Quicktakes: The month's trends at a glance - April 2005

At some level the world goes on, regardless of the price of oil (hanging around $50 a barrel) or interest rates (raised to 3.0%), consumer confidence (strong) or the Dow Jones Industrial average (around 10,200), and life continues. Even under the most difficult circumstances, we still need the same basic things and conduct business in the same basic ways. That should make understanding the stock market easy. One only need study the performance of a company over time and invest in companies that have good profits, are based on solid principles and have stock prices that are fairly related to the company's profit. It only sounds that easy, but it confuses the most sophisticated of investors. This quarter, gaming companies are generally reporting good to very good results, but the prices of gaming stocks are declining.

Gaming stocks stalled in April, the result of overpricing earlier in the quarter following earnings preannouncements and broad market doldrums, analysts said Friday. The Applied Analysis Gaming Index, a weighted average of 10 local gaming stocks compiled by the Las Vegas-based financial consulting firm, dropped to 301.04 in April, down 6.5 percent from 320.77 in March. Applied Analysis partner Brian Gordon said strong first-quarter financial performances for the industry prompted profit-taking and dampened gaming values in April. It was the second straight month of declining gaming stock values after seven months of uninterrupted increases. Susquehanna Financial Group gaming analyst Eric Hausler said gaming stocks enjoyed a good run into March, but weakened after the preannouncement season. He said an overall market malaise may have contributed to the drop in the index. "There's a fear about the economy right now and its status, how fast it's growing or whether it's slowing," he said. "And certainly that pressured gaming stocks in particular, but also affected all the discretionary consumer names so we had some rotation of capital and flight out of high-flying groups like gaming." Deutsche Bank analyst Marc Falcone agreed spillover from general market concerns, rather than industry-specific issues, affected gaming stocks. "We're seeing strong earnings from every company, but the stocks are not responding," he said. Rod Smith, Gaming Wire, Las Vegas Review-Journal, 5-2-05

Sometimes the ups and downs of the stock market are simply beyond common understanding. Take the developments on May 4th; Kirk Kerkorian of MGM Mirage fame, decided he wanted to own more General Motors stock and offered to buy 5 percent of the company for about $800 million. He can afford it; last year he sold Metro-Goldwyn-Mayer (the other MGM) for more than $2 billion. Wall Street jumped and cheered, and the Dow Jones gained 125 points on the news. Please explain to me what that means about all of the other stocks in the DJ.

Stocks skipped higher Wednesday as investors were emboldened by decent earnings, a handful of mergers and billionaire investor Kirk Kerkorian's bid to substantially add to his stake in General Motors Corp. The Dow Jones industrials soared more than 125 points. Meg Richards, Associated Press, 5-4-05

Actually at this point in time, 2005, one might expect gaming results to effect standard economic measurement. Gaming is very important, even critical in many states; in at least 10 states gaming taxes are 10 percent or more of the state's revenues.

Gambling revenues, once a mere trickle, have become a critical stream of income in a number of states, in some cases surpassing traditional sources like the corporate income tax and helping states lower personal income or property taxes…In Rhode Island, South Dakota, Louisiana, Oregon and, most of all, Nevada, taxes from casinos, slot machines at racetracks and lotteries make up more than 10 percent of overall revenues…Delaware, West Virginia, Indiana, Iowa and Mississippi, gambling revenues are fast approaching 10 percent…in Rhode Island, gambling revenue has surpassed the corporate income tax to become the state's third largest source of income, after the personal income and sales tax. Fox Butterfield, New York Times, 3-31-05

So vital has the money become that in Rhode Island, gambling revenue has surpassed the corporate income tax to become the state's third largest source of income, after personal income and sales taxes. It has enabled the state to avoid raising its income tax for 10 years. However, gaming is not always a simple or safe source of revenue for a state. In an ideal world, taxes are levied and are reliable, subject only to major downturns in the economy. Not so with today's gaming. Gaming in any state in the 21st century is dependant on gaming in the neighboring states. That means that the revenue stream is not in the hands of the governor or the legislature, but in the hands of other governors, legislatures and market forces. The uncertainly is causing some legislative indigestion.

