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Quick-takes: The month's trends in a glance - February 2003

28 February 2003

The threat of war is shaping the economy, depressing the stock market, impacting investment and consumer confidence and pushing the states' budget crisis to greater extremes.  The Dow Jones Industrials ended February at 7884, down 169 points from the beginning of the month.  The threat of war is also affecting fuel prices; gas prices have reached the $2 level, with some predictions for $3 by summer.  Fuel prices raise all travel costs, and, by virtue of their impact on home heating and normal driving, reduce individual and family disposable income, the source of all gaming revenue.  That kind of news not only depresses stock prices, it also depresses people.  Consumer confidence fell to a ten year low.

Wall Street's Angst War.  …Stocks have fallen in seven of the previous eight sessions due to fears of terrorism and war.  …The Dow and S&P 500 were headed for their fifth straight losing week, while the Nasdaq was aiming to claim it first weekly gain in five weeks.  …Concerns about war have been the biggest drag on the market so far this year, stripping the Dow of about 1,000 points since Jan. 14, when the blue chips stood at 8,842.62, their high for 2003.  Amy Baldwin, AP, Yahoo Business, 2-14-03

Casino Bonds in Slump on War Worries.  Bonds in the once-hot casino sector have suffered a reversal of fortune in recent weeks as deepening fears of war and security threats sap investor demand.  …"Everything is down, it's not just gaming," said Jane Pedreira, a fixed-income gaming analyst at Lehman Brothers. "It's really not a good time to come to market at all.Dena Aubin, Reuters, Yahoo Business, 2-18-03

Gasoline Tops $2 In More States Soaring Prices Begin To Spread Across USA.  About 500 gas stations are charging $2 or more for a gallon of regular gasoline, according to data from roughly 100,000 stations in markets of all sizes.  The highest gas prices mainly are in California and Hawaii…  James R. Healey, USA Today, 2-18-03

Consumer Confidence Nears 10-Year Low.  Consumers have grown increasingly worried about the economy as the nation inches closer to war with Iraq, driving down their confidence levels to their lowest point in nearly a decade, a private research group said Tuesday.  Rebecca Gomez, Associated Press, Yahoo Finance, 2-25-03

The "trickle-down" effect was the economic theory of the Regan era.  In 2003, it could find a new application.  The fear of war and a depressed economy have a trickle-down on everything and everyone, from Wall Street to the average citizen.  , The journey from Wall Street to Main Street trickles through State Street.  Budget shortfalls (state and local) continue to impact gaming as states look for ways to close the budget gaps.  The story isn't new this month; however, it continues as each of the states debates the issues and the proposed solutions.

States' Budget Gaps Jumped 50 Pct.  The deteriorating situation could prompt more cuts in a wide range of programs such as elementary schools, health care for the poor and more. Additionally, it will increase pressure on state lawmakers to raise taxes.  …Several states are already discussing raising so-called sin taxes, on cigarettes or alcohol, while others are pushing gambling to raise revenue.   Robert Tanner, Associated Press, Yahoo Business, 2-5-03

In the midst of continual news on a struggling stock market, lower earnings, high unemployment and debates on new taxes, a couple of trends are clearer this month than last.  The first trend might be called the rise of the city-state.  Cites around the country are acting as states and trying to find ways to bring casinos within their control and tax jurisdiction.  The authority and power to enable and control gaming lies with the state; therefore, cities must look to the state legislature for enabling legislation.  The cities are, however, taking the leading role in a new and stronger fashion as they seek more control over gaming.  The role they want looks very much like the role the state has traditionally played.

There are four cities in California, Oakland, Richmond, West Sacramento and Vallejo, negotiating with Indian tribes for a casino.  Besides California there are proposals, discussions or just plain dreams in Austin, Bellevue (Nebraska), Butte (Montana) Chicago, French Lick (Indiana), Philadelphia, and many more up and down the East Coast.  Some cities are looking for an Indian tribe, some just want enabling legislation to allow casino development and others want to own and operate the casinos themselves.

