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Casinos Providing Investors More Financial Details

When quarterly earnings season rolls around later this month, even the smallest gaming industry investors will have access to something that once was the domain of only the largest shareholders -- access to company conference calls in which executives discuss their companies' financial performance and outlook.

Though actual phone calls will still be restricted, a number of gaming companies, including Mandalay Resort Group, MGM Mirage, Alliance Gaming and International Game Technology will "broadcast" their calls live on the Internet. Though not everyone will be doing it this month, most major gaming companies are at least examining the idea.

That's one of the first fruits of "Regulation FD," a Securities and Exchange Commission rule set to go into effect this week. It's a rule designed to level the playing field for smaller investors, by ensuring everyone has access to critical market-moving information at the same time.

To be sure, it isn't just a gaming industry rule. Regulation FD (short for "fair disclosure") affects any company in the public markets. And other Las Vegas companies are dealing with it as well -- last week, PurchasePro.com announced it too would place its call on the Internet.

But within the tightly knit gaming industry, where institutional investors and well-connected analysts had a distinct advantage in ferreting out key information, it means big changes are coming. Management guidance has, for decades, been a key tool for analysts -- now, that information will hit the market all at once.

Example: Last week, prior to sending top executives to a conference with institutional investors, IGT issued a press release announcing strong demand would push fiscal year revenues past $1 billion for the first time. And whenever MGM Mirage President Jim Murren travels on the road to chat with big investors, a slide show outlining Murren's presentation is immediately posted to MGM Mirage's website.

"I absolutely support the spirit of this," Murren said. "I think the intent is to make as much information available to as broad a universe as possible to level the playing field, so all investors have the same amount of information. We're all for that."

But analysts argue that the so-called advantage they have is a myth.

"If large investors were able to consistently glean material information, we really would have seen it in the track record of their funds," said David Anders, gaming analyst with Merrill Lynch. "They should consistently outperform the market, which I think we all know is a difficult task to do over an extended period of time."

Under Regulation FD, senior management at any public company is forbidden from releasing "material" non-public information to analysts and investors before releasing it to the public -- a practice known as selective disclosure. If it's reasonable to assume the person will use the information to make a trading decision, the rule forbids its disclosure. Exceptions are made for communications with the press, rating agencies or ordinary business communications with customers or suppliers.

If information is accidentally disclosed, a press release must be issued within 24 hours. Willful violations could result in disciplinary action by the SEC.

"The practice (of selective disclosure) undermines the integrity of the securities markets and reduces investor confidence in the fairness of those markets," a SEC fact sheet on Regulation FD says. "Selective disclosure also may create conflicts of interest for securities analysts, who may have an incentive to avoid making negative statements about an issuer for fear of losing their access to selectively disclosed information."

For analysts, that represents a huge change in how they conduct business. For decades, analysts have relied on guidance from executives to fine-tune their earnings estimates and to gather information for their clients.

That guidance is no longer available -- and without fine-tuned earnings estimates, Anders said, stocks could become more volatile when investors are surprised by earnings announcements.

Another argument is that companies will begin to err on the side of releasing less information, since everyone's trying to figure out what constitutes material information. The result, opponents say, is less information for the entire market.

"You're not supposed to tell anything that might result in a trading decision. How the hell are you supposed to know that?" said Dave Ehlers, chairman of Las Vegas Investment Advisors. "This is like the thought police."

While preparing a report on slot machine usage in Las Vegas, Ehlers said he's already seeing less information coming from company executives that used to talk openly. And Anders said fewer companies are agreeing to one-on-one meetings with top executives.

"For Las Vegas operators, it's going to be funny," Anders said. "You'll be asking other management teams to comment on their competitors' operations, rather than their own operations."

Murren has a unique perspective on the issue -- prior to joining MGM Grand Inc., Murren was a gaming industry analyst himself. And he acknowledges the flow of information may have to be scaled back.

In the future, MGM Mirage may begin declining invitations to speak at investor conferences if the sessions can't be broadcast live on the Internet, Murren said. And he won't be able to provide earnings guidance as he has in the past.

"We're not going to provide any information at those conferences or in one-on-one meetings ... unless we make that available to everybody," Murren said. "The tenor of conferences going forward will likely change.

"I think the relationship between companies ... and big institutional investors and analysts will change, because we're very sensitive to this, and take this very seriously. It changes the way they conduct their business, but analysts are chameleons. They adapt to a changing world, and they'll adapt to this. Analysts have relied more and more on company relationships, and maybe it's healthy we're broadening that out."

But among well-connected investors and Las Vegas insiders, very little may change, Ehlers said.

"They're going to shut up when it comes to talking to analysts," Ehlers said. "But if you're my buddy, I'll probably still talk to you."

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