The scenes that fuel Delaware's success take place every night...2,500 video slot machines at Dover Downs…customers from as far as Baltimore, Washington and Richmond, Va., pressed the play button every three seconds, as fast as the electronic terminals can spin...Dover Downs, a combination harness racetrack, Las Vegas-style hotel, slot machine emporium and Nascar track, pumped $102 million from its slot machines alone into the budget last year. Delaware over all got $222 million from gambling - 8.1 percent of its $2.72 billion in state revenues. But Delaware, like most states that rely on gambling revenue, now faces a danger - competition from nearby states for the same dollars. Some 70 percent of gambling losses in Delaware's three "racinos," racetracks with video slot machines, come from visitors from Pennsylvania and Maryland, according to the Delaware Department of Finance. But Pennsylvania legalized slot machines last year and the Maryland Legislature is debating a bill to legalize gambling there. Fox Butterfield, New York Times, 3-31-05

Gaming is more important than just its tax contribution. It has grown to be a very large industry and that means jobs, investment, ancillary service industries and tourism. Certainly gaming is significant to many local economies, if not important enough to the national economy to impact the stock market more than it does. With the numbers doubling every ten years gaming is very hard to ignore, even by the manic trends of Wall Street.

Americans spent $28.9 billion last year in nontribal casinos across the United States, a 7 percent increase from 2003, according to an industry-funded study issued today. Spending at commercial casinos has increased steadily over the years and has more than doubled in the past decade, from $13.8 billion in 1994, according to the American Gaming Association's annual "State of the States" report… The study said some 54.1 million people -- about 26 percent of the American adult population -- visited casinos last year. Visitation rose about 1 percent from 2003. Americans also went to casinos more frequently, making 319 million trips last year compared with 310 million trips the previous year. The average number of trips per year rose to 5.9 from 5.8 in 2003. Liz Benston, Las Vegas Sun, 5-4-05

At the individual state level, gaming grew in the 2-3 percent range, but with some jurisdictions up 5-9 percent, a healthy growth by any measurement. Although these numbers did not help to grow gaming stock prices either; go figure.

Nevada Gaming Control Board reported…February reached $909.5 million 3.8 percent gain over last year. Las Vegas Sun, 4-8-05

Illinois March gaming revenue rose 2.2% to $152.1 million. The Chicago area market was up 3.6% …St. Louis area market was up 0.2%. Gaming Industry Weekly Report, 4-18-05

Iowa March gaming revenue rose 8.4% to $100.8 million, a very solid month. Table games being added at Prairie Meadows (+29.4%) helped the racetracks to a 13.3% jump. Gaming Industry Weekly Report, 4-18-05

Missouri March gaming revenue rose 10.1% to $136.1 million. Gaming Industry Weekly Report, 4-18-05

Atlantic City March gaming revenue rose 1.9% to $396.3 million. Gaming Industry Weekly Report, 4-18-05

Detroit March gaming revenue rose 7.3% to $109.3 million. MotorCity was up 9.9%, MGM Detroit was up 7.4% and Greektown was up 3.8%. Gaming Industry Weekly Report, 4-18-05

Louisiana's state-licensed casinos won $198.6 million in March …Gamblers lost $187.2 million in March 2004 [up 6.1%]. Biloxi Sun Herald, 4-19-05

Colorado gaming revenues rose 3.3 percent to $64 million in March vs [March 2004]. Rocky Mountain News, 4-20-05

Mississippi casinos earned a total of $259.8 million [up $2.2 million, 0.9%]. Tom Wilemon, Biloxi Sun Herald, 4-21-05

Indiana casino revenues rose 4.8% in March to $215.6 million. Gaming Industry Weekly Report, 4-25-05

Travel in general seems finally to have recovered from the post 9/11 slump. One would expect that fuel prices might impact the travel industry more than most industries, but at this point that does not seem to be true. Fuel usage has grown steadily even as prices have increased. However, for the coming travel season, things look good for the travelers and their hosts.

