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Best of Ken Adams

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Quick-takes: The month's trends in a glance - May 2008

1 June 2008

It is no longer a secret that the economy is in a downturn. Whether we use the word recession or refuse to use it, it is clear that 2008 is not the best of times for business or consumers. Casinos and casino stocks are no exceptions: most jurisdictions are reporting lower gaming revenues, and casinos stocks are down even more than the revenues. It is also no secret that gas prices are part of the cause of the downturn in the economy and in lower gaming revenues.

March was not a good month for the stock prices of casino companies and slot machine makers. All 10 of the gaming stocks charted by Las Vegas-based financial consultant Applied Analysis suffered losses in their average daily prices when compared with February. Seven of the 10 declines were double-digit drops…The national consumer confidence index reached a five-year low in March, which has consumers questioning the overall health of the economy, their employment outlook and the effects of rising costs for goods and services, including food and gasoline…The Applied Analysis Gaming Index, which takes into account more than 300 market variables and economic indicators, fell 46.57 points to 511.89. In February, the index recorded its first increase since October. Boyd Gaming Corp. took the hardest hit in March, with the company's average daily stock price falling more than 21 percent compared with February. The three casino operators with a presence in Macau, MGM Mirage, Wynn Resorts Ltd. and Las Vegas Sands Corp., had their average daily stock prices drop between 10 percent and 12 percent. (Howard Stutz, Las Vegas Review-Journal, 4-1-08)

Shares of gaming operators headed mostly lower Thursday as a Goldman Sachs analyst said the sector is facing more of a challenge during the current economic downturn. In the past, casino companies were often viewed by analysts and investors as pretty resilient to economic conditions, partly due to appropriate supply levels and less dependence on non-gaming revenue…While the analyst feels Las Vegas' emphasis on non-gaming revenue is a good long-term strategy, he cautions that "it is likely to make the business more cyclical during periods of an economic slowdown and we continue to think that 2008 revenues could come in below current expectations." (Associated Press, 4-10-08)

The cost of oil is affecting the cost of nearly everything else; the meltdown of a booming housing and credit market is equally important in its impact, and, of course, the combination of less money to spend on entertainment and a falling confidence in their financial future is radically affecting the way people spend their money. And that is really impacting casinos. This month MGM announced some major layoffs that MGM said were part of a long-term plan resulting from recent mergers. That explanation failed to satisfy the market. Confidence in Las Vegas and Las Vegas-based companies is certainly down as much as consumer confidence.

Share prices of the major casino operators tumbled Tuesday, the day after MGM Mirage said it eliminated 440 manager and supervisory level positions at both property and corporate levels…Gaming revenues statewide and on the Strip have fallen in three of the past four months while room rates are down as much as 19 percent from a year ago…Shares of MGM Mirage, traded on the New York Stock Exchange, closed at $49.58, down $2.24, or 4.32 percent. MGM Mirage was trading at $100.50 in October…Shares of Las Vegas Sands Corp. fell $4.97 to close at $69.05 on the New York Stock Exchange, off 6.71 percent. In October, Las Vegas Sands hit a 52-week high of $148.76. Shares of Wynn Resorts Ltd., traded on the Nasdaq National Market, fell $2.63 to close at $98.06, down 2.61 percent. Wynn reached a high of $176.13 in October. (Howard Stutz, Las Vegas Review-Journal, 4-16-08)

MGM Mirage sought to quell fears Tuesday that it is slumping badly in the economic downturn, saying the layoffs it announced this week had little to do with declining business…MGM Mirage was formed from MGM Grand's acquisition of Steve Wynn's Mirage Resorts in 2000. In 2005, MGM Mirage swallowed Mandalay Resort Group by divvying up Mandalay properties between the two operating units. "We found many redundancies that were a hangover from the Mirage and Mandalay acquisitions. We extracted a lot of value from these deals...but there was a substantial amount of further benefit that we couldn't have accomplished under the old corporate structure. This is one chapter in a very long process that will be happening as long as I'm here." Besides the layoffs, the company has streamlined its interactions with vendors and has reorganized several departments, including technology, purchasing, design and construction, which are like "major companies in themselves," Murren said. (Liz Benston, Las Vegas, 4-16-08)

