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Quick-takes: The month's trends in a glance – June 2007

15 July 2007

We are months and months away from the presidential election, but presidential politics is everywhere – and into everything, including gaming. First Obama, while campaigning in New Jersey, took up the cause of the unions, characterizing dealers as criminally underpaid and put upon by management. McCain has taken on gaming regulation, issuing statements technically aimed at the regulation of Indian gaming, but sounding very much like a call for national regulation of all of gaming – he is just sneaking in the back door. Not to be left out of the constant campaigning in seemingly every location in the country, some southern California tribes are trying to stage their own presidential debates. They are blaming unions for keeping candidates away and threatening those candidates who do not participate in the process. I think gaming was better off when no national politician ever expressed opinions on it – except in Congress during debates on Indian gaming.

With a debate raging over expanded gambling in Massachusetts, 2008 presidential hopeful Sen. John McCain warned that the explosion of casinos nationwide could erupt into scandal and corruption…He added that lax enforcement of gaming laws could lead to "scandal" and "abuses" as gambling palaces pop up nationwide. "This is a controversial issue and there should be significant involvement by the local communities," he said. "It's a tough issue, but I believe that if we don't have stronger oversight and regulation, we could see some bad things happen." (Dave Wedge, Boston Herald, 5-23-07)

Labor's fight to organize Indian casino workers in California spilled into the presidential campaign Wednesday when a Native American leader accused a union of trying to derail a Democratic forum envisioned for the Morongo Indian Reservation this summer. The event's organizer said the union had pressured candidates to skip the debate because the tribe-owned casinos were strongly opposed to unionization. A union officer denied the accusation. Only two presidential candidates — New Mexico Gov. Bill Richardson and former Alaska Sen. Mike Gravel — have agreed to take part in the "Prez on the Rez" event planned for Aug. 23 at the Morongo casino-resort near Banning. (Dan Morain, Los Angeles Times, 5-23-07)

It seems hardly a month passes without some new takeover offer – and the latest offers of the month are from private equity funds. In May, Donald Trump, never known for his patience, was soliciting takeover offers.Then a mysterious, and still undefined, offer may, or may not have been made for IGTNext in line, Riviera got an offer for $34 a share; not bad, considering the first offer for Riviera a year or so ago was just half of that. And finally, an offer that appears to have startled everyone: Kirk Kerkorian decided he wanted to personally (not actually; the offer was made through another of his companies, Tracinda) own a couple of the MGM-Mirage properties.

Speculation always runs wild after one of the major private buyout offers. What are they, the buyers, going to do with the company, the individual properties, the management and other such questions? Will they break it up? Will they continue the company growth plans? Just what will they do? The Harrah's buyout prompted all of those questions and more. The questions about cash-flow and individual properties will be slightly different, but just as interesting, with IGT. However, the truly intriguing change would be for Kerkorian. He is almost 90 years old and has built the largest hotel in Las Vegas and the world several times. A month ago, he was trying to buy Chrysler. What is he thinking? I guess we will all just have to watch and speculate. You do own MGM-Mirage stock, don't you?

While the interest continues in the big names, particularly those with Las Vegas Strip property, there is another trend developing. It's the "no one wants to buy it, the taxes are too high and there is too much competition" trend. Have we reached the end of the go-go expansion that started in 1988 with the passage of the Indian Gaming Regulatory Act? Probably not, but there was a time when nothing stopped a new casino opening, an expansion of an existing one, or a willing buyer replacing a tired, worn-out owner of a casino. But things are tougher now; tax rates are higher, competition is more intense and some elements of the economy, such as gasoline prices, are putting more and more pressure on gaming. Individual projects, and the industry in general in some jurisdictions, are encountering what at times appears to simply be political greed. Some projects were halted midstream, clearly telling the politicians that new taxes made their continuation impossible. In Maine, one of the politicians pushing for higher tax rates admitted that he did understand the difference between handle and revenue.

