TAKE ONE
Gaming is going to the polls again this November with Maryland, Maine, Ohio, Missouri, and Colorado all having a gaming question on the ballot. There is even a move in Florida for a casino in Miami; it is not likely to be an issue this year, but gives us something to look forward to next year. The gaming industry is backing initiatives in Missouri and Colorado to expand gaming by increasing loss limits and expanding operating hours, and in Missouri by eliminating the per-trip loss limits. Ohio, Maine, and Maryland are going down the same road as Pennsylvania and Florida – granting a limited number of casino licenses. In Ohio and Maine, it is only one casino in a specific location – or allowing some race tracks to operate slot machines. It is too early to call any of the votes; Missouri and Colorado are witnessing fairly low profile campaigns in support of the measures and little organized opposition. Ohio, Maine, and Maryland are just the opposite. In those states, almost every day brings a new story about the debates, advertising campaigns, and acrimony between the opposing sides. Key politicians are taking sides, and well-funded supporters and opponents are taking to the airwaves with promises and accusations.
One segment of the industry is sure to benefit from any expansion in gaming: slot manufacturers. However, at the moment they have other things to worry about – each other. The ongoing slot wars have not eased, and the continued economic crisis is only serving to make the competition more intense. IGT reported lower sales and earnings, as did Aristocrat. IGT is offering buyouts, scheduling layoffs, and promising to restructure and reduce operating expenses. It may be too little, too late to please Wall Street. Criticism is mounting against IGT, and it is going past revenue and expenses. Now some analysts are beginning to suggest that IGT has spent too much time and effort on server-based gaming – which to date is a non-starter. And even more serious, some are suggesting that IGT is smoke and mirrors, claiming IGT games are just not as popular or profitable as their competitors' games.
Lawsuits are a regular part of the slot world. Every manufacturer seems to believe they own the patents to all the important technology – but the courts rarely agree. Bally got some good news from another source. The U.S. Securities and Exchange Commission settled with Bally over its filings in 2003-2005. However, for two former officers of the company, the news was not so good: the commission filed an action against them for their part in questionable financial statements during those years. But at least that tainted period is over, with no further damage to Bally, its stock price, or its ability to develop and sell successful games.
Aristocrat is changing leadership in the United States in the hope of regaining the momentum the company has had in the past. All the while, just over their shoulder, both Williams and Bally are increasing sales and revenue. Some analysts are predicting a period of consolidation and that may indeed happen, but in the meantime, it is getting hotter in the kitchen. And while the manufacturers are feeling stress, casino companies are hoping the situation will produce new games that last longer, are more popular, and not so expensive to buy or to upgrade.
Slot machine giant International Game Technology said Tuesday it will lay off a yet-to-be determined number of employees by Jan. 5 due to the troubled economy. In an e-mail to employees, IGT Chairman and Chief Executive Officer TJ Matthews said the number of layoffs will be based on how many workers accept a voluntary separation program that was introduced last week. IGT spokesman Ed Rogich said roughly 500 employees, age 55 and over, were offered buyouts…IGT employs roughly 5,400 workers worldwide, including 3,000 employees at its corporate headquarters in Reno. At the company's secondary headquarters in Las Vegas, IGT employs about 1,000 workers. IGT, the gaming industry's leading slot machine manufacturer, has hit rough times this year. Profits are weaker than they were a year ago, the company's chief operating officer resigned earlier this month, and IGT's stock price is down more than 60 percent from its 52-week high of $49.41 on Feb. 26…Macquarie Capital gaming analyst Joel Simkins said he was not surprised by news of the impending layoffs. He said the slot machine maker has about 1,200 workers in engineering, an area he said could be reduced. IGT has also spent millions on server-based gaming, which may not be introduced to casinos as quickly as hoped. IGT spent $76 million in June to acquire a European slot machine rival as part of its server-based gaming efforts. (Howard Stutz, Las Vegas Review-Journal, 9-18-08)
It was late September 2003 when slot machine giant International Game Technology graced the cover of the New York Times Magazine. The lengthy Sunday profile touted the company's success in placing a vast collection of games based on once-popular television shows and celebrities inside casinos. The IGT machines, manufactured in Nevada, feature some 62 licensed titles, including "Gilligan's Island," "I Dream of Jeannie," "The Beverly Hillbillies," "I Love Lucy" and "Laverne & Shirley." Casinos cleared room on their floors for thousands of the machines. IGT's stock price skyrocketed, revenues flowed and profits soared. Somehow, in the past year, IGT has lost its way. The slot maker has been hobbled by the slumping economic conditions that have beleaguered the gaming industry…analysts said the company has lost market share to slot machine rivals