The Passed Seven
by Paul Larson (TMF Parlay)

MARKET CLOSE             5/9/97  5/16/97
S&P 500 (SPX):           824.78   829.75 (+0.60%)
Nasdaq Composite:       1335.05  1340.73 (+0.43%)
CBOE Gaming Index (GAX): 218.72   219.63 (+0.42%)

Chicago, IL (May 17, 1997) -- Beyond a lot of trash talk between Steve Wynn, Donald Trump and Andrew Goldberg, there was not a heck of a lot going on in the gaming sector this week. The GAX may have lagged the general market's slight rise this week, but it rose nonetheless. The gaming index is still far outperforming the market in May with the GAX up 12.5% for the month to date.

Probably one of the most often asked questions I get is, "What companies make up the GAX gaming index you keep talking about?" Wonder no more. There are 15 companies that comprise the index and it is not an even weighted index. I have yet to figure out the rhyme or reason behind the seemingly random weightings, but last I checked MGM GRAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MGG)") else Response.Write("(NYSE: MGG)") end if %> and CIRCUS CIRCUS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIR)") else Response.Write("(NYSE: CIR)") end if %> together comprised roughly 26% of the index weighting. On the other hand, ARGOSY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGY)") else Response.Write("(NYSE: AGY)") end if %>, AZTAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZR)") else Response.Write("(NYSE: AZR)") end if %> and JACKPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: J)") else Response.Write("(NYSE: J)") end if %> combined only made up 9% of the index. In any case, below is a list of the Chicago Board Options Exchange Gaming Index components.

CBOE GAX Components
Argosy (AGY)
Aztar (AZR)
Circus Circus (CIR)
Grand Casinos (GND)
Harrah's (HET)
IGT (IGT)
Jackpot (J)
MGM Grand (MGG)
Mirage (MIR)
Players (PLAY)
Primadonna (PRMA)
Rio (RHC)
Showboat (SBO)
Station (STN) 
Trump (DJT)

One of the things we have bubbling in test tubes here at Fool Labs is our own gaming index. You won't be able to trade options on our index, but it will certainly be easier to compute and will also be a "wider" index comprised of more companies than the GAX. As they say, stay tuned!

Let's get back to that trash talking I eluded to earlier. TRUMP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %> was suing the New Jersey Casino Reinvestment Development Authority (CRDA) for allowing funds to go towards building a tunnel to the marina district of Atlantic City. MIRAGE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MIR)") else Response.Write("(NYSE: MIR)") end if %>, CIRCUS CIRCUS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIR)") else Response.Write("(NYSE: CIR)") end if %> and BOYD GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYD)") else Response.Write("(NYSE: BYD)") end if %> all have plans to build mega-resorts in this part of the city that is separate from the boardwalk where Trump's casinos reign. All three companies have publicly stated that an infrastructure improvement is a prerequisite for the new casinos to be built. Trump was basically suing to try to stop the casino tax funds going towards subsidizing the tunnel to the "H tract" where Mirage and others have plans to build.

Once it became known that Trump had lost the lawsuit, Mirage put out a statement that can only be called trash talk. Trump wasn't the only target, for Andrew Goldberg, now an executive of HILTON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %> after they gobbled up Bally's, was also named on Mirage's trash list. Trump and Hilton currently have the number one and two market share respectively in New Jersey and both have been desperately trying to protect their massive investments in Atlantic City from outside competition. There's no better way to explain Mirage's public statement than to reproduce it in its entirety. Below is the Mirage public release:

"Mirage Resorts Inc. shares with the state of New Jersey and Atlantic City its gratitude to Judge Williams for Wednesday restoring common sense and integrity in the public process associated with the redevelopment of Atlantic City.

"His decision with regard to the lawsuit of Donald Trump marks yet another responsible and significant ruling in a series of rulings which have thwarted the attempts of Trump, as well as Arthur Goldberg, to stifle competition and suppress Atlantic City's development into a world-renowned resort destination.

"This lawsuit is but the most recent example of an unrelenting, reckless and vicious campaign to interfere with Mirage's business opportunities, to destroy the reputation of innocent and well-meaning public officials and to undermine the public's confidence in the proper and beneficial course of resort development in the region.

"In this unyielding campaign, Trump and Goldberg have resorted to any and all means, regardless of the consequences, and have recklessly used the significant resources of their respective companies, Trump Hotels and Casino Resorts Inc. and Hilton Hotels Inc., to wantonly disregard the rights of Mirage Resorts and others.

"For this inexcusable and inappropriate conduct, there will most definitely be a day of reckoning.

"The conduct of Trump and Goldberg threatens the welfare of the shareholders and the employees of their companies. Mirage Resorts sympathizes with them that the men chosen to lead these companies have no understanding of their responsibilities or the rules of proper conduct.

"Mirage urges the boards of directors of both Trump Hotels and Casino Resorts and Hilton Hotels to exercise their responsibilities and rein in this wildly hysterical and desperate behavior by their executives before additional damage is visited upon their companies."

Pretty strong commentary from a public company, no? "Day of reckoning?" I just had to laugh when I read that. Nevertheless, I was reminded this week that 50 years ago territorial disputes between casinos were handled with muscular Italian men wielding hot lead. I guess this is a step forward!

The dispute is not quite over for Trump, however. Trump has vowed to appeal the decision. In addition, Hilton has sweetened the offer to Atlantic City and has put on the table a proposal to build a comparable sized casino to Mirage's without any CDRA subsidies for expensive road improvements. This Fool would put the odds in Mirage's favor, but the game is not over just yet.

Earnings Summary

What appears like a large number of earnings releases is slightly deceptive. Just about all the companies that reported this week are solidly in the small and micro cap range of company sizes. The lone exception would be SHOWBOAT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBO)") else Response.Write("(NYSE: SBO)") end if %>, which is actually an earnings number I left out of last week's update. I would wager that Mirage's market capitalization is larger than the market cap of all these companies combined. Regardless of the size, here is this week's quarterly earnings summary:

Company                       1997             1996
Casino Airlink (POKR)          $.03            $.02
Casino Resource (CSNR)        ($.10)          ($.20)
Churchhill Downs (CHDN)       ($.51)          ($.55)
Colonial Downs (CDWN)          $.12           ($.02)
Colorado Gaming (CGME)        ($.07)           N/A
Concorde Gaming (CGAM)         $.07            $.00
Equus Gaming (EQUUS)           $.56           ($.00)
Innovative Gaming (IGCA)      ($.20)          ($.15)
Int. Sports Wagering (ISWI)   ($.05)          ($.02)
Latin Amer. Casinos (LACI)     $.02            $.10
MAI Systems (NOW)             ($.14)           $.26
MTR Gaming (MNTG)              $.02           ($.01)
On Point (ONPT)                $.03           ($.03)
Sands Regent (SNDS)           ($.08)           $.12
Sante Fe (SGM)                ($.37)          ($.45)
Showboat (SBO)                 $.05           ($.05)
Tivoli (TVLI)                 ($.04)           $.00
Trans World Gaming (IBET)      $.03           ($.07)

Did You Know. . .
The average riverboat in Illinois or Indiana has nearly twice the gross gaming win than the average riverboat in Missouri or Iowa?

© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us