Construction was halted Tuesday on the work to build the $131 million permanent Racino for Hollywood Slots. It's a direct response to what's going on in Augusta. Last week, the state legislature's Appropriations Committee proposed an increase in the taxes that Hollywood Slots pays to the state. Penn National, owner of the temporary Hollywood Slots and the company planning the permanent Racino, says if the change goes through it would end up paying a tax of 61-cents on every dollar taken in. When Maine legalized gambling, it required Hollywood Slots to pay of one percent of every dollar bet and 39 percent of the profits. The legislature wants the Racino to pay two-percent of every dollar bet while maintaining the 39 percent tax on profits. Penn National says that would make its operation unprofitable overnight. City officials are livid. Bangor's share of the money is being set aside to build a new Civic Center. (Matt Bush, WCSH 6, 5-9-07)

Plans by Indiana lawmakers to install slot machines at two racetracks near Indianapolis didn't sit well with Las Vegas-based Pinnacle Entertainment. The casino operator announced Tuesday during its first-quarter earnings report it was indefinitely postponing construction of a $45 million, 250-room hotel expansion at its Belterra casino due to the increased competition. Pinnacle executives said they would put the money into other company ventures. Belterra, which is Pinnacle's second-largest revenue producer behind the company's L'Auberge du Lac hotel-casino in Lake Charles, La., is located about two hours from Indianapolis, which is considered the property's third-largest feeder market behind Cincinnati and Louisville, Ky. Indiana is making plans to add 4,000 slot machines at the two Indianapolis racetracks. (Howard Stutz, Las Vegas Review-Journal, 5-9-07)

The companies that own the two Joliet casinos are blaming a drop in profits in part on a disputed Illinois tax that forces them to share revenues with the horse racing industry. Harrah's Entertainment Inc. on Tuesday said the state tax contributed to a nearly 18 percent drop in income from operations in its Illinois/Indiana region. Harrah's casino and hotel in downtown Joliet said last month that it has expensed $13.3 million since a tax forcing casinos to share revenues with the horse racing industry was first assessed. A Will County judge ruled the tax unconstitutional last month, but the state is appealing the decision. The casinos continue to pay the tax, which amount to 3 percent of gross revenues and was first put into effect in July 2006. But the money goes into an escrow account until the lawsuit is settled. (Bob Okon, Chicago Herald News, 5-9-07)

That does not mean that politicians around the country are beginning to understand the finances of gaming or think in terms of a fair tax rate or look at the long-term impact of their decisions. In Illinois the governor pushed taxes to the maximum, but now supports adding more competition including not just more casinos, but slot machines in other locations as well.

Sacrificing a campaign promise for a political priority, Gov. Rod Blagojevich announced Friday he'd support more casino gambling in order to fund his multibillion-dollar health care expansion… Now he's lending his support to four new casinos to be located in Waukegan, near O'Hare International Airport, in Chicago's South suburbs and in Chicago. Existing casinos would gain access to more slot machines, and horse tracks, including Arlington Park, could have gambling machines, too. (John Patterson/ Nate Hoekstra, Daily Herald, 5-26-07)

New Jersey is entering the most difficult period that gaming has ever faced in the state. Revenues have been down every month as the racinos in Pennsylvania have been opening. With intense pressure on revenues from competition, non-smoking legislation passed, and if the casinos needed something else, union activities have also increased as the United Autoworkers look for a new industry to organize. But none of that stops people from lining up to get more money from casinos. The racing industry is still blackmailing the casino industry – pay us or we will demand slot machines.

New Jersey's ailing horse racing industry may be getting a much-needed financial boost in the form of a bigger purse subsidy from Atlantic City's casinos when the current deal expires, a leading racing official said yesterday. The casinos have pledged $86 million over the past four years to enhance purses at Monmouth Park and the Meadowlands -- in exchange for keeping slot machines out of both tracks. But with the slot debate ongoing, those casinos may double the purse subsidy they provide to the two tracks to keep competitive with tracks in surrounding states that use slot machines to fatten purses, said Jerold Zaro, a member of the NJSEA Board of Commissioners and the chairman of the Monmouth Park Breeders' Cup Host Committee. The New Jersey tracks, in turn, would not push for slots…The last payment from the casinos to the tracks will be made this fall and is supposed to cover the 2008 racing season. (Tom Luicci, New Jersey Star-Ledger, 5-9-07)