Casino operators are dealing with relatively uncharted territory heading into earnings season as worsening economic conditions squeeze their businesses like never before. Consumers have curbed spending lately due to the continued housing downturn, escalating food and fuel costs, diminishing credit and recession worries. While gaming companies were considered pretty resilient during previous economic downturns, the current environment has started to pressure their operations. Analysts point to increased supply and housing problems as two primary contributors to gaming weakness. Goldman Sachs analyst Steven Kent sees Boyd Gaming Corp. reporting a difficult quarter due to gaming revenue slowdown in most of its markets, including Las Vegas locales, Atlantic City, N.J. and the Midwest. "The local Las Vegas market is likely working through a difficult housing market and will see two new competitor properties delivered to the market over the next seven months," he wrote in a client note. (Michelle Chapman, Associated Press, 4-23-08)

The credit market is another element in the equation; money is very, very hard to find. That means all of the major projects in Atlantic City and Las Vegas, as well as most expansions, will be delayed or put on hold until money is easier to borrow and a little cheaper. Developers are trying to put a positive spin on the events, but there will be very little development to receive financing in 2008. Columbia Sussex, with all of its licensing and operating difficulties, has some serious debt problems. The debt may have caused the other problems or the other way around, but the debt – as Trump's did for him – will keep the company from solving other problems.

The owner of the Tropicana has negotiated a "significant" deadline extension with various note holders while the company fights to keep itself out of bankruptcy. Tropicana Entertainment President Scott Butera said Tuesday that an extension to a Sunday deadline has been negotiated with holders of a $960 million subordinate bond that went into default when the company lost its New Jersey gaming license in December. Without the extension, the bond holders, who were worried that the company did not have enough collateral to cover their debt, could have demanded immediate payment on Sunday, possibly forcing the company into Chapter 11 bankruptcy…Columbia Sussex carries about $2.7 billion in debt, largely stemming from its January 2007 takeover of Aztar Corp. The Crestview Hills, Ky.-based company has been trying to restructure its debt since losing its gaming license in New Jersey and being forced to put the Tropicana Atlantic City up for sale. In addition to the $960 million bond, the company holds a $1.34 billion senior bank note and a $440 loan on the 34-acre Tropicana on the Strip. The Las Vegas property is not serving as collateral for either of the debts, although Butera said a default on either of the other two loans could trigger a default on the Strip property. (Arnold M. Knightly, Las Vegas Review-Journal, 4-16-08)

There is another side to gas prices: the producers have more money to invest. Dubai investments are even more startling in a tight credit market – they have money when no one else does. And while Dubai is building a destination that will dwarf even Las Vegas in time, they are hedging their bets and making major investments around the world, including investments with MGM-Mirage in Las Vegas as well as any place that MGM has a presence.

The United Arab Emirates' capital Abu Dhabi has been named among the world's new centers of economic power by the prestigious US journal Harvard Business Review. "With new centers of economic power emerging, companies should also establish themselves in rising metropolises such as Beijing, Rio de Janeiro, Moscow and Abu Dhabi, where prices on the prime real estate will surely climb as demand outpaces availability," a research article in the April 2008 edition of the magazine states. Entitled "The Tourism Time Bomb", the report has been written by Paul F. Nunes, an executive research fellow with the Accenture Institute for High Performance Business in Boston, and Mark Spelman, the London-based global managing director of Accenture's strategy practices…According to the UN World Tourism Organization, international tourist travel is likely to double soon, from roughly 800 million in 2008 to 1.6 billion by 2020…They added that this skyrocketing demand for travel will lead to a scarcity of places and companies and governments are creating facsimiles of popular destinations. "The Eiffel Tower, for example, can be seen in Las Vegas and at Disney's Epcot Center, not just in Paris. Venice's canals can be enjoyed in Macao, where the Venetian resort and casino has three canals in its $2.4 billion, 10.5 million square foot complex. (Kerala News, 4-16-08)

There is a characteristic of gaming in the year 2008 that no one would have believed in the year 1968 or 1988 or many, many other years. Gaming is one big chess game, a process and not a product. In all of the eras that preceded the current one in gaming, it was a product; the legislature passed enabling legislation, an agency wrote the regulations and casino operators built casinos to meet the requirements of the legislation and regulation. And so it remained until there were casinos or some form of gaming in nearly every state. Now all the legislation and regulation are subject to change based on what happens both inside and outside the state. The underlying reason is money – states quickly become very used to the revenue from gaming. Currently some 16 states get 5 percent or more of their revenues from gaming. Anything that threatens that revenue is a catalyst for change. If the state next door opens gaming, then it is necessary to expand the hours, increase the limits or in some other way protect the revenue.

In Colorado there is a new initiative to raise the limits from the $5 maximum that has existed since 1992. The catalyst was not competition from outside the state; it was a smoking ban. In the first three months, casino revenue in Colorado has fallen dramatically, and that means the state's revenue from the casinos is also down dramatically. Every state has different reasons and different conditions, but all of them are caught up in the same game of chess.

