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Quicktakes - The month's trends in a glance - October 2003

5 December 2003

The Dow Jones Industrials
is flirting with the magical 10,000, closing the month at 9800 - the highest
month-end since May 2002. GDP increased at a dramatic pace and most of the
rest of economic benchmarks are looking better; the economy appears to be healthy
and growing.

The U.S. economy rocketed
ahead at its fastest pace in more than 19 years in the third quarter of 2003
as consumers, their wallets fattened by tax cuts, went on a buying spree,
an unexpectedly strong government report showed on Thursday. U.S. gross domestic
product surged at a 7.2 percent annual rate in the July-September period,
the Commerce Department said. It was the steepest climb since the first quarter
of 1984…three other reports…also suggested a firmer recovery was taking root
-- new claims for jobless benefits and a help-wanted index suggested some
stability in the labor market, while companies spent more on wages and benefits.
…Consumer spending gained at a hefty 6.6 percent pace as lower tax withholding
on paychecks and child tax credit checks put more cash in shoppers' hands.
It was the biggest increase in consumer outlays since early 1988 and accounted
for nearly two-thirds of GDP growth. Tim Ahmann, Reuters, Yahoo Business,

Signs of improvement in
the job market triggered a rebound in a measure of consumers' confidence in
the economy in October, a private research group reported…Conference Board's
Consumer Confidence Index jumped to 81.1 in October, up from a revised 77.0
in September. Seth Sutel, Associated Press, Yahoo Business, 10-28-03

The economic good times
have improved the way Wall Street sees the gaming industry. Not that Wall Street
is the determining factor in actual operational performance; the actual results
were mixed. But, the Street's opinion is important to gaming stock prices and
the availability of capital. Most gaming jurisdictions were flat or reported
reduced revenues; individual companies results varied, usually depending on
their management of expenses and the introduction of new taxes or significant

About 80 percent of U.S.
gaming industry debt rated by Standard & Poor's carries a "stable"
outlook. …The Las Vegas Strip market is expected to strengthen in the near
term, while performance in the rest of the U.S. gaming industry also is anticipated
to gradually improve over the next several quarters in line with the overall
economy….Industry stability is characterized by gradual improvement of gaming
performance over several quarters, further strengthening of the U.S. economy,
continuation of "positive momentum" in Las Vegas, relatively stable
performance in Atlantic City and riverboat gambling markets and continued
growth in tribal gaming, he said. Liz Benston, Las Vegas Sun, 10-3-03

Driven by the resurgent
economy and prospects for gaming proliferation, gaming stocks continued to
climb in October with the Applied Analysis Gaming Index of local gaming stocks
up 2.7 percent for the month. The monthly weighted average of eight local
stocks rose to 194.35 in October, up from 189.27 in September. For the year
to date, the index has climbed more than 30 percent since dropping to 143.63
in January. …All the manufacturers got a boost from expectations of gaming
expansion in California and proliferation to new jurisdictions, said Brian
Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting
firm. Once again, Reno-based International Game Technology's stock performance,
up 10 percent from September, drove the overall index upward, he said. Rod
Smith, Gaming Wire, Las Vegas Review-Journal, 11-1-03

Alliance and Williams did
not report great quarters, but IGT continues to dominate Wall Street's opinion
of the potential for manufacturers and the real market place. This month Station
and Harrah's both announced accelerated purchases. IGT is also on the move
in other ways. This month an interesting change took place in IGT management;
Chuck Mathewson resigned and Tom Baker became chairman of the board. Newcomer
TJ Mathews, fresh from the merger with Anchor, is the new CEO. TJ is young
but was certainly dynamic at Anchor; there were those who speculated that TJ
was a significant factor in the final price IGT paid for Anchor. It will be
interesting to see what changes his leadership will bring. As TJ entered at
stage right, the company's founder, Si Redd exited from stage left. It will
be difficult for any leader of IGT to make an impact on the company or the industry
equal to that which Si Redd made. When the other manufacturers were building
business models around technology, Si built his around sales; the model has
served well the company he founded.

