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Best of Ken Adams

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Quick-takes: The month's trends - December 2004

19 April 2005

In the world of 2005, gaming exists in every state. It isn't thesame in every state and it isn't always legal, but it does exist. Not in Utah or Hawaii, you say. Yes, in Utah and Hawaii, just look atthe articles from the Honolulu Advertiser and the Salt Lake City Tribune. Because of its expansion and spread into every day life,some changes are also taking place with the Adams Report. Beginning in this edition, you will find articles from nearly everystate. My intent is to provide a picture of gaming in the United States, not just the big casino stories from Las Vegas, AtlanticCity, Detroit or Mississippi, but an accurate picture of the fullscope of gaming in America. Each month you should be able tolook across the country and see the developments, events andtrends in each state and gain insight into gaming in general and tothe trends that will have an impact on the future developments ingaming. There is also a new international section at the end of theReport. Gaming internationally has changed as significantly as it has in the United States, and many trends that first surfaceinternationally will eventually find their way here. That said, I hope you find the changes useful. Happy New Year, and best wishes for 2005.

The American economy seems to be quite healthy as the Dow Jones industrials head toward 11,000, oil is close to $40 a barrel, consumers are confident and spending, the job market is improving and the GNP is up. None of those guarantees a good year in 2005, but they certainly indicate a good trend.

…sending the Dow Jones industrials to a new 3-1/2 yearhigh as two Wall Street firms reported better-than-expected earnings …Stocks have climbed steadily since the presidential election, with good economic data and positive profit forecasts for 2005 assuring investors of further returns. Michael J. Martinez, Associated Press, 12-22-04

The U.S. economy grew at a 4 percent annual rate from July through September, faster than previously estimated, suggesting an equally strong finish to the year. Bloomberg, 12-22-04

Consumer spending grew at the fastest pace in almost three years, business investment accelerated and inventory accumulation slowed during the quarter. The need to increase stockpiles amid continued strong sales will buoy GDP in the current quarter, economists said. Bloomberg, 12-22-04

The total amount of all goods and services produced by the U.S. economy, the world's largest, rose to $10.9 trillion when annualized and after adjusted for inflation. Without adjustment, GDP rose 5.5 percent annual pace to $11.8 trillion. Bloomberg, 12-22-04

The addition of 2 million jobs over 12 months strengthened GDP, he said. Chris Varvares, president of Macroeconomic Advisers LLC in St. Louis, said the economy overcame unforeseen obstacles, including the surge in petroleum costs. Bloomberg, 12-22-04

Improving labor market conditions and cheaper energy prices led to a sharp increase in a widely watched indicator of consumer confidence in the economy in December, a good sign for growth heading into the new year. The Conference Board…reported…index of consumer confidence leapt by nearly 10 points to 102.3 in December from 92.6 in November, following four months of declines. It was the highest level for the indicator since July... Seth Sutel, Associated Press, Yahoo! Finance, 12-28-04

Crude oil prices rose 45 cents to $41.77 per barrel on the New York Mercantile Exchange. Heating oil futures were up by 1.13 cent to $1.2221 per gallon on Nymex. Oil markets have been extremely volatile in recent months due to strong global demand and a tight supply cushion. CIO Today, 12-28-04

Even travel and related industries that have been depressed since September 11, 2001 are recovering and predicting a good
year in 2005.

The Hospitality Research Group (HRG), the research affiliate of PKF Consulting, announced today that a "typical" fullservice hotel achieved an 8.4 percent improvement in gross operating profits (GOP) in the first half of 2004, compared to the same period a year earlier. …Based on the strong hotel improvements in occupancy and average daily rate already reported in the second half of 2004, HRG expects profit growth to be even higher for the second half and full year 2004. Despite these positive trends, the industry still lags far behind its past peak performance in 1998. The firm said that it doesn't expect unit level hotel profits and profit margins to reach 1999-2000 levels until 2006 or 2007. Business Wire, Hotel Online, 12-7-04