Some states raise the taxes on gaming, but that is becoming increasingly less popular, except in Nevada, where it is a voter-driven initiative. Other methods of increasing gaming revenue are more popular; some states allow more competition in state, some allow the casinos to crawl onto the shore from the water, some limit the internal competition, some authorize more slot machines. No one has moved the game into your living room, but it is coming, with the only questions being when and where – the revenue from gaming is too important to some states. Oh, yes, the current federal stance is to fight online gaming, but I think in the long term the financial interests of the Internet and the budget needs of the state will win out.

The leading Senate opponent of a Macon County bingo constitutional amendment that has stalled the Senate for more than six weeks said he wants a showdown vote on Tuesday…Erwin and bingo supporters have been filibustering a constitutional amendment sponsored by Sen. Myron Penn, D-Union Springs, that would affect bingo at the Macon County greyhound track owned by Milton McGregor. The filibustering has halted virtually all other legislative business and threatens the remainder of the session that must end by May 19…Supporters say the bingo bills merely let local voters decide their own destinies. Opponents say the bingo bills affect the entire state so the Senate tradition of allowing only local legislators to vote on local bills shouldn't apply. (Dana Beyerle, Gadsden Times, 4-21-08)

A new proposal at the state Capitol would ask Colorado voters to eliminate the $5 bet limit…The proposal must be approved by two-thirds of the members of the House and Senate…Voters would have the final say. (Associated Press, 4-21-08)

Rhode Island lawmakers could vote this week to allow the state's two slot parlors to operate around-the-clock on weekends and holidays. House lawmakers are scheduled to vote on the proposal Tuesday. The Senate plans to consider an identical bill the following day. Rhode Island is facing a $550 million budget deficit spread between the current fiscal year ending in June and the one following. Lawmakers have said that allowing more gambling at Newport Grand and Twin River in Lincoln could raise millions of dollars in revenue. (Boston Globe, 4-21-08)

As state officials scramble to avert controversial cuts without raising taxes, several leading lawmakers say giving residents more ways to gamble may be New Jersey's best bet to raise extra cash for the ailing state budget…While casinos and the lottery steadily produce more dollars, gambling represents a much smaller percentage of state budget revenues than it did two decades ago, according to a Star-Ledger analysis. In 1989, gambling dollars made up 7.5 percent of the budget. It's now 4.2 percent – not much higher than in 1980, when only a few casinos were open in Atlantic City. Boston College professor Richard McGowan, who has written books on gambling, said at least 16 states receive at least 5 percent of their revenue from gaming. In a report to be released next month, the American Gaming Association says state and local governments received $5.87 billion from casinos last year – a 135 percent increase from a decade ago…Senate President Richard Codey (D-Essex) earlier this month suggested an expansion of the New Jersey Lottery that would encourage "big box" stores like Home Depot and Target to sell tickets and let people play on the internet. Lesniak said he may file a lawsuit to challenge a 1992 federal moratorium that prevents New Jersey and virtually every other state from having sports betting. The Assembly earlier this year approved a measure seeking a voter referendum on the issue. Before leaving office in January, former Assemblyman Louis Manzo (D-Hudson) introduced a resolution asking voters to approve a casino at the Meadowlands, something he says could tap the New York market before the city considers its own gaming halls. (Joe Donohue, Jersey City Star-Ledger, 4-21-08)

Welcome to the very strange world of Columbia Sussex, here, there and everywhere.

"Don't forget to check for bedbugs!" one flier exclaims in English and Spanish. "Check every room — every day." The posting features enlarged images of the minuscule bloodsucking menaces. (Michael Mishak, Las Vegas Sun, 4-4-08)

Columbia Sussex, operating under the Tropicana name, has gained more than its share of headlines in the year. It started barely a year ago when the company won a bidding contest for Aztar and its Tropicana properties. Early in 2007 the major union in New Jersey representing casino workers began its attack – promising to bring the company down. They conducted a relentless campaign impugning the company's management abilities and the safety and cleanliness of the Atlantic City property.

Other jurisdictions also picked up the chant – mostly driven by layoffs and cost lowering measures the company instituted in all of the newly purchased casinos. Gaming regulators in New Jersey took the complaints seriously and in their review of the company's New Jersey gaming license decided the company was not competent to hold a gaming license. That started an even larger snowball rolling. The Atlantic City property was immediately put under a trustee and listed for sale. The law in Indiana does not allow an operator to be licensed in Indiana if they lose a license in another state – so at the March meeting of the Indiana gaming regulators, they were scheduled to decide the fate of the company in Indiana. At the last moment – the day of the hearing – Eldorado Resorts from Nevada announced an agreement to buy the casino. The state still insisted upon new management to be the temporary custodian until Eldorado can be licensed.