International Game Technology's
fourth-quarter net income rose 72% to $108.3 million, thanks to strong product
sales, better manufacturing efficiencies and a more favorable proportion of
domestic machine sales. …Revenue for the quarter was $547.5 million, up 14%….Product
sales jumped by a quarter to $272.8 million, and the company sold 32,800 machines
during the current quarter compared to 30,700 machines last year. Dow Jones,
Yahoo Business, 11-4-03

Station Casinos Inc. agreed
to accelerate the purchase of 5,000 new EZ Play gaming machines from International
Game Technology within two years…the new agreement calls for delivery of 2,700
machines in 2004 and 2,300 machines in 2005….at least 75% of Station's intended
machine purchases through 2005….has already taken delivery of about 3,500
machines, including those for Thunder Valley in Auburn, Calif. Dow Jones,
Yahoo Business, 10-30-03

International Game Technology….said
Harrah's would buy 11,000 coinless gaming machines, which represents more
than a quarter of the No. 2 casino operator's installed base of slot machines.
Reuters, Yahoo Business, 10-13-03

Slot machine maker International
Game Technology on Thursday said it named Chief Operating Officer Thomas Matthews
as president and chief executive officer. Charles Mathewson has resigned
as board chairman and has been succeeded by Thomas Baker, who had been CEO
and president. Reuters, Yahoo Business, 10-30-03

Si Redd was the son of
a Mississippi preacher and was proud to say the gift of gab had rubbed off
on him. He started his amazing business career as a shoeless 7-year-old in
the farming town of Philadelphia and walked across cotton fields and clay
flats to sell Grit newspapers and Cloverine salve to bone-poor sharecroppers.
Within a few years, he'd angled his way into the jukebox racket and placed
the first of many penny-a-play record machines in rib joints and road houses.
By the time Redd finished his life's long walk Tuesday morning at age 91,
he'd become a multimillionaire and had strolled all the way into modern gambling's
Hall of Fame as a founder of International Game Technology, an early developer
of the video poker machine, and the builder of Si Redd's Oasis resort and
casino in Mesquite. John L. Smith, Las Vegas Review-Journal, 10-15-03

Frequently, Las Vegas serves
as the industry's window into the issues, trends and future of gaming. This
month, however, Atlantic City has offered up some very good lessons. The first
lesson: "the market is limited" is one that has played out in Reno to a greater
degree. In Atlantic City, the joint venture between Boyd and MGM – Borgata
- opened this summer. The hype promised new customers, a longer arm of attraction
for Atlantic City; the results show something quite different. The challenge
now will be to reduce expenses and increase market share -- good luck. And
if Reno can be used as a model, when the super property opens and does grow
the market, every property is weakened, and that is before expansion takes place
in the prime feeder markets.

September gross gambling
revenue at the dozen casinos declined 0.6 percent, to $368.9 million, compared
to the same month last year, when there was no Borgata. …Revenue at the 11
casinos opened last year declined 11.9 percent. Every casino opened a year
ago reported a revenue decline, ranging from 3.6 percent at Caesars to 22.8
percent at Tropicana. Joe Weinert, Press of Atlantic City, 10-15-03

Caesars cuts 80 table
jobs: …Caesars is the sixth casino to cut a batch of jobs since Borgata opened.
Joe Weinert, Press of Atlantic City, 10-31-03

While other casinos took
a third-quarter hit from the new Borgata Hotel Casino & Spa, the Trump
casinos took a staggering blow. Cash flow declined 36 percent at Trump Plaza,
30 percent at Trump Marina and 26 percent at Trump Taj Mahal, parent company
Trump Hotels & Casino Resorts reported Thursday. Joe Weinert, Press of
Atlantic City, 10-31-03

Paul Rubeli thinks it is
still too early to judge either the Borgata itself or the impact on the market,
though he does think that Harrah's is hurting everyone with new and more expensive
marketing tactics. It is only a couple of months since Borgata opened, and
Rubeli is correct, it is too soon to judge the impact; the price and marketing
wars do fit the model, however..

Despite operating a casino
located more than a mile away, Paul Rubeli jumped into the thick of Marina
District business Wednesday with a vigorous defense of Borgata's performance
and a reproach of Harrah's marketing tactics. …"A 15 percent share of
the table games business after 90 days is stunning. In terms of revenue performance,
how can anyone question the success of Borgata?" Rubeli said. Rubeli,
an outspoken critic of cash giveaways to gamblers, chastised Harrah's Entertainment
for doubling the cash-back rewards to premium players at Harrah's Atlantic
City and Showboat. By name he accused the chief executive of the two casinos,
David Jonas, of "flinching" in response to lost business to Borgata.
Rubeli even read aloud the cash-back marketing letter Jonas sent to his customers.
"This doubling of cash back will no doubt increase Harrah's and Showboat's
reported revenues for October, and no one else appears to be following (Harrah's
lead) because it makes no sense in the short term or the long term in terms
of customer loyalty or cost effectiveness," Rubeli said. Giveaways "simply
become entitlement programs" for gamblers and ignite profit-eating marketing
wars among casinos, he said. Joe Weinert, Press of Atlantic City, 10-23-03