Bally Technologies and WMS Industries. IGT is now making changes to reduce expenses and reverse the trend…Many on Wall Street believe IGT should refocus its efforts on game content that will help casinos attract customers. "While we are pleased that IGT is starting to take the right steps to right size its cost structure in light of the current environment, it may not be enough to offset a top line slowdown," Macquarie Capital gaming analyst Joel Simkins told investors a day after IGT informed employees through an e-mail that it would be reducing staff by Jan. 5…He said the company's video slot machines are not as popular as games being developed by other slot makers. "IGT appears to be focusing on developing more innovative content to offset market share losses," Simkins said. "We are concerned that it could be on the verge of permanent displacement of share to its key rivals." (Howard Stutz, Las Vegas Review-Journal, 9-22-08)
A federal judge has ruled in favor of International Game Technology in a patent infringement dispute with rival gambling equipment maker Bally Technologies. The lawsuit is related to a slot machine gaming wheel product. But Wall Street said the fight is far from finished. Bally and IGT have several patent infringement lawsuits filed against each another in U.S. District Court concerning each company's slot machine enhancements, which give gamblers bonus rounds on a game that could lead to increased jackpots…One of the lawsuits, involving IGT's spinning wheel games and Bally's iView technology, is scheduled to go on trial in October. IGT alleges that Bally infringed on six patents held by IGT. Stifel Nicolaus gaming analyst Steven Wieczynski said in a note to investors. "We still expect this trial to be settled out of court which, in our opinion, would be beneficial to both companies." (Howard Stutz, Las Vegas Review-Journal, 9-12-08)
The U.S. Securities and Exchange Commission began investigating slot machine maker Bally Technologies in 2005 over financial statements from 2003 to 2005. The U.S. Securities and Exchange Commission settled two actions against slot machine maker Bally Technologies on Wednesday, but it filed an administrative action against two of the company's former financial executives. The SEC began investigating Bally in February 2005 in relation to the company's financial statements in 2003, the first two quarters of 2004 and the second and third quarters of 2005. Under the settlement, Bally consented, without admitting or denying the SEC's findings, to a cease and desist order. The company is required to remain in compliance with federal securities laws and regulations relating to financial reporting, record keeping and internal controls. A similar cease-and-desist order was settled with former Bally Chief Financial Officer Robert Saxton. In a statement, Bally Technologies said it fully cooperated with the SEC during the investigation. There were no allegations of fraud against Bally and the company was not assessed any fines, civil penalties or monetary sanctions. (Howard Stutz, Las Vegas Review-Journal, 9-25-08)
International Game Technology, the world's largest maker of slot machines, must face claims that it violated two patents belonging to Aristocrat Technologies, a federal appeals court ruled. The U.S. Court of Appeals for the Federal Circuit in Washington today said a lower court erred in throwing out the claims in June 2007 and ruling Aristocrat's patents invalid. The appeals court sent the case back to the trial court for further proceedings. Aristocrat, a unit of Australia-based Aristocrat Leisure Ltd., uses the patents for its Hyperlink products, including its Cash Express Penny Train, Jackpot Carnival and Millioni$er machines, a game featured in casinos that offers players the chance to win up to a $1 million jackpot on a penny slot. International Game infringes the patents with its Fort Knox, Jackpot Hunter, Party Time! and Wheelionaire machines, Aristocrat claimed in court papers. (William McQuillen, Bloomberg, 9-22-08)
International Game Technology's stock sagged to a six-year low as an analyst said his legal sources indicate the company may face an unfavorable ruling on certain patents in its dispute with Bally Technologies Inc. IGT and Bally have been in a legal tussle on patents related to a gaming-wheel product and IGT's IView interactive slot machine displays. In a client note, Todd Eilers of Roth Capital Partners LLC said his sources are confident the judge will likely rule some IGT patents invalid based on summary judgment, meaning the judge was asked to rule on the case before it goes to trial. (Associated Press, 9-22-08)
Poker machine maker Aristocrat Leisure has appointed a new head in North America, replacing its previous boss with its head of European, Middle Eastern and African operations, Nick Khin. Aristocrat said that Tim Parrott, the incumbent president and chief executive Officer of its American operations, had left the business after two years with Aristocrat's executive team. The company said Mr Khin had driven Aristocrat's expansion into new markets, particularly Spain where the company will be launching its new casino style arcade games later this month. (Sidney Morning Herald, 9-12-08)
The slot manufacturers are not the only ones experiencing the pressures of the times; the richest and most successful of the gaming moguls are taking a hit also. The biggest loser was Sheldon Adelson; he lost $13 billion last year, according to Forbes. It is difficult for the rest of us to identify with that, but Steve Wynn and Kirk Kerkorian have an idea how it feels.