Attendance at North America's 50 most popular theme and amusement parks jumped almost 4 percent in 2004, the first overall increase since the 2001 terrorist attacks slowed the U.S. travel and tourism industry. An estimated 169.1 million visitors rode thrill rides and romped around with costumed characters at the North American parks, according to an annual survey released Monday by the trade publication Amusement Business and the research firm Economics Research Associates. The increase was helped by a jump in international visitors at destination parks, spurred on by a weakening U.S. dollar, and a rebound in U.S. travel and tourism, industry observers say. But 2004's figures still fell short of the pre-Sept. 11 attendance of 175 million visitors in 2000. Mike Schneider, Associated Press, Reno Gazette-Journal, 12-14-04

Three years after the Sept. 11 attacks, partygoers are making Times Square in New York City the top destination spot to ring in the New Year, according to a survey of Priceline.com hotel reservations. Associated Press, USA Today, 12-27-04

November wasn't the best month for American casinos, nor the worst for than matter. Tourists are reported to be returning to New York, Disneyland and the 'other' play-lands of America. But except for three states, they don't seem to be playing roulette. Revenues in Mississippi, Missouri and Nevada were up from last year, while casino revenue in the rest of the country was down. The explanations varied from competition, the number of weekends, and weather. Whatever the reason and however good the rationalizations, the truth is maturity. Mature industries are subject to broader economic forces, as opposed to go-go young industries that are driven by other forces, usually novelty and unmet demand. Look, for example, at the report on the hotel industry. It is still struggling to recover from September 11th, hoping that by 2007 it will have fully recovered. The impact of September 11th is admittedly exceptional, but it does illustrate the power of economic forces. In most jurisdictions gaming has matured and has therefore become subject to the same forces as the rest of the economy. Except for states, such as California where gaming is still relatively new, the go-go days have gone, gone, gone.

The Nevada 's 346 casinos won $924.9 million in October, a 12.9-percent jump and the third straight month with a double-digit increase. Cy Ryan, 12-10-04

Gambling revenue at Atlantic City's 12 gaming halls dipped 1.1 percent to $375 million in November… Donald Wittkowski, Press of Atlantic City, 12-14-04

Iowa casino win fell 1.9% to $85.6 million. Gaming Industry Weekly Report, 12-13-04

Connecticut's two casinos took in $127.1 million from slot machines in November, a decrease of $4.2 million during the same period last year... Newsday, 12-15-04

The 11 casinos in Missouri had combined winnings of $118.8 million last month, a gain of 6.7 percent from a year earlier. St. Louis Post-Dispatch, 12-15-04

The nine casinos in Illinois won $137.1 million, up 3.4 percent. St. Louis Post-Dispatch, 12-15-04

Colorado casinos reported total adjusted gross proceeds of $53.3 million in November, a drop of roughly 15 percent from $55.1 million in the same period a year ago. Rocky Mountain News, 12-21-04

Indiana November casino win fell 0.4% to $184.3 million. …Southern Indiana casino revenue was down 0.7%… Gaming Industry Weekly Report, 12-27-04

Southeast Indiana's riverboat casinos appeared to lose a bit of momentum in November, …Overall, wagering at the three sites was off 2 percent to $766 million in November, compared to $783 million in November 2003. Jon Newberry, Cincinnati Post, 12-21-04

Mississippi casino revenues for November totaled $218.2 million, up from $213.4 million a year ago. Tom Wilemon,
Biloxi Sun Herald, 12-22-04

Louisiana's 14 riverboat casinos generated $119 million in revenue in November, a 4.5 percent decrease compared with the same period a year earlier…state's three racetrack casinos generated $22.8 million in revenue…4,352 video gaming devices …generated $45.5 million in revenue in November, down 0.3 percent from November 2003. Rebecca Mowbray, New Orleans Times-Picayune, 12-22-04

As long as we are on the subject of maturity, there is another sign, consolidation. As we exit 2004 it seems clear that there will be fewer casino companies. As the number of companies is reduced, the size of the remaining ones gets larger. The trend, comparatively new to gaming, always produces investor speculation and some new players. Investors win if they guess and buy correctly - they get the brass ring. So, for example, Caesars stock has gone from $14 to $20 since Harrah's
made an offer to buy the company in July. The second part of the speculation is the new players; companies such a Colony Capital, Columbia Sussex, Barrick Gaming and Landry's Restaurants are finding ideal opportunities to acquire the leftovers and join the other players at the gaming table. Landry's Restaurants? Seems like the opportunities to eat restaurants are diminishing, so why not eat a casino or two?