And then, as if things weren't
bad enough, a parking garage collapsed killing five people, creating a major
national story and slowing dramatically Tropicana plans for a more competitive

4 Dead, 20 Injured as
Five Floors of Parking Garage Fall: With a rumble that pierced the air like
a jet engine, the top floor of a new 12-story Tropicana parking garage collapsed
as construction workers poured its concrete deck Thursday, sending it and
four more stories pancaking down as hundreds of people inside ran for their
lives. … The 2,400-space garage project is part of Tropicana's $245 million
expansion that was due to open in March 2004. It also includes a 502-room
hotel tower, convention space, and a themed retail, dining and entertainment
center called The Quarter. Bridget Murphy, Press of Atlantic City, 10-30-03

On the other side of the
country, Las Vegas operators were not having their best quarter either. Las
Vegas is still trying to dig its way out of the post September 11th
slowdown. There was one bit of interesting and good news for Vegas: Las Vegas
is the number two "winter-get-away-vacation" destination in the country. The
MGM Mirage lost its tiger and an estimated $5 million in profit in the next
year and Treasure Island is being retooled as a more adult attraction. Changes
in Vegas are continuing, and much of it is moving toward more edgy-adult entertainment.

Las Vegas operators barely
held their own in the just-ended third quarter, Wall Street estimates suggest.
Overall, combined net income for the Big Six operators increased to an estimated
$267 million, up only $6 million from the year before, and cash flow increased
to about $1.2 billion, also up just $6 million over 12 months. …"A year
ago, operators were running lean and implementing technology enhancements
to reduce overall costs," said Brian Gordon, spokesman for Applied Analysis,
a Las Vegas-based financial consulting company. "While much of the costs
savings are still in effect, there has been a tendency to increase human resources
costs to achieve the overall increase in income," he said. Combined
revenue for the Big Six, however, climbed to $4.6 billion, suggesting a recovery
is under way while operators are loosening cost controls. Rod Smith, Gaming
Wire, 10-8-03

TripAdvisor, the leading
travel research site, announced today the results of its study on the most
popular worldwide winter vacation destinations researched online for 2003.
Based on the behavior of over 15 million unique visitors…the study showed
an increasing preference for U.S.-based travel destinations - specifically
New York City and Las Vegas. …Five of the 10 most popular winter destinations
were U.S. destinations, including New York City as #1 and Las Vegas as #2.
Orlando, San Francisco and Maui were also represented in the top 10. Business
Wire, Hotel Online, 10-29-03

The Mirage hotel-casino
lost one of its biggest money-making shows when a tiger nearly killed Roy
Horn of "Siegfried and Roy." Now the resort has to figure a way
to plug an annual revenue hole estimated in the tens of millions of dollars.
…The show generated about $44 million in annual revenue and attracted nearly
400,000…David Anders, a gambling analyst with Merrill Lynch, wrote Monday
that The Mirage will lose about $5 million a year in profits. - Associated
Press, Arizona Republic, 10-7-03

Here's the promise offered
at Mandalay Bay's new topless pool, the Moorea Beach Club: "Drift in
a silken atmosphere of voyeuristic delight, where there are no limits to sensual
experience. Have cocktails while the sun is high. Catnap on overstuffed daybeds.
Engage in stimulating conversation over the soothing sound of falling water.
Free your mind and see what follows." Jane Ann Morrison, Las Vegas Review-Journal,

While the competition heats
up in Atlantic City, Las Vegas and the rest of the United States and the cost
of doing business (read taxes) also increases, some operators are looking elsewhere.
The United Kingdom is particularly popular. Gaming regulations are to be loosened,
though no one seems certain when, and every sporting team or town appears to
be ripe for a casino or two. In that environment, Harrah's announced that the
majority of its investment for the next three to five years will be in the UK.
With that said, Harrah's continues to maximize its size and brand. It would
be difficult to compete with Harrah's unless you were as large, but even the
other major companies seem unaware or unable to leverage size or brand in quite
the same manner. Harrah's may not be investing capital, but it is spending
resources on leveraging its brand.

