The Passed Seven
by Paul Larson (MF Parlay)

MARKET CLOSE          2/19/97    2/26/97
S&P 500 (SPX):        812.47     805.67    (-0.84%)
Nasdaq Composite:    1364.52    1340.57    (-1.76%)
CBOE Gaming Index:    223.49     219.34    (-1.86%)

Chicago, IL (Feb 26, 1997) -- For the fourth week in a row, the S&P 500 (Index Symbol: SPX) has topped both the Nasdaq Composite and the Chicago Board Options Exchange Gaming Index (Index Symbol: GAX). Also for the fourth week in a row, the GAX has been on the bottom of the heap. The bear market in the gaming industry just refuses to go into hibernation.

For those who read last week's column, you will remember that I highlighted those companies in the industry that have declined over 25% over the past 5 months. I also promised to highlight some of those companies that have actually done well over this time frame. In doing my research for the "Hall of Fame" I realized that I accidentally forgot to include some "Hall of Shame" members to the list. Here's the complete list of companies that have declined at least 25% since September 20, 1996:

Gaming Industry Hall of Shame
Symbol          Sept. 20    Feb. 19        Change
POKR             2 5/8        .30           -88.6%
GLOW              .60         1/8           -79.2%
SPTK             1 5/16       5/16          -76.2%
TOWVQ            1 13/16      5/8           -65.5%
DJT             26 3/4      9 1/2           -64.5%
GBY              4 7/16     1 5/8           -63.4%
CSDS            17 3/4      6 5/8           -62.7%
CSNO             6 3/8      2 13/16         -55.9%
HOPR             5          2 1/4           -55.0%
CCRI             3          1 3/8           -54.2%
FLYT            15 3/8      7 1/4           -52.8%
PREZ             1 5/16       21/32         -50.0%
MIKN             9 1/8      4 5/8           -49.3%
AGY              7 1/4      3 3/4           -48.2%
BYD             10 1/2      5 3/4           -45.2%
LACI             4 1/2        2 1/2         -44.4%
HWCC             5 1/2      3 1/8           -43.2%
SLOT            61         38               -37.8%
LUCK             2 11/16    1 13/16         -32.6%
GFIN            11 1/4      7 3/4           -31.1%
SODK            22 1/16    15 1/4           -30.8%
PLAY             7 7/16     5 7/16          -26.9%
AZR             10 1/2      7 3/4           -26.2%
GND             15 1/2     11 5/8           -25.0%
CMAG             3 3/4      2 13/16         -25.0%

The Hall of Shame now has 25 members. If this doesn't exemplify how poorly the sector has performed in recent months, I don't know what does.

Let's now turn the page and look at the other side of the story: the success stories. This list is considerably shorter than the loser list:

Gaming Hall of Fame
Symbol           Sept. 20      Today           Change
SGIC              8 5/8       16 7/8            +95.6%
HPRK              8           14 1/4            +78.1%
KRUZ               3/4         1 5/16           +75.0%
BMTN              4 1/2        7 7/8            +75.0%
LVEN               5/16          5/8            +50.0%
PSON              8 1/4       11 7/8            +43.9%
MGAM              5 3/16       7 3/16           +38.6%
ITT              44 5/8       57 1/8            +28.0%

That's right, only eight companies on the honor-roll versus twenty four on the failure list. Let's take a look at some of the stories behind these Wall Street levitations. Silicon Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SGIC)") else Response.Write("(Nasdaq: SGIC)") end if %> has essentially zero trailing revenues since it is a development stage company, but many investors are salivating over the advanced slot machines the company is working on. Europa Cruises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KRUZ)") else Response.Write("(Nasdaq: KRUZ)") end if %> is up on speculation of a successful joint venture with Hilton <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %> in Diamondhead, Mississippi. Boomtown <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMTN)") else Response.Write("(Nasdaq: BMTN)") end if %> and Hollywood Park <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HPRK)") else Response.Write("(Nasdaq: HPRK)") end if %> are both up on talk of a merger between the two companies. And finally, ITT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %> is up on the news from the hostile Hilton bid that is all over the news. The number of success stories is underwhelming when compared to the list of failure stories. Let's hope that in a few months when we look back the success/failure ratio is inverted.

Paul-Son Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSON)") else Response.Write("(Nasdaq: PSON)") end if %> wouldn't have made the "Hall of Fame" list if we looked at its stock performance last week. The stock is up 1 5/8, or about 16%, in the last two days after the company was highlighted in the "New America" column of Investors Business Daily yesterday. The article basically pointed out that Paul-Son is the leading manufacturer of casino chips, dice, and various other gaming equipment. This is nothing those in the industry didn't already know, but it was probably news to many investors not familiar with the gaming industry. The article also pointed out the company recently acquired a Mexican factory in order to leverage its playing card business. Paul-Son is also apparently doing a better job collecting its account receivables, which was a major stumbling block to profitability in the past. Furthermore, it is interesting to note that the company is only three letters away from matching both my first and last names. See this article's headline to see the namesake resemblance (as if any one cares!).

Mikohn Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIKN)") else Response.Write("(Nasdaq: MIKN)") end if %> reported quarterly earnings of $.08 this week versus the $.05 the analysts were looking for and far above the breakeven results the company posted in the year ago quarter. What seemed to impress investors most about the results was the fact the company was able to put up such numbers even while incurring significant development expenses related to its newest product, Safejack. Safejack is essentially a blackjack game that uses special sensors and chips to virtually eliminate cheating and dealer error. Most players and dealers seem to think the current incarnation of the game is disjointed and crude because the "human touch" is gone. However, if the company can work out some of the playability issues, Safejack is sure to be a hit with casino operators. In any case, Mikohn's other businesses supplying lighting and signage to casinos seem to be doing well.

In other earnings news, Game Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GFIN)") else Response.Write("(Nasdaq: GFIN)") end if %> reported good results this week. The company posted earnings of $.09 a share but this was diluted $.03 a share due to a charge related to their delayed secondary stock offering. Game also announced this week that they have received two contracts to provide its "GameCash" services to the Miss Marquette Casino in Marquette, IA and the Mole Lake Casino in Crandon, WI. Game Financial's main business is providing PC based systems that allow players to receive cash advances on their credit cards for gaming purposes. One look at the service fees charged on such cash advances in the casinos will show what a lucrative business this can be.

It was really a rather slow week in the industry this week. However, we did get some interesting news from the legal front. The federal law barring casinos from advertising on television was overturned. The law was originally written in the 1930's when the mob controlled the industry and the government was trying to get a handle on its expansion. The law was temporarily lifted in 1992, hence the ads that you have probably seen running the past few years. This judicial finding permanently lifts the advertising ban unless the government bars all types of gaming advertisements, including tribal gaming and lotteries. Seeing as how the states rake in millions from their lottery advertisements, this Fool highly doubts we will stop seeing casino advertisements any time soon.

Now for this week's earnings in summary:

Game Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GFIN)") else Response.Write("(Nasdaq: GFIN)") end if %> $.09 ($.12 before charge)

Mikohn Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIKN)") else Response.Write("(Nasdaq: MIKN)") end if %> $.08

Penn National <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PENN)") else Response.Write("(Nasdaq: PENN)") end if %> $.08

Shuffle Master <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHFL)") else Response.Write("(Nasdaq: SHFL)") end if %> $.10

Did you know. . .
That New Jersey law requires that old gaming chips be destroyed by the casinos when a new chip design comes online? Consequently, a hot market has propped up for old casino chips that have "walked" with the players home from Atlantic city.

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