.  In the most dramatic example of wartime security, though not the most important example, even the annual Oscar's award ceremony succumbed to the anxiety of war and terrorism and peaked into and under cars, bags and character facades looking for guns and bombs.

The state's two Indian-run casinos are taking precautions against potential terrorist attacks as war with Iraq looms.  Foxwoods Resort Casino near Ledyard and Mohegan Sun in Uncasville, two of the world's largest and most successful casinos, are checking cars and trucks and inspecting baggage of hotel guests. The casinos also have implemented a host of other security measures.  Associated Press, Boston Globe, 3-19-03

Uniformed State Police officers, baggage restrictions and car searches on Thursday became as much a part of casino business as slot machines and blackjack tables.  Casino employees went on a heightened state of alert as the start of war in Iraq raised fears of retaliatory terrorism in this country.  "We're checking cars that come into valet and have a security person at the turnstile in our parking garage checking cars," said Tom Davis, Sands Casino Hotel president.  Joe Weinert, Press of Atlantic City, 3-21-03

Riverboat casino gamblers might find themselves standing in long, slow entrance lines someday soon, waiting to prove their identity and maybe get frisked, too.  Those gamblers might also be forced to exit en masse if riverboat casinos are forced to close during high-level terror alerts.  Those draconian measures, including random searches of customers, are among 38 pages of tentative rules the U.S. Coast Guard is considering to implement the Maritime Transportation Security Act of 2002.  Rick Alm, Kansas City Star, 3-25-03

The red carpets were tossed and the press was not invited.  There's righteous amusement in juxtaposing the frivolity of Hollywood with the horrors of war, but the truth is that everyone involved in planning Oscar fetes knew that whatever they did would be immaterial to history.  … A platoon of security guards used mirrors to check the undercarriages of arriving cars, and a team of amiable-looking German shepherds had fun -- their tails were wagging -- sniffing bumpers and fenders.  Leah Garchik, San Francisco Chronicle, 3-24-03

The gaming expansion that threatened, or was it promised by the result of the last election, has not quite materialized as of yet.  A quick summary from USA Today indicates nineteen states are considering expanded gaming.

Nineteen states are considering proposals to add video slot machines at racetracks. Twelve are studying whether to introduce or expand casino gambling, and four are debating lotteries.  …Some states are seeking profit-sharing arrangements with Native American-owned casinos.  Larry Copeland USA Today, Yahoo Business, 3-5-03

A sampling of the proposals gives some detail, but does not indicate the amount of political debate that must take place before any actual expansion.  There are no shovels in the ground as of yet, just lots of plans and promoters and lots of opposition to every plan.

Massachusetts State Sen. Joan M. Menard filed a bill without fanfare yesterday that would authorize casinos in three locations in the state  …The Aquinnah/Gay Head Wampanoag tribe…would be granted the casino location in New Bedford.  If the tribe declined, it would be opened to commercial gambling companies.  David Kibbe, Ottaway News Service, 3-7-03

…Delaware racing officials are angling for the state to legalize gambling on amateur, college and professional sports.  Racetracks in Maryland and Pennsylvania are pushing for the introduction of slots, while three tracks in nearby Delaware already have them.  …Delaware is one of four states grandfathered out of a 1992 federal prohibition against sports betting, along with Nevada, Oregon and Montana.  Thoroughbred Times, 3-20-03

Adding keno to Connecticut's state-sponsored gambling mix could eventually bring in as much as $80 million a year in new revenue to the treasury, but opponents say it could turn bars into mini-casinos.  " …A bill that would permit keno at bars and restaurants and "high-stakes" gambling at the state's two dog racetracks is expected to be approved by a key legislative committee today.  Rick Green, Hartford Courant, 3-18-03

The rush to gambling is easy enough to understand when one looks at the economic impact.

Gambling at casinos and ''racinos,'' racetracks with casinos, generated revenue of $27.2 billion in 2001. Indian casinos generated another $12.2 billion and state lotteries $17.6 billion.  Larry Copeland USA Today, Yahoo Business, 3-5-03

Iowa's casino industry generated an overall economic impact of $795 million last year, according to a report presented Thursday to the state Racing and Gaming Commission.  The document showed that Iowa's 10 gambling boats and three racetrack casinos paid salaries, wages and benefits that totaled $230 million. Purchases of food, gambling equipment and other supplies represented an additional $251 million in spending, of which 77 percent was paid to Iowa vendors.  The casinos paid $217 million in state casino taxes and admission fees, $17 million in federal and state payroll taxes, and $15 million in taxes to cities, counties and other jurisdictions. An additional $65 million was contributed to local governments and charities.  William Petroski, Des Moines Register, 3-7-03

Gaming is not the perfect or a permanent answer to budget problems, however.  Word continues to come from some jurisdictions that the continued expansion threatens the older jurisdictions.  Nevada was seen as economically bulletproof, but is showing signs of being without its bulletproof vest.  In a very unique approach, one Nevada legislator is proposing allowing casinos that are unsuccessful in location be permitted to move to another location for another try.