Unions are big news this month, and not just because Barack Obama is pandering to them. The UAW is gaining a serious foothold in Atlantic City, with the first ever (except Detroit) really successful campaign to organize dealers, aided in no small measure by new labor legislation from Congress. Atlantic City is not the only place where unions are suddenly getting a hearing from dealers; Las Vegas is also feeling the presence of a union organizing dealers. The cause in Las Vegas is very different. Steve Wynn wanted to expand the dealers' tip pool to include first-level supervisors. The dealers have revolted; they have been to court, to the legislature, to the Internet and to the union to vent their anger and gain redress.

On Thursday, the National Labor Relations Board will conduct an election at the Trump Marina Hotel & Casino in Atlantic City that will determine whether the casino dealers there will be represented by the United Auto Workers. What this election will not do is gauge these dealers' interest in forming a union. Though those two statements may sound contradictory, they are not only accurate, but also a microcosm of the hurdles today's workers must clear in order to exercise their constitutionally protected right to organize. Under our current system, workers must sign union-authorization cards declaring their intention to be represented by a union. These cards are then presented to the NLRB and a petition is filed requesting an election. Upon the acceptance of the petition, an election is scheduled, usually a month or two down the road… However, under the Employee Free Choice Act, which recently was passed with overwhelming and bipartisan support in the U.S. House of Representatives, this all may change soon. Under this legislation, union representation would be recognized when a majority of workers signed an authorization card. (Charles Wowkanech, Philadelphia Inquirer, 5-7-07)

Dealers at a fifth Atlantic City casino are seeking to join the United Auto Workers in a high-stakes union drive…The Atlantic City Hilton Casino Resort is the latest property where dealers have filed papers for permission to hold a union election…dealers at Caesars Atlantic City and Trump Plaza Hotel and Casino voted overwhelmingly to unionize. Dealers at Trump Marina Hotel Casino will vote May 11, and their counterparts at Bally's Atlantic City will hold a union election June 2. (Donald Wittkowski, Press of Atlantic City, 5-7-07)

Days after casino boss Steve Wynn notified dealers in a closed-door meeting that frontline supervisors would be included in their tip-pooling agreements, allegations were posted on a Web site popular among dealers that Wynn insulted them for taking huge tips from players…The tactic certainly got the attention of labor experts because of the issues it raises: Can employers exert control over employee communications? And how far can workers go to press their cause?...A decision pending before the National Labor Relations Board, attorneys say, is expected to clarify the issue of Internet communications. The case against the Eugene (Ore.) Register-Guard newspaper involves an employee who was disciplined for using company e-mail to distribute union information…For one client, Kamer helped set up an in-house company intranet allowing workers to post comments and questions to which the company officials could respond, creating a "controllable and accountable" flow of information. Dealers say the Internet and e-mail level the playing field in their workplace, where break times are tightly controlled, there is little chatter among co-workers on the casino floor and company flyers are posted under locked glass in break rooms. Now they can talk among themselves, at home in front of a keyboard. (Liz Benston, Las Vegas Sun, 5-21-07)

The results from Atlantic City and Connecticut demonstrate that gaming has its limits, and even on the population-rich Eastern Seaboard, there is a limit on the number of potential customers. Louisiana is proving the same thing; after Katrina when many casinos in Mississippi were damaged and closed, Louisiana was rocking and rolling. But with the reopening of most of the Mississippi properties, Louisiana is reporting less revenue than last year.

