 Weekly Gaming Archive
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The Passed Seven
by Paul Larson (TMF
Parlay)
MARKET CLOSE 6/20/97 6/27/97 Nasdaq Composite: 1447.10 1438.15 (-0.62%) S&P 500 (SPX): 898.70 887.30 (-1.27%) CBOE Gaming Index (GAX): 222.58 213.94 (-3.88%)
Chicago, IL (June 27, 1997) -- It was rather volatile week in the markets this week with all three of the indices tracked here giving back recent gains. True to its form of the past year, the gaming index fell significantly further than the rest of the market.
Was there a singular piece of news to account for the GAX's drop? Maybe it was the threat of higher interest rates. Maybe it was all the bad press emanating from Louisiana. Or it could even be some gaming investors sold their stock in order to strike it rich betting on the Mike Tyson-Evander Holyfield rematch happening this weekend at MGM GRAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MGG)") else Response.Write("(NYSE: MGG)") end if %>. The odds makers are still favoring Tyson at 2 to 1, but these are much shorter odds than last November when Evander shocked the boxing world. I've got to wonder what side of the equation The Donald is betting, since he supposedly bet some big cash on Holyfield's last fight (and supposedly won some even bigger cash... supposedly).
Plenty of news to cover this week. Probably the most significant news of the week broke late last Friday evening when STRATOSPHERE (OTC BB: TOWVQ) and GRAND CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GND)") else Response.Write("(NYSE: GND)") end if %> announced their new bankruptcy reorganization plan for the much maligned tower and casino. In the complex new proposal, Grand would end up owning 90% of the equity in the reorganized casino in exchange for a badly needed $50 million investment in the resort with the remaining 10% equity belonging to the bondholders of Stratosphere. The bondholders would also take a significant hit to both their principle, cut 46%, and to their coupon rate, down to 8.5% for the first year and then 12.5% thereafter. While this may seem like a raw deal for the Stratosphere bondholders, it is an even worse deal for the Stratosphere stockholders who would see their stock "canceled". Given the exceptionally poor results at Stratosphere of late, these developments are not unexpected to this Fool.
The new restructuring plan also calls for a 90-day period in which Stratosphere can solicit more attractive restructuring proposals. It will be interesting if any other companies in the industry take the bait and raise Grand's bid for the tower. Some have speculated we could see the "Trump Stratosphere" or the even the "ITT Tower" in a few months. One person who has definitely shown interest in a bargain basement Stratosphere is billionaire Carl Icahn. In a rumor that first surfaced on the Grand Casinos message board here on the Fool on Tuesday and then was run in the Las Vegas Sun on Thursday, Carl Icahn has not-so-quietly been acquiring a large position in Stratosphere's bonds. The Stratosphere situation certainly fits Icahn's "vulture investing" style. It is definitely up in the air (no pun intended) who will own Stratosphere after it emerges from bankruptcy.
Yet another interesting week on the Louisiana political front. The Louisiana Gaming Control Board will indeed reopen the bidding for the 15th and final riverboat license in the state. A joint venture between Bebartolo Entertainment and HOLLYWOOD CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HWCC)") else Response.Write("(Nasdaq: HWCC)") end if %> were originally given the license, but since Debartolo pulled out, the bidding for the license will be reopened. Jack Pratt over at Hollywood must not be feeling too well these days.
The Louisiana legislature also narrowly approved measures that would open the way for allowing slot machines at various horse tracks around the state. This particular proposal has been approved, modified, rejected, and reapproved so many times I've lost count. I've been assured by those familiar with the situation that this incarnation of the bill is indeed a "done deal" and will not need to be voted on by either the state Senate or House to go forward. Local referendums will be needed for the bill to become law, but most think the proposal should easily pass from the voters. This is not good news to riverboat operators around the state such as PLAYERS INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLAY)") else Response.Write("(Nasdaq: PLAY)") end if %>.
Finally, the proposal to reopen Harrah's Jazz in New Orleans died in the Louisiana legislature this week. The main sticking point the anti-gaming group of politicians seem to be holding out for is the $100 million annual state tax they want HARRAH'S ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HET)") else Response.Write("(NYSE: HET)") end if %> to guarantee. Given the lack of hotel rooms or restaurants on site of the proposed casino complex, it is completely understandable why Harrah's would be reluctant to agree to such a huge liability. Harrah's created plenty of bad blood in New Orleans when it abruptly closed the temporary land-based casino it was running when Harrah's Jazz declared bankruptcy, putting many local workers out of a job. It will be interesting to see if Harrah's Jazz ever reopens. Nevertheless, I think, given the extremely negative political environment in Louisiana, any reopening is a long shot.