The performance of the Nevada gaming industry in recent years has been grim by almost any measure, and few signs exist of a turnaround any time soon, a new University of Nevada, Reno study has found.  …profits down dramatically and returns on investments tumbling, the report concludes that Nevada no longer can rely on its gaming industry to be the major contributor of tax dollars.  …Since 1996, the ratio of net income to total revenue has fallen nearly 9 percentage points, from 10.6 percent to 1.8 percent in 2002.  Rod Smith, Gaming Wire, Las Vegas Review-Journal, 3-11-03

American Indian tribes will more than double the number of slot machines they operate in Northern California in the next few months, "devastating" Reno's gaming industry, a new Deutsche Bank report says.   Rod Smith, Gaming Wire, Las Vegas Review-Journal, 3-20-03

Sen. Mike Schneider, D-Las Vegas, has…introduced Senate Bill 271, which would allow casino operators in Clark County to relocate outside of established gaming districts to locations where business would improve.  Las Vegas Review-Journal, 3-14-03

Ohio was never very high on my list of gaming states, although Mead Dixon did tell me, in the interviews for "Playing the Cards That Are Dealt," that the first slot machines he saw were in Ohio as a child in the 1930s.  The last few months a number of cases have made the news in Ohio.  It seems there is some legal charitable gaming that lends itself to criminal activity.  Every new case reveals more details in what appears to be a "large" underground industry.  Illegal gaming funds have always been the focus of investigators, but this is the first time I have heard of money being funneled to Middle Eastern terrorists.  So, if Ohio isn't on your list, maybe it should be.

Authorities say Mark Schafer, 36, earned the light sentence with cooperation that helped reveal a network of taverns, bingo merchants and charity operators who illegally profited from instant-bingo gambling.  … More than 50 people and organizations have pleaded guilty to various charges. They were part of a network that illegally diverted more than $1 million from charity into private pockets.  Tom Breckenridge, The Cleveland Plain Dealer, 3-21-03

…it was alleged that some of the money could be tied to terrorism.  Prosecutors said although most of the money from tickets sold in the name of the United Saghbeen Society and other charities was stolen before it got to the charity, some money that reached the United Saghbeen Society was diverted to Middle East terrorists.  …That letter alleged that money from the United Saghbeen Society was diverted to militant Middle Eastern terrorist groups such as Hezbollah and Hamas.  Terry Kinney, Associated Press, Las Vegas Sun, 3-10-03

There are those in the federal government and the NCAA who would like to find a way to ban sports betting, especially on college sports.  Passing the laws would be a piece of cake compared to the challenges of enforcing a ban against sports wagering.  It is commonly said that only a small percentage of the sports wagers are made legally in Nevada.  Here is a story of a sports book in a parking lot in Atlantic City and a quote from the Internet.  Both stories imply that an unmet demand for an opportunity to place a bet is the driving force, not the sleazy bookie.  And then, the Breeders' Cup case is winding up, proving that even if the game is legal, there are those that will cheat it.  But, if you blame your buddies, your punishment will be lighter.

Two Atlantic City casino employees were among ten people named in indictments Tuesday claiming they ran an illegal sports betting operation.  Prosecutors allege the group had ties to the Luchese crime family in New York City…The suspected ringleaders operated out of a casino parking lot, said John Hagerty, a spokesman for Acting Attorney General Peter C. Harvey.  Associated Press, Burlington County Times, 3-12-03

Congress took substantial action this month against Internet betting, with a House committee approving a bill to curb online gambling and a nearly identical bill being introduced in the Senate.  Bob Tedeschi. New York Times News Service, Las Vegas Sun, 3-31-03

… "Will the legislation hurt us? Yes," said Dave, the owner of the online betting site triplecrownracebook.com, who would not give his last name. "Will we find a way around it? Yes. People will always find new ways to get money to us."  Bob Tedeschi. New York Times News Service, Las Vegas Sun, 3-31-03

The computer expert who thought up the horse-playing scam that nearly produced a $3 million day at the races was rewarded at his sentencing Thursday for coming clean and fingering his two fraternity brothers as accomplices.  …His co-defendants, Glen DaSilva of New York and Derrick Davis of Baltimore, were sentenced to 24 months and 37 months, respectively. Jim Fitzgerald, Associated Press, Syracuse Post Standard, 3-21-03