Downtown Casino Proposed.  A team of local business leaders and power players wants to build a casino in downtown Austin, the Austin American-Statesman reported.  The dream would cost $440 million, and raising the sum is the least of the uncertainties, the newspaper said.  …They say it would provide a river of profit -- $200 million per year -- that could be taxed to help struggling schools, city services and the state government.  Las Vegas Sun, 2-17-03

A casino town?  Mayor Jerry Ryan's recent announcement that Bellevue will get in line if casino gambling becomes legal in the state of Nebraska told us what one man thinks.  His will not be the only voice.  …At this stage it is important that anyone thinking of bringing casinos to Nebraska know that Bellevue will grant a fair hearing.  Bellevue Leader, 2-11-03

Gaming Haven Proposed For Butte.  A bill will be introduced at the Legislature soon to authorize creation of a "music and entertainment district" to allow wide-open gambling at some proposed new major casinos in the national historic district near uptown Butte.  …as is done in Branson, Mo., along with a dozen hotels for the anticipated influx of tourists.  Charles S. Johnson, Billings Gazette, 2-21-03

Daley Says Casinos Can Plug Budget Hole.  Mayor Daley said Thursday he remains intrigued about a government-owned Chicago casino….take back all of the state's gambling licenses to create a "pot of gold"…  Fran Spielman, Chicago Sun Times, 2-7-03

Towns' Quest For Casino Advances In House.  A House committee gave residents of French Lick and West Baden Springs their first win this year in their fight to get a casino for the economically depressed area. …a bill to give the state's 11th riverboat casino license to the Orange County towns. House Bill 1902 also would require county voters to approve a referendum before the casino arrives. Kristina Buchthal, Indianapolis Star, 2-13-03

Katz's Casino Proposal.  If Green Bay can own a football team, why can't Philadelphia own a casino?  Republican mayoral candidate Sam Katz isn't proposing a municipal gaming house (picture the Parking Authority running blackjack tables), but he is talking about a nonprofit corporation that would capture the bounty of casino profits for the public goodDave Davies, Philadelphia Daily News, 2-13-03

The trend of cities becoming the dominant force in the expansion of gaming is clear. Cities, large and small, are looking for ways to bring gambling revenues into their treasuries.  Among these cities are Philadelphia and Chicago who think they want to own a casino or two.  In what may be the next phase on this expansion and development carousel, a developer wants to buy a city, Las Vegas.  Barrick Gaming Corporation is trying to buy Vegas, not the Strip, only the downtown, just a small variation on a theme, but enough to please both Paganini and Ella Fitzgerald.

Barrick Exec Confident In Downtown Prospects.   Fremont Street pedestrians walk by Jackie Gaughan's Western, which is part of the collection of downtown casinos and motels Barrick Gaming Corp. is in the process of purchasing.  …Barrick Gaming has already spent $1.3 million for its $82 million deal to buy the Plaza, Western, Gold Spike and the Las Vegas Club, Barrick Chief Gaming Officer Phil Flaherty said.  …"This is the best time to do a deal," he said. "The best time to do a deal is during a downturn. The smart money knows this is the best time to buy. Once we finish blowing up Iraq, there will be a settling down."  Michael Gaughan noted that the 35 acres Barrick is buying represents a good chunk of downtown real estate for the price, and suggested that Barrick Gaming's buying may not be over.  "This is as much a real estate deal as a hotel deal," he said. "They're looking at all the land (downtown). They want all the land."  Jeff Simpson, Gaming Wire, Las Vegas Review-Journal, 2-7-03

Not every city sees gaming as the solution to all of its problems.  In fact, in an ironic twist of fate, it is cities that have gaming the longest that believe that.  Take, for example, the case of Reno, Nevada, the original home of casino gaming, the place where Harrah's first saw the light of day.  Reno took a back seat to Las Vegas forty years ago; as Las Vegas grew and its casinos became more innovate.  Reno was much more conservative its growth and its casinos.  Still it was the "second city" of gaming until Atlantic City arrived on the scene.  As gaming spread Reno's ranking dropped, but it was still one of the "premiere" gaming resort destinations in the country.  Until…  until Indian gaming came to California.  Since then Reno has been on a constant downhill slide.  Casinos and the casino industry in Reno are in trouble, and there are very few exceptions

Washoe County Cuts Value Of Casinos.  Casino executives told county officials they see only a slight recovery from the horrible year of 2002 because of the expansion of Indian gaming in California.  "It's tougher than anyone who is not close to it can believe," said Earl Howsley, Eldorado finance director.  . Susan Voyles, Reno Gazette-Journal, 2-21-03

