Casino Journal November2010 : Page 4

EDITOR’S LETTER NOVEMBER 2010 • VOL. 23, NO. 11 • CASINOJOURNAL.COM BNP MEDIA GAMING GROUP Editorial Publishing Offices 505 E. Capovilla Ave., Suite 102 Las Vegas, NV 89119 USA (702) 794-0718 Group Publisher CHARLES ANDERER (914) 948-5758; andererc@bnpmedia.com Editor JAMES RUTHERFORD (702) 794-0718, ext. 8707; rutherfordj@bnpmedia.com Managing Editor MARIAN GREEN (702) 794-0718, ext. 8703; greenm@bnpmedia.com Art Director TAMMIE GIZICKI (248) 244-1728; gizickit@bnpmedia.com Contributing Writers JULIETTE BOONE, DENNIS CONRAD, PAUL DOOCEY, JOHN GROCHOWSKI, ELIOT JACOBSON, KEITH KEFGEN, LLOYD D. LEVENSON, ANDREAS ROELL, RHONDA SAVAGE Production Manager SOUZAN AZAR (949) 830-0881; ext. 3920; azars@bnpmedia.com Marketing Manager DREW MATTHEWS (248) 786-1609; matthewsd@bnpmedia.com Associate Publisher, East Coast Sales TERRY DAVIS (404) 320-0072; davist@bnpmedia.com Western Regional Sales Manager FLOYD SEMBLER (480) 231-8433; fsembler@aol.com Sales Manager, Gaming Events LESLEY GRASHOW (203) 938-2782; grashowl@bnpmedia.com AUDIENCE DEVELOPMENT Corporate Audience Development Director CHRISTINE A. BALOGA Audience Development Manager LISA DEWITT Corporate Fulfillment Manager ALISON ILLES Audience Audit Coordinator CAROLYN M. ALEXANDER Reprints: Contact JILL DEVRIES, (248) 244-1726; devriesj@bnpmedia.com List Rentals (direct mail contact) ROB LISKA (800) 223-2194 x726; robert.liska@edithroman.com List Rentals (Email contact) SHAWN KINGSTON (800) 409-4443 x828; shawn.kingston@epostdirect.com Can I get an ‘Amen!’ In spite of the dismal state of the U.S. economy and the damage this is wreaking on valuations, or perhaps because of it, some of the industry’s leading names appear to have decided that now is as good a time as any to test the public’s appetite for risk. The big news, as I write this, was Harrah’s Entertainment ﬁ ling with the SEC to take a portion of the company public with a share offering aimed at raising as much as $575 million. It’s a gutsy move as things stand currently. Gaming assets are wearing their prices down around their ankles. A marquee James property like the Borgata is worth less than half of what it cost Rutherford to build, based on the $250 million MGM Resorts says it’s been offered for its 50 percent stake in the $1.1 billion gambling palace. Las Vegas’ $1 billion M Resort, not 18 months old, went to Penn National last month for $230.5 million, a price representing about 26 cents for every dollar of its debt. Resorts Atlantic City was sold out of foreclosure in September to an investment group led by Dennis Gomes for $35 million, the lowest price ever paid for a casino in the seaside resort. Morgan Stanley has written off all of its $1.2 billion investment in Atlantic City’s unﬁ nished Revel. And let’s not forget the unﬁ nished $2.9 billion Fontainebleau — “Uncle Carl’s Furniture Barn,” as it’s been roasted in the local press. Harrah’s has $23 billion in long-term debt and net losses through the ﬁ rst half of the year exceeding $460 million. Factor in the scary multiples implied by the above, and it’s understandable that some observers are skeptical of a public offering. “We are concerned that Harrah’s isn’t investing enough in its properties, which will hurt its competitive position over time,” Moody’s Investors Service said in a mid-summer report. “Additionally, management seems more interested in jump-starting growth initiatives than in reducing debt.” Analyst Barbara Cappaert of KDP Investment Advisors, commenting on the IPO in a research note, said, “We have not been a fan of this company mostly because of the high leverage and the opportunistic exchanges that have not necessarily beneﬁ ted bondholders. However, we are willing to concede that in the right window, more likely 12 months, Harrah’s may be able to pull it off.” It isn’t like Harrah’s doesn’t have all kinds of properties to sell to fund its capital expansion plans. The problem is the low-ball prices they’re likely to fetch. Fire sales have tremendous appeal for horse traders like Icahn and John Paulson, but they drive bondholders crazy. Then again, just a week before Harrah’s told the SEC of its plans, MGM was able to leverage a monthly jump in gaming revenue on the Las Vegas Strip to quickly bang more than 40 million shares out the door in a secondary offering good for $511 million. What happened was, Strip win was up 21 percent in August, a big number, obviously, driven once again by record baccarat play, and that lit a ﬁ re under the shares. When the sale was announced, existing shareholders took an 11 percent hit right out of the box, the stock’s biggest drop in almost a year, but at that point MGM already had broken $13. The company was able to price the offering well below the previous day’s close and still get $12.65, and this in the face of an expected $206 million third-quarter loss. Of course, as I write this, those who bought in are under water to the tune of about $1.50 a share. But there you go. The deal has inspired some analysts to suggest that a sustainable recovery in major market revenues isn’t needed to put the mojo back into gaming stocks. A dollar or two in room rates will do the trick, they say. What we’re seeing, the longer our shared economic pain lasts, is terms like “recovery” and “sustainable” becoming more and more susceptible to interpretation until they’re as nebulous as we need them to be. In the Church of Wall Street, faith can move mountains. It’s why half-billion-dollar stock ﬂ oats are all about timing, as Harrah’s well knows. That and perception. And a steady inﬂ ux of wealthy Chinese. CORPORATE DIRECTORS Publishing TIMOTHY A. FAUSCH Publishing JOHN R. SCHREI Marketing Director HOLLY BANKS Corporate Strategy Director RITA M. FOUMIA Information Technology SCOTT KESLER Production VINCENT M. MICONI Finance LISA L. PAULUS Creative MICHAEL T. POWELL Directories NIKKI SMITH Human Resources MARLENE J. WITTHOFT Conferences & Events EMILY PATTEN Clear Seas Research BETH A. SUROWIEC BNP Media Helps People Succeed in Business with Superior Information BNP Corporate Telephone: 248-244-6400 For subscription information or service, please contact Customer Service at: Tel. (847) 763-9534 or Fax (847) 763-9538 or e-mail CJ@halldata.com. www. casinojournal.com CASINO JOURNAL (ISSN 1535-2110) is published 12 times annually, monthly, by BNP Media II, L.L.C., 2401 W. Big Beaver Rd., Suite 700, Troy, MI 48084-3333. Telephone: (248) 362-3700, Fax: (248) 362-0317. No charge for subscriptions to qualified individuals. Annual rate for subscriptions to nonqualified individuals in the U.S.A.: $161.00 USD. Annual rate for subscriptions to nonqualified individuals in Canada: $198.00 USD (includes GST & postage); all other countries: $211.00 (int’l mail) payable in U.S. funds. Printed in the U.S.A. Copyright 2010, by BNP Media II, L.L.C. All rights reserved. The contents of this publication may not be reproduced in whole or in part without the consent of the publisher. The publisher is not responsible for product claims and representations. Periodicals Postage Paid at Troy, MI and at additional mailing offices. POSTMASTER: Send address changes to: CASINO JOURNAL, P.O. Box 1080, Skokie, IL 60076. CANADA POST: Publications Mail Agreement #40612608. GST account: 131263923. Send returns (Canada) to Bleuchip International, P.O.Box 25542, London, ON, N6C 6B2. Change of address: Send old address label along with new address to CASINO JOURNAL, P.O. Box 1080, Skokie, IL 60076. For single copies or back issues: contact Gisele Manelli at (847) 405-4061 or manellig@bnpmedia.com. rutherfordj@bnpmedia.com 4 CASINO JOURNAL • NOVEMBER 2010 • CASINOJOURNAL.COM