The rich haven't gotten richer–or poorer--this year. The price of admission to this, the 27th edition of The Forbes 400, is $1.3 billion for the second year in a row. The assembled net worth of America's wealthiest rose by $30 billion–only 2%–to $1.57 trillion. Rising prices of oil and art paved the way for 31 new members and eight returnees, while volatile stock and housing markets forced 33 plutocrats from our rankings. With a net worth of $57 billion, Bill Gates remains the richest man in America despite losing his crown to Warren Buffett for a few months this spring. Buffett's shares in Berkshire Hathaway have fallen 15% since February…The biggest loser this year was casino mogul Sheldon Adelson, whose fortune has fallen $13 billion in the past 12 months–$1.5 million per hour–as shares of his Las Vegas Sands have dropped 75% from their all-time highs last October. Fellow casino kingpin Kirk Kerkorian lost $6.8 billion this year as his stock in MGM Mirage fell 70% since last fall…Wynn Resorts' stock down 49% since October high…#15 Sheldon Adelson; #27 Kirk Kerkorian; #118 Stephen Wynn. (Matthew Miller/ Duncan Greenberg, Forbes, 9-17-08)
Even this year's poster-child of gaming success and growth, Macau, thinks it feels a cooler breeze blowing in from Mainland China, a primary source of Macau's visitors. Mind, these really aren't results, just nervousness about the impact of China's visa restrictions and a growing worldwide economic crisis developing from government buyouts of failing financial organizations in the United States. Maybe even more revealing is the announcement from the Mohegan Sun – one of the former poster-children of gaming success and growth – that it is delaying the work on its latest expansion by at least a year.
Macau's gaming sector operators are concerned about gross revenue in the first half of September, which saw near zero growth, compared to September of 2007, the first time this has happened since 2004, according to Portugal's Lusa News Agency. Sources from gaming operators contacted by Lusa said that gross revenue between the September 1 and September 15 came to 3.6 billion patacas. If this rate is kept until the end of the month, the figure would represent a single digit or less year-on-year monthly rise, when compared to September of 2007. August saw an increase of just over 44 percent, to 9.61 billion patacas. In the first eight months of the year, sales rose 52 percent to 77.6 billion patacas, when compared to the first eight months of 2007. In September of 2007, when the Venetian, the world's largest casino, owned by Las Vegas Sands, completed its first month of operation, gross sales from casinos totalled 7.15 billion patacas, a 55 percent increase when compared to the same month in 2006. "The drop is due to China's limitations on visas and the financial crisis that is affecting the United States cannot be ruled out, which in turn has an effect on many economies across the world," a source linked to one of Macau's casinos told Lusa. (Macau Daily Times, 9-18-08)
The Mohegans will delay their ongoing expansion project in light of economic challenges that have been plaguing the two tribally owned casinos in Connecticut, as well as other gaming markets throughout the country. The Earth Expansion at Mohegan Sun will be put on the back burner for at least a year…The project was scheduled to wrap up in the fall of 2010…The total projected cost for the Earth Expansion was to be $734 million. (Heather Allen, New London Day, 9-22-08)
Each year seems to bring another state into the forefront. Last year it was Pennsylvania, and the gaming world watched as the state picked licensees, sometimes being dumbfounded by the process. This year Kansas is going through the bidding and selection process. Four regions are allowed one casino each; bidders lined up for each, and depending on the potential market, offered to build casinos that ranged in size from $700 million to less that $100 million. Now it's over –well, sort of, as one of the companies selected declined, so the state is opening that region up for a new bid.
