The Passed Seven
by Paul Larson (MF Parlay)

MARKET CLOSE              3/28/97   4/3/97
Nasdaq Composite:        1249.51   1213.76 (-2.86%)
S&P 500 (SPX):            773.88    750.32 (-3.04%)
CBOE Gaming Index (GAX):  206.89    199.16 (-3.74%)

Chicago, IL (April 3, 1997) -- There's not exactly blood in the streets yet, but the market continued its ugly ways this week. While investors in technology stocks and blue chips are just now getting the leading edge of this storm, those that own casino stocks have been getting drenched for months. The Chicago Board Options Exchange Gaming Index (Index Symbol: GAX) is now over 40% off its highs reached last summer. To put this in perspective, if the Dow were off its high an equivalent percentage, it would be sitting at 4210 -- a far cry south.

The modus operandi of the gaming index has been to fall when the market rises, and fall further when the market falls. It has been simply amazing to see an index, not an individual stock, but an index fall 40% in this time frame. Granted, the index is composed of only 15 stocks, but it is a representative index nonetheless.

One of the most frequently asked questions I get through e-mail is, "How do I get a GAX quote? I punch GAX into AOL's quote service and I get an error." AOL does not provide 20-minute delayed index quotes for this particular index, but you can find historical quotes and graphs for the gaming index at keyword: historical. If you want to get the quote on the web, Yahoo has an excellent free quote service at http://quote.yahoo.com/quotes. To get the gaming index on Yahoo, it is symbol "^GAX" while the S&P 500 is symbol "^SPX". Also, don't be surprised to see a jester or two floating around Yahoo since they are a Motley Fool partner.

Speaking of the web, if you haven't checked out the new Motley Fool web page at http://www.fool.com I think you will be pleasantly surprised. Not only do we have a sleek new design, but we have a whole host of new features including quotes, company news and profiles, and charts. Probably the most anticipated new feature on the page are our proprietary Internet message boards. This Fool is looking forward to interacting with those interested in gaming both on the web and AOL in the future. OK, I think we have had enough plugs for one week!

Beyond the further sinking of the GAX, not much else of significance happened this week. We did get a flurry of quarterly earnings announcements on Monday because those companies especially good at procrastinating waited for the last day of the current calendar quarter to report.

HOLLYWOOD CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HWCC)") else Response.Write("(Nasdaq: HWCC)") end if %> announced a fourth quarter loss of $0.25 versus the pro-forma loss before extraordinary item last year of $0.09. The results are pro-forma because the company spun off its Atlantic City operation and created the GREATE BAY CASINO CORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GBY)") else Response.Write("(AMEX: GBY)") end if %>. Greate Bay, who operates the Sands casino, also reported a loss of $0.40 versus the year earlier pro-forma loss of $0.16. The split up was definitely a positive event for Hollywood since Greate Bay is highly leveraged, has a large negative shareholder's equity, and is bleeding vats of red ink, but Hollywood is still in trouble.

Hollywood's EBITDA declined from $8.8 million a year ago to $5.9 million in 1996's fourth quarter. This decline in operating results is directly attributable to a significant increase in capacity in both the Chicago and Tunica markets. Revenues were down $2.9 million in Chicago due to the new Indiana boats, but were up $2.6 million in Tunica due to a new hotel the company opened in the third quarter. Hollywood had net interest expenses of $7.1 million in the quarter, which is the primary reason the company is in the red.

When the "I" in EBITDA is significantly higher than the EBITDA as a whole, that is normally a formula for bankruptcy -- a formula Hollywood fit in the fourth quarter. To Hollywood's credit, the fourth quarter is a seasonally slow quarter. In addition, the company announced that its EBITDA in the first quarter should be much improved and come in around $11.5 million. Furthermore, the company was recently awarded the final casino license in Louisiana and plans to build a casino complex in Bossier City in a joint venture with DEBARTOLO ENTERTAINMENT. Hollywood definitely needs the $195 million Bossier project to be a success and the results to improve if it has any hope of profitability in the future.

MAJESTIC STAR, a private company that owns a riverboat in Northern Indiana, announced 1996 revenues and EBITDA of $54.2 million of $10.7 million respectively. The relatively new casino was open 205 days during 1996. The casino boat shares docking facilities along Lake Michigan with TRUMP's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %> boat and the two boats are on a staggered schedule. Majestic operates a temporary boat that is about two-thirds the size of Trump's (and does about two-thirds the revenue), but is in the process of constructing a permanent boat on par with Trump's size that will have 1,600 slot machines and 71 table games.

The closely-held CLARIDGE CORP of Atlantic City this week reported a net 1996 loss of $15.4 million. While revenues only dropped from $169.6 million in 1995 to $163.4 million in 1996, the EBITDA fell off a cliff and went from $19.9 million to $2.2 million (with annual interest expenses in the $9 million range). This is directly attributable to the increased marketing expenses ,coined "bus wars", the operators along the New Jersey shore experienced all last year. Claridge narrowly avoided bankruptcy this month by making an interest payment it earlier had announced it was going to miss. In all likeliness, the hotel is going to be acquired by HILTON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %> in the very near future.

Speaking of Hilton, conglomerate ITT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %> is looking less and less like a conglomerate. The company got even leaner and meaner by raising yet another $530 million in cash by selling the remaining 4.5 million shares it held in Alactel Alsthom, a European phone company. This is on top of the $300 million it raised in February by selling the first part of its Alactel stake and the $650 million received when the company sold its part of Madison Square Garden. For those keeping score, that is $1.5 billion in cash the company has raised in fairly short order, with the company's large educational and telephone directory businesses yet to be sold. There should be little doubt that ITT plans on fiercely fighting off Hilton's hostile bid.

To end this week, we learned that BOYD GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYD)") else Response.Write("(NYSE: BYD)") end if %> intends on installing the newly popularized Physio-Control auto-defibrillator's at all seven of its Las Vegas properties. Boyd is the first major gaming company to install defibrillators in its casinos. Boyd is known in the industry for attracting a more elderly demographic and this announcement will certainly propogate this reputation.

Yet another weekly earnings summary where the red ink bleeds out the black...

Equus Gaming (EQUUS)    $.07
Full House (FHRI)      ($.09) [annual results]
Greate Bay (GBY)       ($.40)
Hollywood (HWCC)       ($.25)

Good luck everyone!

Did you know. . .
Delaware racetracks combined have about 2500 slots and take in roughly $220 million a year in slot win.

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