Nevada may be next: the Nevada Gaming Commission has said it is watching the company closely in Las Vegas. And now, the truth has come out: there really are bedbugs in Tropicana beds, just as the unions in New Jersey and Nevada have been saying. How do we know? The Tropicana is offering bonuses to maids for real bedbugs, preferably living ones. Don't you wish you owned a bedbug store in Las Vegas? At $25 each and nearly 2,000 hotels rooms, you could make a nice profit. One bedbug per room per day would net you close to $50,000 a day selling bedbugs to management. Maybe the unions were also right about something else: the company really does seem to have the skills to make it in this industry. However, at another of their properties, the Westin in Las Vegas, they have found a new way to make money: bill convention attendees directly for the unpaid bills of the convention organizers. It is a new process in the industry, but from a leading-edge company like Columbia Sussex you would expect nothing less.

If the former owners of the Tropicana Casino and Resort go bankrupt, they brought it on themselves. That was the gist of a ruling Wednesday by the state Casino Control Commission, which refused to help Tropicana Entertainment LLC avoid being forced into bankruptcy as a result of having lost its casino license in December. The commission also issued a series of surprising public rebukes to a retired state Supreme Court justice it appointed to oversee the Tropicana until it can be sold. (Wayne Parry, Associated Press, 4-3-08)

A Nevada gambling company is buying Casino Aztar of Evansville in a deal worth up to $245 million. The casino had been up for sale since December, when Fort Mitchell, Ky.-based Columbia Sussex Corp. said it would sell the riverboat to avoid bankruptcy. The company agreed to sell the casino to Eldorado Resorts LLC for as much as $245 million, including $25 million in potential incentives linked to the casino's performance. (Associated Press, 4-1-08)

The owners of the embattled Tropicana hotel have placed a bounty on bedbugs, offering housekeepers $25 a pop for each one brought in alive. The offer was posted in the hotel's housekeeping offices, raising eyebrows among workers wondering whether they should pull out magnifying glasses while changing sheets…The campaign to corral bedbugs for cash has provided an opening for the Culinary Union — which is in a pitched contract dispute with Tropicana ownership — to have some fun at the hotel's expense. (Michael Mishak, Las Vegas Sun, 4-4-08)

The ownership of the Westin Casuarina is standing behind a decision to charge attendees of an October dental conference for the organizer's unpaid bill…The Coaching Center of Austin, Texas, was delinquent to the Westin Casuarina on payment of nearly $57,000 in unpaid food, beverage and associated costs… Conference attendees and speakers recently began receiving charges on their credit card statements for a "pro-rated amount per attendee" from the hotel…"We told (the Coaching Center) we would have no recourse but to charge the attendees," said Hud Englehart, spokesman for the Westin's owner, Crestview Hills, Ky.-based Columbia Sussex. "That still didn't cause them to bring payment forth so we began charging the attendees." (Arnold M. Knightly, Las Vegas Review-Journal, 4-5-08)

There are still more problems for Columbia Sussex. At Lake Tahoe they own a casino, MontBleu, that sits on land owned by someone else – the Park Cattle Company. Park sued Columbia over the way the hotel-casino was being managed and won the casino back! Columbia doesn't get to sell as it does in Atlantic City; Columbia gets no money, and it has to pay Park $165 million and lose the property. Park says a casino is no longer a viable use for the site and will close the casino when they get the property back in ten years. It is difficult to believe that one company could get into so much trouble in such a short period of time. Some, I guess, are just more talented than others.

Columbia Sussex Corp. owner Bill Yung will have to pay at least $165 million to settle a three-year-old legal dispute over the management of resort properties in Lake Tahoe, Nev. The settlement ends a fight between casino subsidiaries of Columbia Sussex and Park Cattle Co., which owns the land on which the Tahoe Horizon and MontBleu Casinos are located. The dispute went to trial in February and ended abruptly with the April 2 settlement. Park Cattle had been trying to evict Yung's casino affiliates, claiming the Tahoe properties were not properly maintained. (Business Courier of Cincinnati, 4-7-08)

There are lots of stories about casino robberies. Usually, I don't put them in a report, unless there are several in one jurisdiction that show either a trend in that jurisdiction or the weakness or dangers in some jurisdictions. Number one on the list of jurisdictions subjected to casino robberies is South Africa. Robbers there operate in large gangs; they come in convoys of vehicles; they are armed like a small army; and they are never caught. England is second on the international scene. In England, a bookie or bookmaking establishment is attacked and robbed almost daily.