The percentage of adult Americans who have taken at least one overnight trip of more than 75 miles from home has risen to the highest level observed since 1999 according to the Yesawich, Pepperdine, Brown & Russell/Yankelovich Partners 2005 National Leisure Travel Monitor. According to this closely-watched barometer of the travel habits, preferences and intentions of Americans, fully 58% of American adults took such a trip during the past 12 months (up from 49% last year), of which one third took at least one trip primarily for business and 93% took at least one trip primarily for pleasure. The results of the survey suggest that demand for both domestic and international travel services will continue to grow in the year ahead, notwithstanding any concerns about safety and security or the rising cost of gasoline...68% of adults took at least one leisure trip with a spouse or another adult, while 37% took at least one trip with children (a significant increase from the percentage observed last year), and fully 26% took at least one vacation alone; Weekend vacations(4 nights or less including a Saturday) reign as the most popular and now represent 56% of all vacations taken by Americans, although there has been an increase in the incidence of vacations lasting more than five nights; 30% of adults are planning to take fewer vacations in the year ahead (roughly equivalent to the percentage observed last year), and "not able to get away from my job/work" is the most frequently-cited reason why… Business Wire, Hotel Online, 4-13-05

The big news of the month in Las Vegas is of course the opening of Wynn Las Vegas. The reviews are typical of a Wynn opening, great reviews of the property, but with a few doubters. Even before the property opened the debate began. An analyst downgraded the stock doubting, it would seem, that Steve could produce. The prices had reached the $70-range the month before. Since the downgrade, it has fallen to less than $50. Still the history of the stock price is a typical Steve Wynn story. The price grew from $13 to $70 in two years without a dollar of casino revenue, simply on the Wynn mystique.

U.S. casino stocks fell on Wednesday, after a Merrill Lynch analyst downgraded shares of Wynn Resorts Ltd., saying the company's balance sheet is "nearly exhausted." Shares of Wynn Resorts (WYNN.O: Quote, Profile, Research) fell more than 4 percent after David Anders from Merrill Lynch cut his rating on them to "sell" from "neutral." "Given Wynn's nearly $5 billion in announced capital projects since its initial public offering, we believe the balance sheet is nearly exhausted," Anders wrote in a research note. Reuters, 4-20-05

Each new generation of Wynn casinos represents an entirely new level of investment. It is difficult for most observers to believe that the new casino can possibly make enough money to justify the investment; that is what they said when the $750 million Mirage opened in 1989, when the Bellagio opened in 1998 and that certainly is what they said the last week of April when the $2.7 billion (that is two billion dollars more than the Mirage) Wynn Las Vegas opened. Few doubt Steve's artistic vision; it is his business acumen they call into question.

A few minutes before midnight, billionaire casino mogul Steve Wynn stepped outside his new $2.7 billion resort and gazed towards the hotel's marquee on the Las Vegas Strip. As he spoke into his walkie-talkie, a clock appeared on the high-definition screen, and quickly a crowd of thousands counted down from 30 in unison. When it reached zero, the gambling aficionados and curious onlookers--some of whom had waited in line for hours to catch a glimpse of the new hotel--erupted with cheers of glee. Wynn, who ranks No. 306 on Forbes' list of the World's Richest People, smiled, shook hands with a few friends, pumped a fist and walked back into the building. The most expensive hotel in the history of Las Vegas was open for business. Matthew Miller, Forbes, 4-28-05

Both Steven Wynn and the old Desert Inn are part of the fabric of Las Vegas gambling lore. The original occupant of the location of Wynn Las Vegas was Wilbur Clark's Desert Inn that opened 55 years ago almost to the day as Wynn; the Desert Inn cost $4.5 million to build. Steve Wynn came to town a little later, but as much as any one person or property has become a symbol of the growth and development of Las Vegas and the modern gaming industry. Sol Kerzner, an international casino resort and empire builder of some note, thinks Wynn is Las Vegas' entrepreneur.

While many expect a gleaming future for Steve Wynn's latest megaresort, Wynn Las Vegas, it is built on the site of the old Desert Inn, which carries a rich past. And Wynn, famous for ushering in the megaresort age in Las Vegas, becomes the latest high-profile owner of the site. San Diego businessman Wilbur Clark came to Las Vegas in 1944 and built what originally was called Wilbur Clark's Desert Inn, then the largest hotel in Las Vegas with 300 rooms and a three-story tower. It opened on April 24, 1950, the fifth resort on a two-lane highway that would become the Las Vegas Strip. Ed Koch, Las Vegas Sun, 4-28-05

Steve Wynn has arguably had more impact on the Las Vegas skyline than anyone. It all began when he and his wife Elaine came to southern Nevada back in 1967. Wynn's first major casino deal was in 1973 when he took over the Golden Nugget downtown. He remodeled and expanded the property adding nearly 600 rooms in 1977…in 1989 with the unprecedented Mirage…In 1993, Wynn took part of the Mirage land and created Treasure Island…Bellagio opened in 1998 and drew rave reviews for its luxurious style. Wynn was adamant about living up to his new standard. "It's going to make lofty promises. And it damn well better keep 'em. But we're ready. It's our time," he said…Steve Wynn still isn't finished. He is already planning to open another resort called Encore. The hotel will be built next to Wynn Las Vegas and open in 2008. KLAS-TV, 4-28-05