Every state is unique, and Kansas is no exception. The state will retain ownership and as much as 27 percent of the revenue, but racinos are different. The operator gets to invest a minimum of $250 million, in most of the markets, for the privilege. The state Racing and Gaming Commission conducted the hearings and made the awards. Hearings were conducted in each region soliciting citizen and community input. Consultants – seemingly dozens – were hired and allowed to do their due diligence, write reports, and make presentations to the commission. Each bidder was also allotted time to make presentations and to respond to comments and criticism. Then, with all of the information and opinions in hand, the commission made its choices. Before the final choices were made, at least four major bidders had withdrawn, citing a variety of factors – mostly the credit crisis, the economy, and in some cases, competition. Bill Eadington of the University of Nevada, Reno warned the commission that the times are tough, money is difficult to get, and not to be greedy or expect too much. Eadington said gaming was more risky now than any time in the last 15 years; he didn't say it explicitly, but it is implied that he was referring to the risk for the gaming companies and for the states authorizing gaming.
The state authorized four casinos under a law that passed last year – The Expanded Lottery Act. The first casino license was awarded to Harrah's. However, Harrah's had previously managed the Prairie Band Potawatomi Nation's casino, and the tribe sued to keep Harrah's from using its customer list for marketing the new casino. The judge ruled Harrah's could build the casino, but was temporarily ordered to refrain from using the list.
A second license was awarded to Penn National in Cherokee Country, but unless they got another one for Sumner County, they respectfully declined. The board fired them and is reopening the bidding process. There is one possible bidder, Phil Ruffin, but he wants to change the tax rate or the minimum investment or both before he is interested.
The third license went to the Cordish Company and Hard Rock Hotel and Casino at the Kansas Speedway in Kansas City. And in an ironic twist, Cordish seems to be the winning bidder in Atlantic City for the Tropicana – another $700 million; sounds like a company with deep pockets, doesn't it? Cordish does not have much experience operating casinos – or anything else – but they know how to develop a site and clearly know how to make a bid presentation. There is still one more location they are eying – Maryland. The company headquarters is in Baltimore and if the slot referendum – or possible enabling legislation – passes in Maryland, the company has already declared its interest in bidding for a license.
The fourth license went to Butler National Company, not exactly a household name, but then there was not a queue of hundreds seeking the opportunity for a more remote and less profitable location in Dodge City.
State consultant William Eadington cautioned Review Board to select operators in Wyandotte County and Dodge City that offer the strongest "financing strategy" in a difficult financial market. Eadington speculated the recent withdrawals of Penn National Gaming, Las Vegas Sands, Pinnacle Entertainment and MGM Mirage from the process in Kansas was rooted in the increasing risk in the industry and the growing cost of financing multi-million projects. Eadington presented a long list of gaming companies that have seen their stock market values plummet as much as 78 percent during the past year. The consultant noted projects in "protected markets" like Kansas with little or no competition, or threat of new competition, stand the best chance of success in the current weak economy. (Rick Alm, Kansas City Star)
A partnership led by Harrah's Entertainment won a contract Friday to develop and manage a state-owned casino in south central Kansas. The Lottery Gaming Facility Review Board chose Sumner Resorts-Harrah's Kansas by a 4-3 vote over proposals from Penn National Gaming and Marvel Gaming. A proposal from MGM Mirage was pulled in May. Harrah's was awarded a 15-year management contract that calls for 22 percent of the casino's revenue to go to the state. Kansas-based Sumner Resorts will develop the project. (Las Vegas Review-Journal, McClatchy-Tribune News Service, 8-23-08)