The consolidation that is occurring in the gaming industry is a sign of its maturity and success, an American Gaming Association executive said today. Wally Chalmers, vice president of the AGA, also said the industry's resilience is illustrated by the fact that gross gaming revenue has eclipsed pre-Sept. 11 levels with Las Vegas leading the pack. Chalmers kicked off the second day of the three-day Governor's Conference on Tourism as one of three gaming industry speakers this morning. …"While consolidation is shrinking membership in the AGA, it has certainly fueled growth for our companies," he said. "This year, there were more mergers than ever before, with Harrah's buying Horseshoe and Caesars, MGM Mirage buying Mandalay, Boyd buying Coast Resorts and Penn National buying Argosy. Consolidation is common in any mature industry, so we expect that trend to continue." Chalmers said the health of the industry also has been reflected in the new investment opportunities offered by Wynn Resorts Ltd. and Las Vegas Sands Inc. Richard N. Velotta, Las Vegas Sun, 12-7-04

The gaming industry is expected to consolidate further with a particular emphasis on expansion in Las Vegas, according to an 2005 industry outlook published by bond rating company Fitch Ratings. "With waning interest in regional markets, Fitch believes Las Vegas will continue to become a more prominent market for expansion in 2005…"Year-to-date growth has exceeded expectations, with visitor volumes, room rates and casino revenues hitting record highs…Industry consolidation will continue next year…Fitch said. Las Vegas Sun, 12-8-04

A booming casino industry, a lack of attractive restaurant merger targets and $400 million in cash has Landry's Restaurants prowling the Las Vegas Strip in search of its next acquisition. The company hasn't formally announced plans to get into gaming, but Landry's Chief Executive Officer Tilman Fertitta has made no secret of his interest. At a recent analyst conference in New York, he lamented the shortage of good merger deals in the restaurant industry. And in a recent conference call, he said the company would consider buying a casino "...but it would have to be the right deal." …There are many individual casinos on the market, the result of a merger spree among the nation's biggest gaming companies. Tom Fowler, Houston Chronicle, 12-23-04

A clearly related phenomenon is the IPO of the Las Vegas Sands. The company has been a solid operator in Las Vegas and as the first of the foreigners into Macau, is doing very well outside of Vegas. In the week leading up to the offering, the price was thought to be in $21 range, but on D-Day it was $29 and within 24 hours, shares were selling for over $50, putting the Sands in the top three gaming companies. Market capitalization on December 27, 2004, with the stock at $47.65 was 16.7 billion dollars. Not a bad week's work.

Shares of Las Vegas Sands Corp. surged 52.4 percent Wednesday as the casino operator debuted on the New York Stock Exchange and investors rushed to grab potential profit pipelines in Las Vegas and the Chinese enclave of Macau.…The Sands is riding the success of casino stocks and the record profits gambling companies have been churning out since 2003. The Las Vegas-based Sands will rival casino giants MGM Mirage Inc. and Harrah's Entertainment Inc., the industry's two largest companies. Associated Press, Forbes, 12-15-04

The stock market is going hucklety-buck and casino stock is riding the waves as well or better than any industry. The joy of being loved by the investors of Wall Street was not limited to the Las Vegas Sands - - not this month, not this year. Steve Wynn without a casino and without revenue has seen his stock price double this year alone; it went public at $13 in 2002, as we end 2004, the stock is traded at just under $70. Wynn is, of course, unique, but there are other companies riding the wave of casino popularity. As are the following three; the Riviera, and two Reno companies, Sands Regency and Monarch.