When Sol Kerzner paid Las Vegas a visit some 35 years ago, he didn't consider it to be a competitive threat to his growing empire of resort properties. "I remember telling my son that the problem was that the entrepreneurs have moved on and the accountants have taken over," he recalled in an award acceptance speech at the International Hotel & Restaurant Show at the Mandalay Bay Convention Center on Wednesday. But that changed a few years later when he returned to see the erupting volcano Steve Wynn had built in front of the Mirage hotel and the plans for a retail center called the Forum Shops at Caesars that was being developed by operators and partners of Caesars Palace. "This place has been dead," Kerzner said. "But now, the entrepreneurs are back." Richard N. Velotta, Las Vegas Sun, 4-28-05

Whether Steven Wynn's vision and business abilities are up the challenge we will have to wait and see. One thing is for certain, the Las Vegas Strip will be permanently changed by the opening of Wynn Las Vegas, just as it was changed by the opening of Bellagio and the Mirage.

One more small side note to the Las Vegas story; the NFL is still controlling the city's access to television. Las Vegas has been the "it happens here and stays here" place for a while, long enough for the phrase to enter into the culture as a form of humor, a way of criticizing politicians. But not long enough to be used with tongue firmly in cheek if the joke includes a professional football player; nor even if the person is no longer a football player. The land of freedom of press and the NFL--you can burn the flag, show naked couples on film, but cannot pronounce the words Las Vegas in the presence of the NFL.

Former NFL running back Ricky Williams, whose sudden retirement in July in the midst of a multimillion-dollar contract sent the Miami Dolphins into an irreversible tailspin in the 2004 football season, was nearly hired to pitch Las Vegas in a "What happens here, stays here" television ad. Randy Snow, one of the creative leaders of R&R Partners' wildly successful ad campaign, related the story in an appearance at a Las Vegas Advertising Federation lunch on Thursday… But when the concept was explained to Fox officials, they feared reprisals from the NFL, which has attempted to ban Las Vegas from airing its ads during the league's championship game. Instead, R&R offered an ad titled "Punch Drunk," another sports-themed placement…Fox officials gave that ad the green light and it ran in seven markets during the game. Richard N. Velotta, Las Vegas Sun, 4-22-05

The Mega Millions jackpot hit $205 million this month, but huge linked lottery jackpots have become old hat. Lottery players respond to lottery jackpots the same way slot players respond to slot machine progressive jackpots; the higher the jackpot the more intense the play. States realized that fact a few years ago. It was easy to grasp the concept watching jackpots grow in states like California while smaller states always had smaller jackpots and much less intense play. That lead to states banning together to form larger pools of players and therefore much larger jackpots, which means much larger revenues. To continue to grow, however, something might be necessary: Heh! How about putting the lottery online? The possibilities are unlimited. We are not there yet, but every time a state legislature tries to find a new source of revenue, we get closer.

Several states are considering selling lottery tickets on the Internet, a change that could usher in a new era in how such tickets are purchased. Online lottery sales would be limited to residents within the state. But Internet lottery sales are expected to spread quickly to other states if the practice proves popular, advocates of the idea say. "Every state is looking at it," says Georgia state Rep. Terry Barnard, a Republican whose bill authorizing Internet sales passed the Georgia House of Representatives last month. …"I've said for 10 years that Internet lottery sales are just around the corner, and I may finally be proved right," says Charles Strutt, executive director of the Multi-State Lottery Association, which runs the Powerball lottery. Internet sales are "the next logical step to make life easier for our players," says Rick Wiser, executive director of New Hampshire lottery, which was the nation's first when it began in 1964. Forty states and Washington, D.C., have lotteries. Oklahoma will start one in October and is looking at online sales. North Carolina also is considering a lottery. Lottery sales were $49.4 billion in 2004, according to the North American Association of State and Provincial Lotteries. Once prizes and administrative costs were paid, $15.1 billion was left in revenue for states. Throughout the USA, 64% of lottery profits go to education funding, the association says. Lottery