Atlantic City April gaming revenue fell 9.9% to $396.8 million. (Reuters, 5-10-07)

Colorado gaming revenues inched up to about $67.1 million in April, a gain of 1.89 percent from the previous year. (Rocky Mountain News, 5-18-07)

Detroit's three casinos generated $110.4 million in revenue in April, up 4.2%. (Alan R. Woinski, Gaming Industry Weekly Report, 5-21-07)

In Connecticut, Foxwoods April slot revenue was down 3.4% to $65.2 million, Mohegan Sun revenue fell 2.9% to $73.9 million. (Alan R. Woinski, Gaming Industry Weekly Report, 5-21-07)

Illinois gaming revenue was up 4.3 percent in April. (Kansas City Star, 5-16-07)

Indiana riverboats gained 2.5 percent over April a year ago. (Kansas City Star, 5-16-07)

Iowa April gaming revenue rose 7.9% to $110.7 million. (Alan R. Woinski, Gaming Industry Weekly Report, 5-21-07

Louisiana April gaming revenue fell 4.2% to $205 million. Alan R. Woinski, Gaming Industry Weekly Report, 5-21-07)

Mississippi's gross gaming revenues were $241.8 million in April up about $49 million from a year ago. (Associated Press, 5-16-07)

Missouri casino revenue rose 1.9% in April to $133.2 million. (Alan R. Woinski, Gaming Industry Weekly Report, 5-21-07)

Nevada gaming revenues fell 0.8% in March to $1,054.8 billion. (Reuters, 5-10-07)

As an industry, however, revenues are still going up. That trend is certain to continue, with Pennsylvania and Florida openings. Additionally, one would think California would eventually get around to approving the compacts that are pending and that will lead to significant increases in slot machines in California.

Gambling revenues at U.S. commercial casinos rose 7 percent to a record $32.4 billion in 2006, according to a survey released Tuesday by the American Gaming Association. The survey assembled state data on about 460 commercial casinos in 11 states. Michigan ranked eighth among the states in revenue, with the three state-chartered casinos in Detroit taking in $1.303 billion in 2006. That was up 6.1 percent from $1.229 billion in 2005. The national survey did not include the gambling revenues from 372 American Indian casinos in Michigan and 27 other states, 713 cardrooms in five states or 11,567 video lottery terminal locations in six states…The survey also found that 36 racetrack casinos in 11 states took in 16 percent more in gambling revenue than the previous year, or $3.6 billion. The biggest gambling states by commercial casino revenue were Nevada at $12.6 billion, New Jersey at $5.2 billion, Indiana at $2.6 billion, Mississippi at $2.6 billion, Louisiana at $2.6 billion, and Illinois at $1.9 billion. (Associated Press)

The press is fond of making a great deal over the pay of executives and calling into play the difference in pay between the top executives and the lowest paid employees. There was a great story in the Las Vegas Review-Journal that detailed the pay and accomplishments of Terry Lanni of MGM-Mirage, making him seem very much overpaid compared to the average worker. The article did point out, however, that Lanni makes less than Roger Clemens. Lanni barely makes more in a year than Clemens makes in a week. MGM has grown under Lanni from $600 million in revenues to $7 billion. If he were a baseball, basketball or football player, his record would demand a very much higher salary, and no one would compare his salary to that of the guy who mows the grass or sells the hotdogs.

Although Lanni's pay isn't the $1 million a week Roger Clemens will make this year to pitch for the New York Yankees…. As the gaming industry has expanded its reach around the globe, top executives have reaped the rewards: increasingly lucrative pay packages, wider use of company aircraft, personal security services and substantial executive retirement payments. Four local gaming chief executives had base salaries of at least $2 million in 2006…Lanni earned a base salary of $2 million, the third-highest in the industry.…MGM Mirage is a much different company than the one Lanni took control of in 1995 for a base salary of about $500,000. When Lanni was hired as CEO of MGM Grand it was a public company with one major asset and 7,000 employees…The company has gone from annual revenues of $600 million in 1997 to $7 billion in 2006 with 67,000 employees…Today, MGM Mirage has 10 large hotel-casinos in Las Vegas and investments in condominium projects, golf courses, international markets and future development projects…involved in two large construction projects: the $1.1 billion MGM Grand Macau and $7.4 billion CityCenter. (Jennifer Robison, Las Vegas Review-Journal, 5-21-07)

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.