Stronach strong on Sport of Kings

July 31, 2001 7:40 AM
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BUYING & SELLING! In clocking the recent workouts of Magna Entertainment Inc. (MIEC), my ears have pricked up watching the buying and selling of Frank Stronach. He is the majordomo behind Magna and is buying up racetracks at a record pace. His efforts have already had a major impact on the horse racing industry. And, it says here, the best may still be on the come.

The company has acquired nine racetracks and a management contract for a tenth under Stronach’s guidance. With so many people convinced that the Sport of Kings has seen its better days, Stronach says phooey. From what I can see, his goal is to dominate the telephone and Internet wagering business by controlling the product.

He really hit with a long shot in the recent bidding war for the lucrative New York Off Track Betting Corp., a company that does more than $1 billion in wagers each year. It’s no small thing to out-muscle the affluent New York Racing Association, which wa sin there seeking the same gem. In typical New York fashion, Stronach’s bid has hit a political snag.

“Not to worry,” said a pipe. “And, Stronach’s bid to New York tops all rivals.”

The company’s associates include a number of well-known personalities. Include Peter George in that group. He recently retired as head of Hilton Group PLC (Ladbroke). Then there is Terry Lanni. We’re not only talking about a well-respected gaming executive, but Lanni is also deeply involved in the horse racing business. Joe Harper, the guy who keeps Del Mar racetrack ticking, also with a great deal of insight into the Sport of Kings.

MIEC has been trading for less than $7 a share, but I hear insiders are buying as vigorously as shoppers in the bargain basement of Macy’s.

HITTING THE WALL . . . BY SURPRISE! It’s one thing to fly into a wall. It’s another matter when the wall goes up without warning.

Case in point is the buyout of Emerald Casino by MGM MIRAGE (MGG).

It appeared to be a done deal, but out of nowhere ”” and, with little explanation ”” comes a surprise report of the project by the Illinois Gaming Board. They squelched the sale!

“Why?

“A brief statement merely said that Emerald’s negotiations with MGM were not acceptable to the five-member gaming board,” an in-the-knowster said.

“I know of no other company in the industry that tends to its Ps and Qs better than Terry Lanni and his crew. I’d be willing to bet that prior to entering into negotiations with Emerald, the company did its due diligence in Illinois.”

More source: “It’s no secret that the Illinois board is not a fan of the Flynn family, which owns a majority stake in Emerald Casino.

“The casino is ideally situated in Rosemont, a suburb of Chicago. The Flynns finally decided to sell because of all the politics. Negotiating with MGM MIRAGE would certainly be an acceptable way to go.”

So what went wrong?

“Good question,” said the in-the-knowster. “Maybe they feel they should be able to extract more money from the project. Or, perhaps, another large casino company ”” with plenty of Chicago connections ”” has decided it, too, wants to add the Emerald to its stable.

“It’s a safe bet MGM MIRAGE will not lose interest in the Chicagoland market. Look for efforts being renewed. And, don’t be surprised when the name of another casino company emerges.”

JUST IN CASE! That seems to be the message coming from MGM MIRAGE (MGG) after they applied for a cyber casino license from the Isle of Man, a tiny outpost in the British Isles.

Regulations on the isle will enable up to three casinos to set up cyber shops come September.

“It’s a cinch MGM MIRAGE isn’t about to do anything to violate its precious Nevada license. But,” the pipe continued, “they want to be ready if the rules change. According to Nevada rules, they would not be permitted to accept wagers from American citizens. However, Nevada’s ban on betting does not apply to wagers from jurisdictions where it is legal.”

It is not yet clear what other Nevada casinos are vying for Isle of Man authorization. They will likely select companies that are already licensed to operate land-based casinos. Although MGM MIRAGE was the first to come forward, it is believed that Harrah’s Entertainment (HET), Station Casinos (STN), Boyd Gaming Corp. (BYD) and Mandalay Resort Group (MBG) are interested.

At the same time, techies from Maine to Spain are working overtime to come up with a software package to satisfy even Nevada regulators.

SPILLING THE BEANS! Bear StearnsJason Ader, sharp as a tack with his crystal ball on casino companies, isn’t allowing Park Place Entertainment’s (PPE) cloudy, short-term outlook to interfere with his long-term view:

“Given the company’s strong portfolio of assets, brand names, and several new initiatives, we believe shares of PPE should trade at 6.5x-7.0x of our 2002 EDITDA estimates, implying an asset value of $12-$14.”

Ader said he is maintaining his Attractive rating.

That’s good enough for me. The beans have been spilled.

PPE closed Monday at 10.52, up 11 cents, in light trading.

CAN YOU KEEP A SECRET? I hope so, because Zane Bresloff may not be too happy to learn we put our nose under his tent. We discovered that the former kingpin of Awesome Productions is “this close” to doing a million dollar match-up contest for casino players vs. the house. His partner ”” I hear ”” is a major Strip resort. Stay tuned.

PUTTING IT ON THE LINE! Station Casinos (STN) is aggressively buying back more than 16% of its shares. A recent buyback has come and gone with all but 2.7 million shares repurchased.

The action won praises from a rosebud: “It’s a classic case of putting their money where their mouth is. Obviously, they think they know more about themselves than the market does. It shows us clearly that Station wants to reduce debt and reinvest in itself.

FLY ME TO THE MOON . . .  And, back to Las Vegas! National Airlines, Las Vegas’ home-based carrier, is flying high with the extension on its letter of credit from Harrah’s Entertainment Inc. (HET).

Mike Conway was delighted with the August 31 extension from Harrah’s,” said a pipe. “There is no doubt that National is making progress negotiating with a pair of potential investors to keep the airline in the air.

“Conway deserves atta boys by the numbers for keeping his company operating under Chapter 11 bankruptcy since December. The $16 million letter of credit gives National breathing room and the vital necessity to receive cash for tickets purchased by credit cards in advance of the actual travel date.”

Who are the potential investors?

The pipe continued: “It’s a fairly well guarded secret, but with the extension, Conway and company have more time to negotiate.

“By the way, the airline continues to operate a total of 31 daily flights out of McCarran International Airport to nine major U.S. cities. And, while dodging bullets, National leads the airline industry with a 99.5% completion factor. As far as the airline’s report of losing $3.7 million in May, Conway shakes it off as a measure for accounting purposes only. He maintains that financial results are misleading. They are based on contractual rates. It is not taking into account that the leases have been renegotiated at lower rates based on market conditions.”

Conway reiterated to GamingToday that most of National’s troubles were attributable to the price of jet fuel, which had remained stable for nearly nine years prior to National’s existence.

Conway, an affable Irishman, seems convinced that he will make it through the current financial storm.

THE HEART OF THE MATTER: Earlier this year, Alan Goodenough, the English chairman of London Clubs International (LCI), part owner of the financially-troubled Aladdin Resort Hotel/Casino on the Las Vegas Strip, said he planned to convert LCI’s preferred stock in the Aladdin into a controlling interest with the intent of selling a portion to some other firm with deep pockets.

The action was never taken and on Monday Goodenough announced his resignation because of heart problems reportedly brought on by the stress of dealing with the Aladdin. Nothing was said at the time about LCI’s move on the Sommer Trust, owner of 57% of the Aladdin.

London press reports indicated LCI planned to announce the takover move at its teleconference on Tuesday reporting on the fiscal experience for the past quarter. But, local officials said they knew nothing about the news coming out of Britain.

Even if LCI takes its majority position in the company UK sources said it seemed unlikely that it could bring in another gaming company that could service the Aladdin’s debt.