Montana is number one in the United States for casino robberies. In Montana, the robber walks in (and often walks away to the nearest bar) to a small casino in the wee hours when there are no customers and walks out with a few hundred dollars. Montana robbers are almost always caught, unlike those in England or South Africa, and usually go to jail, that is, after they make the "dumbest criminal" list for the month.

Other jurisdictions have robberies, but not as often as England, South Africa and Montana, where, among the three, there is at least one robbery per week. Generally, the other casino robberies are assaults on individual customers, not the casino. A thief will follow a winner to the parking lot or to his home, or catch him in the restroom and commit the robbery. In most jurisdictions, casino robberies are rarely all-out assaults on the casino and its security.

But in March in California, a group was arrested while en route to rob a casino. They were heavily armed, and it was their third or fourth robbery of a casino, including one in Nevada. The group was a long way from Ocean's Eleven or any other number of gangs, but their history does suggest that casino robberies might become more frequent; and a gang of criminals armed with AK-47s and 12-gauge shotguns would wreak havoc in any casino in any jurisdiction. This group would not have been caught if the girlfriend of one of the member had not contacted the police. The situation is scary and raises some question about the alleged robbery in Nevada and why it was not prosecuted.

A girlfriend tipped deputies that her gangster boyfriend robbed the Golden West Casino and was planning another heist that was going to be "the same as last time," court documents said. New details emerged about the five Los Angeles Crips gang members arrested for trying to rob the casino last week and the armed robbery of the casino last fall. One of the suspects, Jajuan Bell, has robbed several casinos before and was acquitted for a casino robbery in Nevada because the business did not want to reveal how much was stolen, according to court documents. On March 31, deputies thwarted the five suspects from robbing the casino by using spike strips on Highway 58 near Towerline Road. Deputies seized an AK-47 and 12-gauge shotguns from the suspects' vehicle. (Felix Doligosa, Bakersfield Californian, 4-8-08)

The results for the month are pretty much what we have learned to expect this year. Even states with an increase in revenues had a decline on a same store basis. There are exceptions – Pennsylvania, New York and Macau – but they are still in a growth and expansion mode. The reasons cited are different in each jurisdiction, but it would be difficult to maintain that there isn't a national trend based on the economy and increased competition.

Atlantic City March gaming revenue fell 9.9% to $395 million. (Reuters, 4-13-08)

Detroit March gaming revenue was flat. MGM Grand Detroit had 5.9%; an increase; MotorCity declined of 3.7% and Greektown declined 3.6%. (Gaming Industry Weekly Report, 4-13-08)

Connecticut casinos Foxwoods and Mohegan Sun saw a 6.4% slot revenue slide in March with Foxwoods down 12% to $60.8 million and Mohegan Sun down 1.4% to $76.8 million. (Gaming Industry Weekly Report, 4-21-08)

Colorado March gaming revenue fell 15.2%. (Gaming Industry Weekly Report, 4-21-08)

Illinois March gaming revenue fell 19.9% to $147.7 million. (Gaming Industry Weekly Report, 4-13-08)

Indiana March gaming revenue fell 10.9% to $224.1 million. (Gaming Industry Weekly Report, 4-13-08)

Iowa casinos were up 6.6% in March to $130.1 million. On a same store basis they were up 1%. (Gaming Industry Weekly Report, 4-21-08)

Louisiana March gaming revenue was down 0.3% to $229.7 million. (Associated Press, 4-15-08)

Mississippi March gaming revenue fell 0.9%. (Associated Press, 4-16-08)

Missouri March gaming revenue rose 2% to $151.6 million but on a same store basis, revenue fell 7.4%. (Gaming Industry Weekly Report, 4-21-08)

Nevada February gaming revenue fell 3.9% to $1.015 billion. (Reuters, 4-10-08)

New York VLT revenue jumped 21.2% in March with Yonkers driving much of the upside. Despite a large increase in the number of VLTs statewide, win per day rose to $205 from $190. (Gaming Industry Weekly Report, 4-13-08)

Macau March gaming revenue was up 59.8% to $1.23 billion. (Gaming Industry Weekly Report, 4-26-08)

Pennsylvania March slot revenue rose 74% to $142 million. (Gaming Industry Weekly Report, 4-13-08)

Who was that guy who said gambling is recession proof, and what was he thinking?

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.