For fiscal year 2002, pre-tax net income for the county's 38 casinos totaled $9.35 million, down from $73.3 million from the year before, according to the latest Nevada Gaming Abstract from the State Gaming Control Board.  The $9.35 million in net income is derived from revenues of $1.8 billion — for a pre-tax return of only 0.5 percent — for the year ended in June 2002.  Susan Voyles, Reno Gazette-Journal, 2-20-03

Atlantis Casino Has Record '02 Earnings.  Location and strong patronage from local residents helped propel the parent company of the Atlantis Casino Resort in south Reno to record earnings last year.  Monarch Casino & Resort Inc. said Thursday that its net income for 2002 rose 87 percent to $8.6 million, or 90 cents per diluted share compared with 49 cents in 2001.  Bill O'Driscoll, Reno Gazette-Journal, 2-21-03

Reno's story has a point and, if you wish, a moral.  Gaming is not a bulletproof solution to the current economic or budget crises.  Gaming like all industries is subject to pressure from government regulation, available capital, supply of customers and most importantly competition.  No state, city or, indeed, Indian tribe can control the growth of competition even though it would seem there are still plenty of customers "out there" for everyone.

More People Gambling, Study Finds.  Gambling in the nation continues to rise, with 82 percent of adult Americans saying they had gambled in the last year, a study has found.  The report, by the Research Institute on Addictions at the State University of New York at Buffalo, is in the winter issue of The Journal of Gambling Studies.  …The researchers cited studies showing that 61 percent of Americans gambled in 1975 and that 63 percent did in 1998The New York Times, Indianapolis Star, 2-3-03

One of the factors that impact casinos, as it does all industries, is regulation.  Regulation is one of the costs of gaming.  Casinos have to be licensed in what is a lengthy and expensive process in most jurisdictions.  And casinos have to have additional staff and equipment to meet regulatory requirements.  All add to cost of doing business and reduce profit margins.  But there is another and more expensive type of regulation, regulation that limits the time, bets and behavior of consumers; smoking is an example of this kind of regulation.  Relatively new to gaming, non-smoking regulation is starting to be a significant factor.  And to date it has proven to be very expensive for operations in jurisdictions with non-smoking requirements.

Bill Would End Smoking In Bars And Casinos.  The Assembly Environment and Solid Waste Committee unanimously passed the Clean Indoor Air Act, which would ban smoking in common areas of casinos, restaurants, bars, banks, hotels and other indoor public places. It now heads to the Assembly Health Committee.  Joe Weinert and Pete McAller, The Press of Atlantic City, 2-10-03

Casino Receipts Add Fuel To Smoke Ban Fire.  Gambling receipts have continued to sag in Helena and soar outside the city limits, according to new Department of Justice statistics.  …According to the Justice Department numbers, East Helena establishments saw a 39 percent increase — or $263,000 — in video gambling income compared to a similar three-month period last year. …Tax collections within the city limits fell 12 percent compared to one year ago, which means bars and casinos earned $460,000 less. Jason Mohr, Helena Independent Record, 2-28-03

Sharp Fall In Gaming Revenues To Hurt Clubs.  Victorian AFL clubs will see as much as $2 million stripped from their revenues this year by a downturn in gaming attributed to the ban on smoking in gambling venues.  …Essendon has confirmed that revenue from its gaming venues is "undoubtedly down, something between 10 and 20 per cent" and Western Bulldogs chief executive Campbell Rose said the impact of the ban was clearly being felt at the three venues his club operates.  Stephen Rielly, The Age, 2-12-03

….the impact of the smoking bans is the most serious and immediate. The bans were responsible for the 2.2 per cent fall in gaming revenue and 2.4 per cent decline in trading profits from Tabcorp's gaming division in the December half.  The numbers, however, understate the severity of the impact. At the start of the half the division was booming, with revenue up 11.4 per cent in July and 17.1 per cent in August.  Stephen Bartholomeusz, The Age, 2-20-03

Even though gaming expansion remains likely in a dozen or so states, one can begin to imagine a Reno-like time in the future.  A time when expansion has stopped and each state and jurisdiction is fighting to the death with the neighboring jurisdictions.  Still, there is a lot of money to be made until then.  And best positioned to profit in this latest expansion era are the manufacturers.  IGT, the most likely beneficiary of any new gaming, is trying to broaden its revenue stream past game sales.  No one understands what happens when an expansion bubble bursts that IGT.  It was after all, the expansion bubble of the early 1990s and its bursting that lead IGT, the others followed suit, to reduce the emphasis on game sales and place more emphasis on "recurring" revenue.