Pinnacle Entertainment Inc. dropped out of the running to manage a state-run casino in Wyandotte County, becoming the fourth company to bow out of the competition to run one of the four Kansas facilities. (Associated Press, 9-17-08)
The lumbering, stumbling debacle which is the Kansas Lottery Gaming Facility Review Board's decision on which partners to take on for the four Kansas casino projects passed another long-overdue mark this week, as the Cordish Company was awarded, in concert with the Kansas Speedway, the casino contract for Wyandotte County. The new casino will be built adjacent to the NASCAR track and should be operating by 2011. (Brian Chan, Online Casino Gambling, 9-21-08)
Southeast Kansas once again is an open territory for a state-owned casino. The Kansas Racing and Gaming Commission unanimously voted Tuesday to reject Penn National Gaming Inc.'s contract to manage a casino in Cherokee County. The vote was a formality because Penn two weeks ago walked away from the contract, saying it couldn't compete with a nearby tribal casino in Oklahoma. The commission vote clears the way for the Kansas Lottery to start the process for taking applications for a casino manager in Cherokee or Crawford County. (Associated Press, 9-23-08)
Kansas Racing and Gaming Commission…move legally cleared the way for a new round of applications in the state's southeast gambling zone just west of Joplin, Mo. First in line could be Wichita businessman Phil Ruffin Sr. who earlier this year declined a state deal for slots at his long-closed Camptown dog track in southeast Crawford County. Ruffin had poured $10 million into redeveloping Camptown before concluding that the state's 40 percent tax bite and other assessments on "racinos" didn't leave enough cash flow to turn a profit. Ruffin said at time and reiterated Tuesday that he plans to lobby state lawmakers next year for a gambling tax break in a bid to reopen the track–with slots. If that doesn't work Ruffin said he'd also consider seeking a change in the law to reduce the state's minimum mandatory capital investment in a southeast casino to $50 million from the current $250 million. (Rick Alm, Kansas City Star, 9-23-08)
Butler National Corporation was chosen by the Kansas Lottery Gaming Facilities Board to become the operator of the casino in Ford County. The choice completes a grueling time period in which four new operators were chosen. Butler beat out only one competitor in the race to win the casino contract. Dodge City Resort and Gaming Co. LLC out of Wichita was the unlucky loser. Dodge City will be the location of the new casino. Butler's proposal included a 124 room hotel, twenty table games, and around 875 slot machines. The total estimated cost for the new casino is in the $100 million range. Butler already operates a tribal casino in Oklahoma. (Casino Gambling Online, 9-26-08)
Atlantic City's situation is somewhat like that in Kansas – as is the situation in Illinois, which has one license to grant and is currently taking bids with a closing date for submission in mid-October. There is a difference in Atlantic City: the license, casino, and location are not going to be new; rather it is a recycled license up for bid. New Jersey gaming regulators have taken the license and casino away from Columbia Sussex. The state would like to sell the casino and the accompanying license to the highest bidder; there just aren't any bidders. Well, there is one, finally: Cordish. Earlier in the year there were several, but the conservator thought the bids were too low – the state thought it could get over a billion dollars. So, former state Supreme Court Justice Gary Stein, the state's guy-in-charge, started the process over. Trouble is, none of the bidders from the first round re-bid until Cordish did; but when Cordish submitted the second bid, it was $150 million less than its first bid, $300 million less than the state wants. It is all in the timing, isn't it? This does not seem to be the best of times to buy tulips, dot-com companies, real estate, or casinos.