Harrah's also announced this week that it is selling out of its casino management contract in Sky City, New Zealand. Harrah's will receive $72 million to be relieved of the management contract and the company's 12.5% equity stake in the casino in New Zealand. Harrah's originally invested $21 million in the casino and will have received well over $100 million back when all is said and done with this deal -- not a bad return for being involved in the project for less than four years. Harrah's selling out of its international casino is consistent with the company's goal of concentrating on its core markets in North America. Regular readers will remember that earlier this year Harrah's closed one of their boats in Tunica, Mississippi, and sold their low stakes casinos in Central City/Blackhawk, Colorado.
HARVEYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HVY)") else Response.Write("(NYSE: HVY)") end if %> reported some blockbuster earnings this week. The company reported earnings for the quarter ended May 31 of $0.40, which completely demolished the $0.29 analysts were looking for. Revenues were up to $71.7 million from $59.4 million from year ago levels while net income was up 33% over year ago levels to roughly $4.0 million.
This is rather impressive growth given that the company has not opened any new casinos in the past year. However, Harveys has been busy remodeling and expanding their resorts in Lake Tahoe, Colorado, and Iowa. Many had been pointing to the negative cash flow the company had due to these capital investments as a reason why the stock was floating barely above its book value and at a P/E ratio well below the industry average. It looks like the company's strategy of leveraging its existing properties is paying off, at least in the last quarter. Harveys is one of the more seasonal gaming companies and analysts are looking for $.76 from the company in the quarter ending in August. Given their thorough trouncing of the estimates this week, it will be interesting to see how much further north the estimates are pushed.
Harveys has also been the center of some interesting scuttlebutt of late. Harveys manages and owns a 40% equity stake in the Hard Rock Casino in Las Vegas. Peter Morton owns the majority of the equity in the Hard Rock partnership. The relationship between Morton and Harveys has been well documented to be extremely, well, rocky. The two partners have wildly different visions of the future for the off-strip hotel and casino. Peter Morton put out a press release this week saying that he was buying out Harvey's contract and equity stake in the unit for $45 million. Talks to resolve their conflicts have been going on for some time, but Harvey's is denying a deal has been struck and put out a release saying, "Harveys is at a loss to explain Peter Morton's press release." As it stands now, Harveys still manages and owns a stake in Hard Rock. How much longer they will be involved with this property is certainly up for debate.
Winners and Losers
Several items stick out in my mind when scanning over this week's winners and losers in the gaming industry. First, this is the second week of the past three that both COIN BILL VALIDATOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBVI)") else Response.Write("(Nasdaq: CBVI)") end if %> and INNOVATIVE GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IGCA)") else Response.Write("(Nasdaq: IGCA)") end if %> have been on the "winners" podium. Coin Bill is up over 57% over the past three weeks on news of a significant insider buy, which I wrote about in an update two weeks ago. Innovative Gaming is up 33% the past three weeks on the news of the Nevada Gaming Board approval and shipping of their "innovative gaming" products, such as the Bonus Streak specialty slot machine. Innovative Gaming is one of the many smaller game design companies that have a joint venture agreement with slot behemoth IGT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IGT)") else Response.Write("(NYSE: IGT)") end if %>.
On the loser side of the equation we find two Internet gaming companies, NETBET (OTC BB: NBET) and PLAYSTAR (OTC BB: PSCK). NetBet is due to be acquired by one of the "leading" Internet gaming companies in TORREY PINES (OTC BB: TPNN). I put "leading" in quotation marks because while Torrey Pines is one of the better known Internet gaming companies, its stock has been a real dog this year. Where Torrey Pines traded as high as $7 last February, you can now buy the stock for a whopping 0.31 a clip. That's almost as bad as fellow Internet gamer VENTURE TECHNOLOGY'S (OTC BB: VTEH) belly flop from $15 3/8 down to $0.72. Both NetBet and Playstar are also well of their annual highs. This Fool is one of the more bearish concerning the Internet gaming sector and this isn't the first, nor will it be the last, time I write about an Internet gaming company's stock that has imploded.
Top percentage movers (stocks over $1)
Winners Closing Price Weekly Move Innovative Gaming (IGCA) $ 6 +20.0% Coin Bill Validator (CBVI) $18 3/8 +17.6% Video Lottery (VLTS) $ 6 1/16 +12.8% Multimedia Games (MGAM) $10 23/32 +12.5% Losers Closing Price Weekly Move Stuart Ent. (STUA) $ 2 7/8 -23.3% NetBet (NBET) $ 2 1/2 -16.7% Playstar (PSCK) $ 1 1/8 -14.3% Showboat (SBO) $17 9/16 -13.3%
Quarterly Earnings Summary
1997 1996 GTECH (GTK) $.46 $.42 Harveys (HVY) $.40 $.31 President Casinos (PREZ) ($.10) ($.02)
Did You Know...
Dice games of any type are not allowed in Canadian casinos?
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