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GAMING SHARES CRISIS
Boyd is adapting to market conditions by delaying
An uncertain future construction on Echelon in Las Vegas. Boyd’s Borgata,
Atlantic City’s top-grossing casino, is another victim
The destructive 2008 and 2009 economies were a of the recession. In March, the company reacted to
wakeup call for every American industry. For gaming, declining business by closing most of its year-old
the perfect storm of economic disasters included the Water Club tower’s 800 rooms on weekdays. The
shocking stock market plunge, unavailable credit and company plans to resume a full schedule in late May.
harmful language in President Barack Obama’s However, for Atlantic City, the Pennsylvania factor
February 2009 federal Recovery Act. Also called the will continue, eroding some of its base. In a research
“Stimulus Package”, the $787 billion spending note to investors, Justin T. Sebastiano, Morgan Joseph
legislation banned any federal assistance not only to & Co. Inc. gaming analyst, wrote, "Borgata is clearly
casinos, but also to groups receiving stimulus money head and shoulders above all other casinos in
that met on casino gaming property. Atlantic City, but the new competition in
These are tangible issues, but the intangible may Pennsylvania should hurt its results, too… the
have an equally negative effect. Evolving public Atlantic City market will remain under pressure for
perceptions regarding acceptable executive quite some time.”
compensation, plus Obama’s comments about a lack Another variable is player reaction. Has the
of accountability while visiting Las Vegas “on the recession changed player habits? Legendary casino
taxpayers' dime”, may also impact the industry’s future operator Steve Wynn thinks so. In a late 2008
direction. Will conventions return in big numbers to conference call, he described different mindsets
gaming cities?
How will gaming climb out of this abyss?
Fahrenkopf believes the banks are vital to relieving
…there are fears that
the stress. “The future will depend on when liquidity consumers will grow
from the banks once again flows. However, banking
will never be the same,” he says.
accustomed to spending less
Eadington agrees, claiming that too many
companies got burned. He says, “The industry never affecting winning and risk taking. If Wynn is right, is
saw the across-the-board decline coming, and there this a permanent condition? In some circles, there
are risks of bankruptcy everywhere. I believe the are fears that consumers will grow accustomed to
economy will correct itself after two to three years, spending less, particularly on leisure and
but who will be left standing?” entertainment.
Unfortunately, geography is an unpredictable No one can predict the Las Vegas of 10 to 20 years
variable. Eadington expects competing tribal gaming from now because of the explosive growth patterns of
in neighboring northern California to cause long the past two decades. In the short term,
term declines in northern Nevada cities like Reno approximately 18,000 additional rooms will come
and Lake Tahoe. One casualty could be Boomtown online on the Las Vegas Strip over the next 18
Reno, owned by Pinnacle Entertainment. Its months.
Chairman and CEO, Dan Lee, recently revealed it Some believe that as larger corporations divest
preferable to close rather than sustain annual losses. some of their holdings to smaller operators, the
On Wall Street, the picture is mixed. In New York, answer may be to return to an era of broader
Deutsche Bank Research Analyst Andrew Zarnett ownership. For example, Treasure Island in Las Vegas
forecasts that in 2009 California, Indiana, Mississippi was built in 1993 for $450 million. Its owner, MGM
and Pennsylvania may remain stable or show Mirage, is selling the site to investor and Las Vegas
profitability. On the flat or negative side, Zarnett developer Phil Ruffin in the second quarter of 2009.
calculates a downturn for Atlantic City, Connecticut, The price tag is $500 million in cash and $275
Colorado, Illinois, Iowa, Louisiana, Missouri, million in secured notes.
Michigan and Nevada. While some larger operators struggle, Zarnett
Hopefully, the industry can adapt to fundamental expects positive financials for regional operators such
long term changes in conducting business. At the as Penn National, Pinnacle Entertainment, Isle of
2008 G2E “State of the Industry” seminar, Harrah’s Capri, Tunica Biloxi and Pokagon.
CEO Gary Loveman insisted the era of building and And, as the casinos go, so goes the manufacturing
operating extravagant properties has ended. and supply side of the industry. Public companies like
Boyd agrees, saying, “As a public company, we must IGT have downsized amid declining sales and a
be more careful and judicious with our expansion management overhaul. WMS Gaming is holding its
and development strategy. The days of developing own with favorable product quality and sales. Bally
new projects on a hunch are behind us. If we’re going Technologies is trading at the midpoint between its
to build, we must justify it to shareholders. However, 52-week high and low.
one thing that will remain is our focus on customer With the turmoil facing gaming, the next year will
service. Keeping the family-owned business culture prove critical. As gaming strives to redirect itself, the
makes Boyd Gaming unique… and we intend to keep industry must hope the public hangs on for the
it that way.” bumpy ride.
26 JUNE 2009
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