The Passed Seven
by Paul Larson (TMF Parlay)

MARKET CLOSE            6/13/97 6/20/97
Nasdaq Composite:       1423.03 1447.10 (+1.69%)
CBOE Gaming Index (GAX): 220.88  222.58 (+0.77%)
S&P 500 (SPX):           893.29  898.70 (+0.61%)

Chicago, IL (June 20, 1997) -- The bull market just keeps on going... and going... and going.... This week was a historic week in that the S&P 500 broke through the 900 level for the first time ever. What about the Dow Industrials? Forget about it. They're on fire, too. What about the gaming stocks? They've been keeping up with the pace lately, but have a lot of catching up to do after their awful winter performance. A lot of news this week, so let's jump right to it.

ANCHOR GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SLOT)") else Response.Write("(Nasdaq: SLOT)") end if %> came out with a double-barreled announcement on Monday. On the bad side, the company announced that its CFO, Sal DiMascio, had resigned from the company. It then coupled that release with a statement saying that the analysts' profit estimates for the company's second calendar quarter "may be conservative." Those familiar with Anchor know that the company is unusually tight-lipped and any such announcement is rather big news. The stock rose roughly 9 points in the days after the announcement before cooling off on Friday to close at $45 1/8.

The "conservative" mean analyst estimate had been sitting at $0.69. However, a few days before the announcement the hot topic on the gaming message board here on the Fool was how the profit estimates may be low. Some on the board were doing calculations concerning the company's proprietary games division's stake in the highly profitable Wheel of Fortune progressive jackpot. Our own Foolish estimates were varying from $0.70 to even $1.00 for the current quarter. Needless to say, the announcement was some sort of vindication for the group's thinking. The current thinking around Folly is that $0.80 is a realistic estimate. We shall see in a few weeks if in fact our brainstorm estimate has hit the mark.

There were also some waves of interest on the boards in the HOLLYWOOD PARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HPRK)") else Response.Write("(Nasdaq: HPRK)") end if %> and BOOMTOWN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMTN)") else Response.Write("(Nasdaq: BMTN)") end if %> merger. A poster named "CRUVELORUM" made a very timely post late Thursday night pointing out that there was a wide disparity between the stocks of the two company's given the merger exchange ratio of .625 shares of Hollywood for each share of Boomtown. He pointed out that at Hollywood's current stock price, Boomtown should be trading at roughly $9. He also pointed out the risk factors involved with the "arbitrage" trade in his post. Then a matter of hours later, it became public that one of the final hurdles in the merger, approval by the Louisiana Gaming Control Board, had been passed. Boomtown abruptly shot up $1 3/8 to close at $8 7/8 after the news hit the wires. The power of instant communication and interactivity on this medium amaze me to this day.

Continuing along with merger news, there is now an official Motley Fool connection to the gaming industry. GTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTK)") else Response.Write("(NYSE: GTK)") end if %> announced that they were acquiring NTN COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: NTN)") else Response.Write("(AMEX: NTN)") end if %> for $5 1/8 per share in cash. GTECH is the world's largest supplier to the lottery industry where NTN is best knows for their "countdown trivia" game that is commonly found in pubs around the country. NTN is also a Fool partner in our Foolish Trivia game found on AOL.

There was plenty of news emanating from Louisiana this week. The political bickering and positioning surrounding the gaming industry in the state is something to behold. While it is unclear exactly what the outcome will be, it looks like the proposal to place slot machines at the suffering horse tracks around the state has a decent chance of becoming reality. This would be of significant impact to casino operators around the state such as CASINO AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSNO)") else Response.Write("(Nasdaq: CSNO)") end if %> and PLAYERS INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLAY)") else Response.Write("(Nasdaq: PLAY)") end if %>.

One resultant piece of news came Debartolo Entertainment, a private company. Debartolo announced that they were withdrawing from their half of their proposed Bossier City gaming project with HOLLYWOOD CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HWCC)") else Response.Write("(Nasdaq: HWCC)") end if %>. Debartolo owns interests in horse tracks around the state and cited a conflict of interest as their main reason for pulling out. Debartolo also owns the San Francisco 49ers and was supposedly receiving pressure from the NFL to pull out of the gaming project. The license that Hollywood/Debartolo held was the last available gaming license in the state. Hollywood will be forced to reapply to the gaming control board for its license, and there's even the possibility another company could come in and be granted the license. Only in Louisiana....

CIRCUS CIRCUS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIR)") else Response.Write("(NYSE: CIR)") end if %> received a slap in the face from Standard & Poors this week. S&P lowered its credit rating on Circus this week as well as changing the company's outlook to "negative." S&P cited heavy capital spending and soft performance and some of the company's key casinos as the reason for the downgrade.

Speaking of credit downgrades, STRATOSPHERE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TOWVQ)") else Response.Write("(Nasdaq: TOWVQ)") end if %> announced its cash flow for May this week. The troubled tower and casino had operating cash flow in May of a pathetic $49,000. The average cash flow for the past seven months now stands at $1.47 million, well out of reach of the $2.25 million mark would-be savior GRAND CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GND)") else Response.Write("(NYSE: GND)") end if %> requires for the prepackaged restructuring agreement to take place. What's even worse for Stratosphere's bondholders is that the cash flow has been trending down significantly the past several months.

It is still unclear exactly what Grand will ask for in return for its proposed (and badly needed) investment in Stratosphere. It is highly likely that Grand will use this piece of news to really turn the screws on the Stratosphere bondholders to ask for further concessions. Grand could also walk away from the unit and not invest any further capital into the struggling resort if it so desired. Since Grand owns $50 million worth of subordinated Stratosphere debt, they will inevitably own a portion of the reorganized Stratosphere. It just remains to be seen if it will be as a majority shareholder and manager or just as a minority shareholder. Wall Street seemed to like the news, as Grand's stock rose 20% on the week to close at $15 3/4. Stratosphere's common stock, which this Fool thinks will make an excellent bird-cage liner in a couple months, closed the week unchanged at $1/2.

Finally, TRUMP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %> announced its intention to make a bid for one of the three available licenses in Detroit. Trump will join with local businessman and former football star Mel Farr in an attempt to land what should be one of the more lucrative gaming licenses available in recent memory. Trump has a shot at the license, but outbidding the numerous other project bidders such as Circus Circus and HARRAH'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HET)") else Response.Write("(NYSE: HET)") end if %> is going to be no small task for Trump.

Trump was also the victim of the "reverse CNBC effect" this week when the cable channel aired some negative comments about the company. Smith Barney also significantly downgraded earnings estimates for Trump this week. Last week it was Mario Gabelli mentioning the stock that caused it to rise over 20% and this week's actions caused the stock to plummet back down to levels seen before the Gabelli comments. What CNBC giveth, CNBC taketh away.

Winners and Losers

There will be no "Winners and Losers" this week since the quote service I am using went down on Friday right before the close. We're in good company, however. AOL's mail service was down most of the day today, too. Such is life on the leading edge of technology. I will post the results in the gaming industry folder on both AOL and the web (http://www.fool.com) once the quote services comes back online (and I don't have a deadline to worry about).

Quarterly Earnings Summary

                         1997           1996
American Vantage (ACES)   $.07          $.07
American Wagering (BETM) ($.05)         $.00
Carnival (CCL)            $.43          $.37
Casino America (CSNO)    ($.32)         $.23

Did You Know...
That Pennsylvania, Illinois, and Louisiana are among the states looking to allow slot machines at horse tracks?

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