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Analyst: Gaming Companies may Consider Racetrack Purchase

28 November 2003

Las Vegas Sun

by Liz Benston

LAS VEGAS --Gaming operators in Las Vegas and around the country are likely considering making offers to buy the U.S. gaming assets of troubled British gaming company Wembley PLC, analysts say.

The assets, a dog track with slot machines in Rhode Island and four tracks in Colorado, may be for sale because of a scandal in Rhode Island in which Wembley executives were indicted on bribery charges tied to a scheme to add slot machines at the company's track.

Some gaming executives, who declined to be named, said this week that the scandal has significantly decreased the appeal of purchasing the Rhode Island track or other assets from London-based Wembley PLC.

But analysts say that outlook is a red herring and that major gaming companies are working behind the scenes to sniff out the possible purchase of the Lincoln Park track in Rhode Island and the less-valuable Colorado tracks, which don't have slots.

The appeal of the Rhode Island track, which is said to generate some of the highest revenue per slot machine in the nation and already has the authority to add more than 700 slots for a total of 3,000, is unmistakable, analysts say.

Of large-cap casino companies, Harrah's Entertainment Inc. -- which has expressed interest in running racinos nationwide -- appears the most likely to bite, said Ray Cheesman, a bond analyst at Jefferies & Co.

Mid-cap companies that are focused on running smaller operations such as racinos -- including Isle of Capri Casinos Inc., the Dover Downs race track in nearby Delaware, Boyd Gaming Corp., Argosy Gaming Co., Ameristar Casinos Inc., Pinnacle Entertainment Inc. and Magna Entertainment Corp. -- also may be interested, he said.

The companies haven't talked publicly about their interest in the track and those that were contacted for comment declined to discuss specific deals.

Harrah's Entertainment, which also declined comment, has an agreement with the Narragansett Indian tribe in Rhode Island to build a casino in West Warwick. The deal, which would give Harrah's an ownership stake in the casino and would involve managing the casino for the tribe, wouldn't preclude Harrah's from owning another gaming property in the state.

Wembley has been a primary opponent of the Narragansett casino proposal, which has yet to receive government approval in Rhode Island.

Both large and mid-size gaming companies could be interested in purchasing Lincoln Park if there is some assurance that the buyer would be indemnified from liability, CIBC World Markets bond analyst Jacques Cornet said.

"New opportunities (of Lincoln Park's size) are few and far between" in the gaming industry, Cornet said.

A simple asset sale of Lincoln Park would be possible without liability to a major gaming company, Cheesman said.

Last week, Penn National Gaming Inc., which owns a racino in West Virginia as well as two race tracks without slots in Pennsylvania, became the first company to step forward by saying it was in discussions with Wembley to purchase all or some of the company's assets.

Penn National's potential acquisition of Wembley "would make sense" given Penn's experience owning and operating racinos, Merrill Lynch analyst David Anders said.

The Lincoln Park track generated operating profit of about $63.7 million in 2002, according to Merrill Lynch. Some analysts have estimated that the property wins roughly $300 to $600 from gamblers per slot machine per day -- well above the Las Vegas average.

"Assuming a reasonable acquisition price, this could be a good opportunity for Penn," Lehman Brothers analyst Joyce Minor wrote last week in a separate research note.

A federal grand jury in September charged Wembley Chief Executive Nigel Potter and Dan Bucci, chief executive of the company's U.S. subsidiary, with 22 counts of fraud including charges of illegal payments to a law firm tied to former Rhode Island House Speaker John Harwood to facilitate approval of additional slot machines at Lincoln Park.

Wembley was dealt a second blow last month when Colorado voters overwhelmingly defeated a measure to add slot machines at the state's five pari-mutuel wagering race tracks.

The company also owns greyhound tracks in Britain that could potentially benefit from the anticipated deregulation of gambling laws in that country.

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