Along with the blessings of owning the competition comes a host of challenges, as attested by the most recent financial results reported by Harrah’s Entertainment and MGM Mirage, two of the gaming industry’s giants.
In a conference call with analysts last week to discuss its performance for the first quarter, Harrah’s financial boss Colin Reed said it’s a question of "where," not "if," the company builds a third hotel tower at its ailing Showboat Casino Hotel in Atlantic City, acquired by Harrah’s in the late ’90s. A $4.5 million decline in revenues at the property, along with a 10.3 percent drop in cash flow, dragged down revenues for the company’s Eastern Region by 2.4 percent and offsetting a solid quarter at Harrah’s Atlantic City in the resort’s Marina section.
Chief Operating Officer Gary Loveman described the Showboat as "under-roomed" and said plans for more beds will be firmed up in the next two to three months.
On the plus side, the first quarter appeared to signal a turning of the corner at the Rio All Suite Casino Resort in Las Vegas, which Harrah’s bought two years ago. A combination of tighter table games management, cost-cutting and a marketing shift away from super high-end play turned an operating loss in the first quarter of 2000 into $11.7 million in profits for the three months ending March 31. Cash flow showed an even more dramatic improvement, soaring 219 percent to $22.7 million.
Despite serious declines in revenues and cash flow in the troubled Reno/Lake Tahoe market, Harrah’s posted record company-wide revenues and cash flow, boosted by the first full quarter of cash rolling in from the three Players International riverboats acquired last year and a 6 percent increase in same-store sales, always a strong area for the company.
Revenues rose to $899.5 million, up 15 percent over the first quarter of 2000. EBITDA was up 22.6 percent.
At MGM Mirage, a portfolio that now contains Steve Wynn’s former casino empire is paying obvious dividends for Terry Lanni & Co. Without those holdings, acquired last May, combined cash flow for the MGM Grand, New York-New York, MGM Grand Detroit and the company’s casinos in Primm, Nev., and overseas would have been down more than $20 million. Instead, cash flow was up 137 percent on revenues that soared from $424 million in the first quarter of 2000 to $1.07 billion in the first three months of this year. Net income nearly doubled to approximately $83.9 million, resulting in a 14-cent spike over the same period last year in diluted earnings per share. The 52 cents in EPS beat consensus estimates by a healthy eight cents.
Bellagio paced the overall performance, recording $93.5 million in cash flow, beating its previous best quarter by more than $5 million. The company attributed the growth to an increase in hold percentage at the tables and double-digit increases in average daily room rates and revenue per room.
But the company played unlucky at baccarat at the MGM Grand, so the Bellagio’s gains largely offset declines of $10.6 million and $13 million, respectively, in net revenue and cash flow there, compared with the first quarter of 2000. On a pro forma basis, figuring the results had the two companies been combined in the first quarter of last year, EBITDA would have been up only 3 percent while net revenues would have remained flat.
The balance highlights the challenges for a company whose overwhelming presence in Las Vegas ties it to the city’s financial fortunes to a greater degree than big-time competitors like Harrah’s and Park Place Entertainment - which was scheduled to report its first quarter results today.
Elsewhere results were mixed. Cash flow was down $2 million at the Mirage, up slightly more than $2 million at Treasure Island and essentially flat at New York-New York. Net revenues were down $11 million in Detroit but EBITDA was up almost $1 million, indicating the property is weathering the competition there well.
The Primm casinos remain a challenge. The California energy crisis, rising gas prices and the spread of Indian gaming combined to hammer net revenues by more than $9 million compared with the first three months of 2000. EBITDA tumbled a corresponding $8.4 million.
Despite a $4 million drop in overall revenues, Aztar Corp. posted a slight increase in profits and earnings per diluted share for the first quarter. EPS was 28 cents, three cents better than the corresponding period last year and beating consensus estimates by four cents.
Casino Data Systems
A jump in game sales of almost $5 million paced Casino Data Systems to a 20 percent increase in revenues for the first quarter. Increasing costs, however, drove down profits to $1.2 million from about $1.6 million in the first three months of 2000. Diluted EPS fell from nine cents to six cents.
An early buyout of Lakes Gaming’s Indian management contract for Grand Casino Avoyelles in Louisiana, combined with a drop in business at the Indian-owned Grand Casino Coushatta sent the company’s first quarter revenues plunging to $9.2 million from $31.1 million in the same period last year. Profits fell from $16.1 million to $4.7 million for a corresponding drop in diluted earnings per share from $1.52 to 44 cents.
Tony Chamblin quitsracing association
Embattled Tony Chamblin, who for the past 15 years has headed the Association of Racing Commissioners International, announced Sunday night that he would resign his post effective on July 1.
Both supporters and opponents to the controversial racing administration executive hoped that Chamblin’s departure would result in an end to bickering that resulted in a split in the national organization. During the past four years, a number of state regulators became part of a competing organization called the North American Pari-Mutuel Regulators Association.
Some racing regulators objected a half-dozen years ago to a $250,000 employment contract that Chamblin negotiated with the RCI’s board of directors. With the resignation of several state commissions, RCI’s revenues declined and Chamblin agreed to forego $50,000 until certain conditions were met. Reportedly, he restored the $50,000 to his salary last December, causing another outbreak of dissension in the ranks.
Sunday night, at the annual gathering of RCI members, Chamblin was given a standing ovation while his contributions to the organizations were recognized.
"I think the time was right," Chamblin said after disclosing he was leaving his post. "Fifteen years is a long time to serve an organization of this type. It’s no secret there has been turmoil in the organization, but I think we’ve made great accomplishments. My head is held high. Maybe someone else can come in and hopefully soften the turmoil," he said.
Taking over as head of the RCI is Racing Commissioner Arthur Khoury of Massachusetts.
Stations feel heat of Sun(Coast)
Competition was a major factor in a slowing of business at a pair of casinos operated by Station Casinos Inc. (STN), management acknowledged Monday in a financial teleconference.
"However, it was not unexpected," said Chairman and CEO Frank Fertitta, III, referring to the impact felt at the company’s North Las Vegas properties with the opening of Coast Resorts’ Suncoast Hotel & Casino.
"Normally, you notice the effect of a new property for the first two quarters of operation and then the business stabilizes and returns to normal. The greatest impact was on our slots play. But, recently we’ve noticed that the impact is lessening."
Harrah’s creates new executive positions
Creation of a new executive position and the departure of the company’s No. 3 man were announced Monday by Harrah’s Entertainment Inc. (HET).
Gary Loveman, the company’s chief operating officer, has been named to the newly-created position of president, and Colin Reed, chief financial officer, has resigned to become president and CEO of Gaylord Entertainment Company in Nashville, Tenn.
Prior to the moves, both Loveman and Reed were members of the "office of president."
Replacing Reed as CFO will be Charles Atwood, the current vice president and treasurer of HET.
The changes were announced Monday by Chairman and CEO Phil Satre.