IGT To Aggressively Pursue Lottery Contract.   Graphically illustrating of the impact of gaming proliferation on equipment manufacturers, Reno-based International Game Technology has set its sights on servicing the new Tennessee lottery.  At stake is a contract that could be worth $200 million or more for equipment and services.  "IGT has made it clear they have an interest in growing their online lottery business. …IGT plans to pursue the incremental business aggressively…  Rod Smith, Gaming Wire, Las Vegas Review-Journal, 2-5-03

As IGT sails along converting the industry to cashless and converting itself into more than just a slot machine company, the competition has had a rough month.  Aristocrat is caught in an Enron-like mess and Sigma is struggling to keep its licenses. 

Aristocrat Tells All: It's Worse.  Gaming machine manufacturer Aristocrat yesterday fuelled concerns over management credibility by confirming analysts' worst fears: the company's earnings problems extended well beyond a one-off deal failure with a South American customer.  …Aristocrat shares traded for less than 15 minutes yesterday before being placed in a trading halt ahead of the announcement last night. Shares were down another 10c to $2.30 after touching $2.18.  … Once perceived as a "shining light" in the market, Aristocrat's credibility was severely damaged, Mr Monaghan said.  "The company has dropped 60 per cent in the last 12 months. People expect that from dotcoms, not from companies with the history and position of Aristocrat." Allison Jackson, Sidney Morning Herald, 2-10-03

Sigma Wins 90-Day License.  A Cole County judge has ordered the Missouri Gaming Commission to issue Las Vegas-based slot machine maker Sigma Game Inc. a 90-day license.  The judge said the 90-day license will give the parties time for a full hearing and due process.  Las Vegas Sun, 2-13-03

In the 1960s, as the anti-Vietnam movement gained support, folksingers often gave their voice to the debate.  Bob Dylan sang sarcastically of "god being on our side."  In Bob's mind God did not take sides in war.  The words were not directed at any particular religious movement or specific support for The War by any religion.  It was a reference to the Pledge of Allegiance and the non-secular, but deeply religious, foundations of our country.  This year God is taking sides in New Jersey, a state that has given us a great deal of entertainment in the last month.  A debate over increasing gaming taxes is raging across the state; God has joined the battle.  He lined up to support the casino workers whose jobs, they feel, would be threatened by the governor's proposed tax increase.   In a very blue collar, heavily union state, churches are as representative as unions.

Political Rivals Fight Governor's Proposal.  Imploring preachers to pray for Gov. James E. McGreevey, political foes came together Wednesday to crusade against the new casino taxes in his proposed state budget.  Republican state Sen. Bill Gormley joined hands with warring Democrats Mayor Lorenzo Langford and City Council President Craig Callaway in front of the Second Baptist Church's altar.  …A coalition of local black ministers registered approval from seats near the speaker's podium, as elected leaders called the proposed taxes an assault on an industry that produces income for the state and an attack on a city that is on the verge of realizing the payoff of casino gaming 25 years after its start.  Bridget Murphy, The Press of Atlantic City, 2-20-03

And now for a man who made a living explaining gaming to Wall Street and the gaming industry itself, a new gamble.

Bear Stearns Analyst Resigns.  Jason Ader, Bear Stearns Cos. casino and hotels analyst, left the No. 6 U.S. securities firm last week to explore other options, he said.  Ader, ranked No. 1 by Institutional Investor magazine from 1999 to 2001 and No. 2 in 2002, will hand coverage of companies such as MGM MIRAGE and Hilton Hotels Corp. to Mark Abramson. Abramson has covered lodging in Europe and Asia and been with Bear Stearns for nine years, said Russell Sherman, a spokesman.  Ader, who turned 35 on Thursday, celebrated by asking his girlfriend to marry him. He proposed in his Manhattan apartment before going to Lespinasse, the French restaurant at the St. Regis Hotel. She said yes and he quit the next day.  Las Vegas Sun, 2-11-03

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.