Editor’s Letter

Can I get an ‘Amen!’ In spite of the dismal state of the U.S. economy and the damage this is wreaking on valuations, or perhaps because of it, some of the industry’s leading names appear to have decided that now is as good a time as any to test the public’s appetite for risk. The big news, as I write this, was Harrah’s Entertainment filing with the SEC to take a portion of the company public with a share offering aimed at raising as much as $575 million. It’s a gutsy move as things stand currently. Gaming assets are wearing their prices down around their ankles. A marquee property like the Borgata is worth less than half of what it cost to build, based on the $250 million MGM Resorts says it’s been offered for its 50 percent stake in the $1.1 billion gambling palace. Las Vegas’ $1 billion M Resort, not 18 months old, went to Penn National last month for $230.5 million, a price representing about 26 cents for every dollar of its debt. Resorts Atlantic City was sold out of foreclosure in September to an investment group led by Dennis Gomes for $35 million, the lowest price ever paid for a casino in the seaside resort. Morgan Stanley has written off all of its $1.2 billion investment in Atlantic City’s unfinished Revel. And let’s not forget the unfinished $2.9 billion Fontainebleau — “Uncle Carl’s Furniture Barn,” as it’s been roasted in the local press. Harrah’s has $23 billion in long-term debt and net losses through the first half of the year exceeding $460 million. Factor in the scary multiples implied by the above, and it’s understandable that some observers are skeptical of a public offering. “We are concerned that Harrah’s isn’t investing enough in its properties, which will hurt its competitive position over time,” Moody’s Investors Service said in a mid-summer report. “Additionally, management seems more interested in jump-starting growth initiatives than in reducing debt.” Analyst Barbara Cappaert of KDP Investment Advisors, commenting on the IPO in a research note, said, “We have not been a fan of this company mostly because of the high leverage and the opportunistic exchanges that have not necessarily benefited bondholders. However, we are willing to concede that in the right window, more likely 12 months, Harrah’s may be able to pull it off.” It isn’t like Harrah’s doesn’t have all kinds of properties to sell to fund its capital expansion plans. The problem is the low-ball prices they’re likely to fetch. Fire sales have tremendous appeal for horse traders like Icahn and John Paulson, but they drive bondholders crazy. Then again, just a week before Harrah’s told the SEC of its plans, MGM was able to leverage a monthly jump in gaming revenue on the Las Vegas Strip to quickly bang more than 40 million shares out the door in a secondary offering good for $511 million. What happened was, Strip win was up 21 percent in August, a big number, obviously, driven once again by record baccarat play, and that lit a fire under the shares. When the sale was announced, existing shareholders took an 11 percent hit right out of the box, the stock’s biggest drop in almost a year, but at that point MGM already had broken $13. The company was able to price the offering well below the previous day’s close and still get $12.65, and this in the face of an expected $206 million third-quarter loss. Of course, as I write this, those who bought in are under water to the tune of about $1.50 a share. But there you go. The deal has inspired some analysts to suggest that a sustainable recovery in major market revenues isn’t needed to put the mojo back into gaming stocks. A dollar or two in room rates will do the trick, they say. What we’re seeing, the longer our shared economic pain lasts, is terms like “recovery” and “sustainable” becoming more and more susceptible to interpretation until they’re as nebulous as we need them to be. In the Church of Wall Street, faith can move mountains. It’s why half-billion-dollar stock floats are all about timing, as Harrah’s well knows. That and perception. And a steady influx of wealthy Chinese. rutherfordj@bnpmedia.com

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