Tough times for governing boards and slots.  The promise of dozens of new jurisdictions is very slow in materializing.  The politics of adding slot machines has not turned out to be a simple and slam dunk-ish as originally predicted by the advocates and observers.  IGT is still counting the dollars in advance in California and other states.  Any expansion means big bucks for IGT.  The competitors do not have quite as easy a road.  Three companies are having a most difficult time.  Sigma is struggling with licensing, but far more serious are the problems facing Aristocrat and Mikohn.  Both companies have gained much less market share than each predicted over the last few years.  Profits and shareholder satisfaction reflect those unmet expectations.  Both companies have had major change in management and have been forced to restructure and reduce expenses.  And still the stock market and stockholders clamber for more.

Heads Roll In Aristocrat Shake-Up.  Poker machine maker Aristocrat has sacked three United States executives, including president Mark Newburg, in the wake of last month's huge profit downgrade.  While analysts and major shareholders welcomed the changes, they said more heads at board and executive level had to roll before they would be satisfied. …Des Randall, in the US to lead a review of the group's operations, will manage the North American operations until a new president is found.  Allison Jackson, The Age, 3-3-03

Aristocrat's US Posting Displeases Market.   …Aristocrat was accused of "arrogance" and doling out "jobs for the boys" after the group announced the appointment on Monday.  Mr Isaacs, believed to be close to chief executive Des Randall, has been managing director of Aristocrat's European business for 12 months and will replace Mark Newburg, who was sacked nine days ago.  …Shares in Aristocrat fell 3 cents to $1.65, a fresh four-year low, in response to the announcement.  Allison Jackson, Sidney Morning Herald, 3-12-03

News that it would be dropped from the Standard & Poors/ASX 50 stock index in Australia last week was the most recent setback for Aussie slot giant Aristocrat Leisure Ltd.  S&P announced Friday that Sydney-based Aristocrat would be cut from the Aussie exchange at the end of trading March 31 because of declines in its share price following poor profit reports from its U.S. operations.  Jeff Burbank, Reno Gazette-Journal, 3-17-03

Aristocrat Leisure Ltd…is cutting costs at its Australian operations by forcing workers to take leave, the Australian Financial Review reported, citing unidentified people close to the situation.  Las Vegas Sun, 3-26-03

Mikohn's problems, while not identical to Aristocrat's, have some common elements to Aristocrat's problems.  Results at Aristocrat failed to meet management forecasts, at Mikohn revenues might have come closer to meeting expectations and were up slightly, but Mikohn's losses hardly met investor expectations.  Since last August, the entire management team of Mikohn has changed, and this month saw a mass exodus from the board.  The changes were all immediate and sudden, at least to those who listened to the teleconference and believed the official answers.  And finally, not all separations appear to have been friendly and to "pursue other interests."

…For the year ended December 31, 2002, the Company reported a net loss of $37.9 million, or $2.95 per share, compared with a net loss of $9.7 million, or $0.83 per share, for the year ended December 31, 2001. Included in the 2001 net loss was a charge of $3.1 million for the early retirement of debt and $9.7 million of charges for asset write-offs, discontinued operations, and other valuation and impairment charges.  Included in the 2002 net loss were $28.0 million in charges ($27.8 million related to the Company's restructuring initiatives in August 2002).  Business Wire, Yahoo Finance, 3-13-03

Mikohn Gaming Corporation today announced the retirement of Dennis Garcia and Bruce Peterson from its Board of Directors. Mr. Garcia will continue with the Company in his current role as a member of Mikohn's Sales Management Team.  Both retirements are effective immediately.  Business Wire, Yahoo Finance, 3-14-03

Mikohn…announced the retirement of David J. Thompson from its Board of Directors.  Peter G. Boynton, Chairman of the Audit Committee will assume the role of Chairman of the Board subject to confirmation at the company's Annual Meeting to be held on May 13, 2003.  Business Wire, Yahoo Finance, 3-21-03

Mikohn…sued its former general counsel, Charles McCrea Jr….alleging he defaulted on a $113,740 loan plus interest for 20,000 shares of Mikohn stock.  McCrea, who allegedly participated in a Mikohn board-approved stock purchase plan that allowed its eligible directors and executives to buy up to 20,000 shares of restricted Mikohn stock, was accused of defaulting on payments of a $113,740 promissory note that became due on Oct. 29, 2002.  Las Vegas Sun, 3-27-03

Whatever the root causes of these kinds of problems, one thing is certain: the gaming industry is highly competitive and not every company is going to survive, much less be successful.