Two Reno…companies saw record-high stock prices. …Sands shares hit their highest point since the early 1990s…soaring…to $18.16 on record volume of more than 705,000. …Monarch Casino & Resort, the Reno parent company of the Atlantis Casino Resort & Spa, finished the day at $42.11 — an all-time high…A year ago, the company was trading around $10 per share. Thomas J. Walsh, 12-21-04

Since the beginning of the year, shares in Riviera Holdings, traded on the American Stock Exchange, have increased nearly eight times in value. On Jan. 8, the stock hit a 52-week low of $5.40; on Wednesday, the share price was a 52-week high of $44.70. Shares in Riviera Holdings closed Monday at $41.35, down 10 cents, or less than 1 percent. Howard Stutz, Gaming Wire, Las Vegas Review-Journal, 12-28-04

The Sands Las Vegas and Wynn are both attractive for the same reasons. They have good operating reputations, great locations on the Strip in Vegas, and the investors hope great locations in Macau. Both companies and their investors are putting a great deal of emphasis on Macau. It is too soon to forecast the future of Asian casino growth or to guess its impact on Macau. In the short-term, however, Macau does seem like a safe bet.

…In the first half year, Macao received 7.73 million visitor arrivals, which exceeded the total number of the whole year's counting in 1999. In the first 10 months of this year, the number amounted to 13 million, which was 1.8 million more than that recorded for the whole of last year. Fang Ning, Xinhuanet, 12-9-04

In Macau, Wynn has abandoned his intent to use his 20-year concession in the Chinese enclave to sign a joint-venture partner to build additional properties. Even though prospective partners would have had to cough up all of the cash to build a property that would split revenue with Wynn Resorts, Wynn says the emerging power of the Macau market makes a joint venture unlikely. "Why would you want to share?" …"I'm going to exploit my opportunities in Macau." Jeff Simpson, Las Vegas Sun, 12-9-04

Las Vegas Sands, which plans to duplicate its Venetian Resort Hotel and Casino in Macao, is seeking government permission to build six more hotels, some with casinos, in the southern Chinese city. The company, which opened the first Las Vegas-style casino in Asia in May with the $265 million Sands Macau, has nonbinding agreements for the six hotel resorts, Las Vegas Sands said in a filing to the U.S. Securities and Exchange Commission. Sau Chan, Bloomberg News, 12-9-04

While Wynn and Adeleson are rubbing their hands together and dancing with glee as they contemplate the profits from Macau, it may not be quite so simple. The most experienced operator in Asia and the only operator in Macau for the last 50 years or so, Stanley Ho, is gearing up his operations to compete against the Americans. He learned Mandarin Chinese and built a "lotus city." He must think there are some things the Americans don't understand; and I for one would not recommend underestimating the cultural differences. Remember the last time Americans went to Asia to fight a man named Ho?

"May the gaming industry bolster Macao's continuous economic growth!" said Macao's casino tycoon Stanley Ho in an exclusive interview with Xinhua. …Among…biggest construction projects is the flagship Grand Lisboa with an investment of 3 billion Hong Kong dollars (384 million US dollars). Designed with an egg-shape base, the building will have an elongated lotus-like shaft, which symbolizes Macao's image as a "lotus city," said Ho. Fang Ning, Xinhuanet, 12-9-04

Meanwhile, back at the ranch, Christmas shopping gave us a further glance into the domestication of gaming. Gaming is an adult activity, closely regulated and controlled. The locations, the participants and the operators are limited by statute and regulation. That is so not true today. Poker on television and the Internet has made gaming as common as a domestic pet you can bring one home if you want. Want to play a little poker or a slot machine? The trappings are for sale just down the street; the only regulation is the same you have for your dog - - which room you let them in and when you make them go outside or to bed. Although officials in Idaho are trying to exert some control. I wonder if they are checking living and bedrooms around the state to see who is watching gaming on television or playing online?