New Jersey's chief gaming regulator fears that Wall Street's meltdown could further complicate plans to find a buyer for the troubled Tropicana Casino and Resort. Tropicana was put up for sale last December when its former owner was stripped of its license following mass layoffs, regulatory violations and customer complaints ranging from filthy rooms to overflowing toilets. Attempts to find a new buyer have been hindered by the weak economy and global credit crisis — factors that held down prices in the first set of bids and forced Tropicana's state-appointed conservator to restart the sale process from scratch. "I think, frankly, we only have to look at what is going on on Wall Street to understand why the sale is moving so slowly," said Linda M. Kassekert, chair of the state Casino Control Commission. (Donald Wittkowski, Press of Atlantic City, 9-17-08)
The announcement this week that the Baltimore-based Cordish Co. is the lead bidder for the Tropicana Casino and Resort was good news for the Atlantic City area. The subsequent announcement that Tropicana Entertainment LLC, which was stripped of its casino license in December, plans to go to court to block the deal was not so welcome. It means any deal could be mired in the courts for quite some time – and that the Trop will remain in a kind of limbo, overseen by a state-appointed conservator. Tropicana Entertainment CEO Scott Butera says Cordish's $700 million offer is too low – and that his company has restructured itself and hopes to be re-licensed and take back ownership of the casino hotel. Unfortunately, neither gamblers, nor other bidders, have been exactly flocking to the Trop since the Casino Control Commission refused to re-license Tropicana Entertainment and parent company Columbia Sussex Corp. and appointed former state Supreme Court Justice Gary Stein to oversee the sale of the casino hotel back in December. Since then, the nation's credit markets have all but dried up, and the economy has slowed dramatically. Stein had to ask casino regulators for two extensions of the deadline to sell the casino hotel, saying the first bids were too low. Meanwhile, gross operating profit at the Trop fell 54.4 percent in the first six months of the year. (Press of Atlantic City, 9-26-08)
Last year's license drama star, Pennsylvania, still does not have all of the casinos operating that won a license. There are two reasons. Both Pittsburgh and Philadelphia have had significant opposition to some sites, but more importantly, the lack of available financing is impacting Pennsylvania, just as it has the Las Vegas Strip of late. Two properties in Pennsylvania have struggled to fund their projects. The Don Barden project in Pittsburgh did finally get its financing, but only after Barden gave up majority interest to an investor willing to put up enough capital to complete the project. The second one, Valley View Downs in western Pennsylvania, is less sexy and has not been in the news much, but it is a victim of the same credit market crises. Someone may come along to bail this one out too, but more likely the license will go to another licensee in another location.
Financial backing for a planned "racino" in western Pennsylvania has fallen through, and the company behind the project is seeking a new agreement with an investment bank as its application for a state gaming license hangs in the balance. The future of Valley View Downs now depends both on Centaur's success in finding a new financier and the final decision of the state Gaming Control Board. That's good news for Adams County, said David LeVan, the Gettysburg businessman who has said for months that he is interested in obtaining the racino license and building a joint casino and race track facility in this area. LeVan announced his interest in the gaming license in July, when the perceived instability of the Valley View Downs project first made news. Wednesday's announcement comes earlier than expected and is further evidence that the last available slots license could again be open to new applicants, he said. (Erin James, Hanover Evening Sun, 9-17-08)
But, regardless of how dismal most of the news may have been lately, the actual casino operating results from around the country are better than they have been. That gives me hope that the worst may have come and gone for gaming. Not that I expect financing to be easier in the new future, but I do think operating a casino will be a bit better. For any capital projects, the industry will need a healthier credit market, but for a while operating with what they have may be slightly more profitable.
Atlantic City August revenue was up 0.7% to $468.3 million. (Reuters, 9-10-08)
Colorado's casinos reported revenue down 5.26 percent to $68.2 million from 2007. (Joanne Kelley, Rocky Mountain News, 9-18-08)
Detroit August revenues were up 5.7% but only MGM was up - 17%. (Gaming Industry Weekly Report, 9-15-08)
Connecticut slot revenue fell 3.3% in August. (Gaming Industry Weekly Report, 9-15-08)
Illinois August gaming revenue was down 21.6% to $135.4 million. (Gaming Industry Weekly Report, 9-15-08)
Indiana August gaming revenue rose 12.6% to $249.9 million while same store revenue was down 1.7%. (Gaming Industry Weekly Report, 9-15-08)
Iowa August gaming revenue rose 5.3% to $129.3 million. (Gaming Industry Weekly Report, 9-8-08)
Louisiana August gaming revenue rose 2.2% to $217.7 million while same store revenue was up 1.1%. (Gaming Industry Weekly Report, 9-15-08)
Mississippi casinos revenue was $238.1 million, almost the same as August 2007. Coast casinos had revenues of $112.1 million compared with $106.6 million in August 2007. (Mary Perez, Biloxi Sun Herald, 9-18-08)
Missouri August gaming revenue rose 9.8% to $148.1 million while same store revenue was down 0.4%. (Gaming Industry Weekly Report, 9-15-08)
Nevada's June gaming revenue fell 12.9% to $997.3 million. (Las Vegas Sun, 9-10-08)