Harrah's Entertainment
Inc. said Tuesday it wants to build two or three destination casino resorts
in the United Kingdom in addition to several smaller regional casinos it had
previously committed to build. Chief Executive Gary Loveman said the expansion
into the United Kingdom will consume most of the company's investment dollars
over the next three to five years. Liz Benston, Las Vegas Sun, 10-15-03

More than 260 of the nation's
best slot players will gather at Harrah's Las Vegas on Nov. 3 to compete for
$1 million and the title of National Champion of Slots at the finals of the
ninth annual Harrah's Millionaire Maker….hosting Millionaire Maker qualifying
rounds at its casinos since January, with more than 10,000 participants vying
for the finalist spots….bringing 262 top qualifiers along with a guest to
Las Vegas for the finals, where one player will win the $1 million grand prize.
PRNewswire-FirstCall, Yahoo Business, 10-31-03

Harrah's Is Joining with
Several National Retailers to Leverage Popularity of Remodeling to Attract,
Reward Customers. Harrah's Entertainment, Inc. has partnered with Katie Brown,
"the new reigning diva of domesticity," and renowned retailers Calico
Corners, Bed Bath & Beyond and Lowe's to develop a national home makeover
promotion that will reward the casino company's customers and website visitors
with more than $1 million in home makeovers, home improvement gift cards,
cash and prizes. PRNewswire-FirstCall, Yahoo Business, 11-4-03

Park Place, although not
as aggressive as Harrah's in leveraging its size, is beginning to move in that
direction, at least, some actions might be interpreted that way. The most important
step is the move toward renaming the company Caesars that will be final in January
2004. Second, the original Caesars is being expanded and strengthened to be
the signature property of the brand, and it appears that Park Place wants to
sell some of the underperforming, and non-Caesar-like assets. Park Place has
also completed installing a universal slot club in all of the properties.

The Reno Hilton, among
Northern Nevada's largest employers and the city's largest hotel-casino, is
for sale, its parent company's real estate broker confirmed Wednesday. A
spokesman for Park Place Entertainment Corp., owner of the Reno Hilton, acknowledged
that various properties are being considered for sale but would not name them.
Len Ramos, a Reno investment properties associate with CB Richard Ellis confirmed
the pending sale of the Reno Hilton. Thomas J. Walsh, Reno Gazette-Journal,

Clearly, Harrah's is not
the only company that sees a brighter future outside the increasing taxes and
competitive pressures in the United States and is looking in the lovely Isles
of Britain. Isle of Capri is a step ahead of the rest with regulatory approval.

Isle of Capri Casinos,
Inc. officials announced today that the Gaming Board for Great Britain has
approved the acquisition of a majority interest in Blue Chip Casinos Plc.
Isle of Capri is the first American casino operator to receive Gaming Board
approval….will acquire a two thirds interest in Blue Chip Casinos Plc for
5 million pounds sterling ($8 million.) PRNewswire-FirstCall, Yahoo Business,

The United Kingdom is not
the only country in the world with casinos, slot machines or an opportunity
to expand. It is, however, the most unique. Conventional wisdom used to hold
that Las Vegas is the leading edge of every important trend in gaming, and the
rest of the world just falls in line imitating the original. That was probably
never as true as it was in the minds of the public relations professionals in
Vegas. Gambling in England is not new, there may be some changes in regulation,
but making a wager is deeply embedded in English culture and comes with very
few of the moral ambiguities that it does in the United States. Betting shops
are common offering wagers on every imaginable proposition. So successful,
in fact, that a new institution, the betting exchange, has developed to compete
for those millions of pounds floating on a flutter.

The traditional British
betting shop sees itself as a social institution, a convivial place where
people can wager a few pounds on a horse race or soccer game. Associated
Press, The Star Online, 10-21-03

Entrepreneur Andrew Black…designed
a way to bypass the bookmaker and match both sides of a bet via the Internet.
By acting as a broker, his firm Betfair, has rocked the hidebound world of
sports betting. Black's idea was to take a commission on the winner's earnings,
not to make money on odds. He developed the technology in his spare time
while working as a software contractor for British intelligence. Three years
since its launch in a London attic, Betfair has expanded its workforce from
eight people to 290 and grabbed an 80 percent share of the market for online
betting exchanges. Betfair now has 30,000 regular customers, each placing
an average bet of 35 pounds (US$58), or three times the typical wager at a
High Street betting shop. The company's success has spawned 21 competitors,
and its closest rival has a market share of just 12 percent. Associated Press,
The Star Online, 10-21-03

High tech and leading edge
as betting exchanges may be, lotteries offer an example of how advanced the
United Kingdom is. It is now possible to play the lottery via your cell phone.

This isn't the first use
of cell phones for wagering; in Asia it has been available for a couple of years.