Retailers around the country are responding to the craze by devoting entire sections of their stores to casino-style gifts this holiday season. From tabletop kits with poker, roulette, craps and blackjack to miniature virtual slot machines – anything casino is in. Bookstores have gambling sections, cell phones have downloadable blackjack games and department stores have poker-themed ties. Shopping mall kiosk owners have traded goofy slippers for portable poker sets and casino-style tabletop felts. The poker sets typically range from about $79 to $200. Tabletop felts go for about $99 and tables range from about $400 to $500. …Brookstone and The Sharper Image also devote a section of their stores to casino-style gifts.
Both companies sell their own brands of poker sets. One of The Sharper Image's best sellers, according to the company's Web site, is a $40 Texas Hold'em talking electronic poker game. Lisa Johnson, the Discovery Channel store manager, said they have a hard time keeping up with the demand for casino games. She also said she is surprised by the number of kids who come into the store and walk straight to them. …Online stores such as KBtoys.com, CircuitCity.com and eToys.com, sell the "One Arm Bandit," a plastic, battery operated slot machine with plastic tokens, a pull lever and spinning wheels, designed for ages 3 to 12. It goes for about $20. Brooke Williams, San Diego Union-Tribune, 12-23-04

Now kids as young as 10 are being dealt hands, often with parents' approval. Poker paraphernalia is being hawked everywhere from supermarkets to kiddie emporiums such as Toys R Us. - Marco R. della Cava, 12-21-04

…hundreds of Utah residents shopping over the weekend at the Utah State Fairpark Zion building for an "entertainmentonly" slot machine. A Southern California-based company called Direct Gaming International (DGI) trucked in about 900 of the used casino machines Friday. Jason Bergreen, Salt Lake Tribune, 12-20-04

Friday, Costco Wholesale …was asked by the state of Idaho to remove a number of Japanese-style slot machines from its three Idaho stores. The $289 machines -- which accept tokens and look similar to the slot machines found in casinos -- are illegal to own or sell under the state's gambling laws, said Bob Cooper, spokesman for Idaho Attorney General Lawrence Wasden. Megan Hinds, Magic Valley Times-News, 12-23-04

And while we are online and watching television, how about the real TV scams? It isn't legal, so it isn't happening, but it seems that some people know the outcome of the programs and place a small wager on it. Small is a relative term, but the wagers were enough for the bookies to take the bet off the board.

After only one episode of The Apprentice aired in September, BetWWTS.com was forced to suspend betting on the hit reality show because of an unusual betting pattern. …all wagers taken were from new accounts in New Hampshire and all placed wagers on Kelly and Jennifer M…each account was opened within a day of each other and the customers all placed maximum limit wagers of $300 …BetWWTS.com was left with a $10,000 liability on each contestant…the company will honor all wagers…It was obvious from the similar geographic location of the accounts, timing of the wagers and nature of the bets that this was more than a simple conspiracy theory, but more likely the by-product of a leak from someone involved with the show. PRNewswire, Yahoo! Finance, 12-10-04

The gaming industry is growing and expanding, but the growth has slowed. The industry, for the most part, is no longer a go-go industry, subject only to its own internal forces. Gaming is now a mature industry affected by the same forces that affect retail, travel and other industries. The maturity has produced conditions suited to consolidation and international expansion. Gaming stock in general was on a high for most of 2004: Wynn stock trading at six times opening price without a dollar of revenue; Las Vegas Sands jumping $15-20 in its first week of trading, even some of the smaller ones have benefited from the crest of the wave. But here is where reality sets in. In the long-run gaming stocks; like auto, retail or hotel stocks, will trade on value and that means net revenues. There are still some wild cards in the mix, however. The growth of poker, sports betting, gray-area slot machines fed by television and the Internet are effecting gaming in lots of ways. In particular gaming seems to be attracting new investors, people who woke up one day while watching a poker tournament on television or at the local pub and thought: "I need to buy some gaming stock. I wonder what company is best?" That confusion will lessen as investors become more sophisticated, and then fundamentals will again be the measure of value. Maturity isn't as much fun or as exciting as the go-go times, but it is easier to understand, predict and value. And that should help the governors and state legislatures looking for a golden goose.

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.