Mobile phone users will
this week be able to play lottery and gambling games anywhere they can receive
a signal as T-Mobile, Deutsche Telekom's mobile phone arm, launches the UK's
first lottery games on mobile phones. The mobile operator has joined forces
with MLotto, the creator of the Mobile Lottery, allowing users to play one
of three games for £1 with the chance of winning up to £1,000. Robert Budden,
Telecoms Correspondent, Financial Times, 11-2-03

Asian companies have discovered
ways to make mobile phones pay with—and without—gambling. …THE FUTURE of the
mobile Internet is already on display in Asia. European and American carriers
continue to lag behind on developing mobile payment systems, easy-to-use content
and common standards for new services, while Asians are coming up with simple,
cost-effective offerings. …In 2001, the Jockey Club introduced a system of
gambling in which users could place and pay for bets via their mobile phones.
Last year the service generated an additional $5.2 million per year for the
four mobile carriers that support it. It has also increased margins for the
Jockey Club, which pays less to process text-message bets than those placed
over the phone or in person, and has cultivated a whole new group of gamblers—women—who
are drawn to the anonymity of the mobile phone. Rana Foroohar, NEWSWEEK,
Oct. 20 issue

Are betting exchanges and
mobile telephone wagering the biggest developments in betting? Maybe, maybe
not. They certainly are dynamic and will likely reach our shore eventually.
The next generation and most significant new form of wagering may already be

Interaction video game wagering;
play online and bet your opponent on the outcome, a Pete Rose dream come true.
Who will control, regulate and police it? Who knows, but right now there is
no commissioner of baseball, no approval laboratory, and as of this minute,
no threatening legislation.

Think you're the best
gamer in town? These days, you'll need more than the high score to prove it.
Two companies are betting video game fans will put their money where their
mouse is - YouPlayGames and Ultimate Arena. Both let gamers 18 years and
older wager real money while fighting friends and strangers in first-person-shooter
games like "Return to Castle Wolfenstein," "Counter-Strike,"
and "Unreal Tournament." In either case you'll need to own the
game you want to bet on, and the services only work on Internet-connected
personal computers. Dennis "Thresh" Fong dropped out of college
in the mid-90s to pursue a career as a professional gamer, winning thousands
of dollars in rounds of "Quake." He co-founded Menlo Park, Calif.-based
Ultimate Arena last year after deciding gamers would be willing to risk money.
"Back when I was competing professionally, I had always wished that I
could just say 'OK, if you want to take out 20 minutes of your time to play
me, why don't you put your money where your mouth is?'" said Fong, the
company's chief gaming officer. Matt Slagle, Associated Press, Virginian-Pilot,

While in the UK betting
on sports or politics or movies or anything else is very common, in Canada gambling
is not unknown. The difference is ownership; much of the gaming in Canada is
government operated. Which means if a provincial government decides to allow
a particular form of gaming, there is little opposition. In the United States,
sports betting is contentious, with collegiate and professional organizations
lobbying against it at every opportunity. In British Columbia, sports betting
is coming to local convenience stores.

The NHL's Vancouver Canucks
struck a deal last week with the British Columbia Lottery Corporation (BCLC),
part of which involves the province's Sports Action lottery game. Sports
Action is a de facto parlay offering, where the bettor chooses a minimum
of three games to play. The schedules from all four major North American sports
are available: NFL, NBA, MLB and NHL. Players can wager between $2 and $20
Canadian…available at virtually any location offering lottery tickets in British
Columbia - convenience stores, gas stations, supermarkets, and just about
anywhere else you can buy goodies. Jason Lake, Covers Sports Information,

Canada is leading the way
in another way, addictive gaming lawsuits. It is too early to predict the impact
on gaming in Canada, or the implication for American jurisprudence, but it is
certain to have implications for the industry in general.

A high-profile Hamilton
official who lost his job to a gambling addiction is suing the Ontario government
and Casino Niagara for allegedly sending a limousine to take him back to the
blackjack tables following a $500,000 loss. Gabe Macaluso, former chief executive
of Copps Coliseum, Hamilton Place and the Hamilton Convention Centre, lost
$1 million over five years….joins a small but growing number of recovered
gambling addicts in Ontario and Quebec who have filed lawsuits demanding government-run
casinos stop them from ruining their lives. Heather Sokoloff, Canadian National
Post, 10-14-03

Asia, Canada and the United
Kingdom are showing the gaming industry how to expand its base and that is really
the story this month. The focus of the industry may be shifting from the United
States to the United Kingdom and other "foreign" jurisdictions. As American
companies become more experienced in the culture, regulation and trends in other
countries, they are sure to try and bring ideas, methods and managers back to
the home base. The trends are toward much higher levels of technology, technology
that will challenge regulation at a national level, much less for individual
states. Where will all of this lead us? I haven't a clue, but it is clear,
that as the industry matures and profits flatten as is happening in Atlantic
City and Reno, for example, there will be increasing pressure to find new jurisdictions
and opportunities for expansion.

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.