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Harrah’s rolls a winner

Feb 12, 2002 5:45 AM

Coming off a solid fourth quarter in which it outperformed its chief competitors, Harrah’s Entertainment is bullish about 2002. But a few industry skeptics wonder if there’s just a little too much bull.

The gaming company posted higher revenues and cash flow, bucking the downbeat trend reported by many big casino operators last quarter. Thanks to its strong geographic diversification, Harrah’s weathered the September 11 terrorist attacks better than most. “We don’t depend on any single market,’’ explained President and CEO Gary Loveman.

With that in mind, Harrah’s is adding or expanding four casinos across the country: a 292-room addition in East Chicago, Ind.; a 252-room addition in Cherokee, N.C.; an expansion of the Rincon tribal casino outside San Diego; and a 452-room tower and casino expansion in Atlantic City ”” a year before its neighbors move in.

“2002 will see the least amount of new (casino) supply in history. But we have the funding capacity to take market share,’’ Chairman Phil Satre boasted last week.

But some industry analysts say caution is warranted in economically dicey times. Indeed, a closer look at Harrah’s numbers shows that much of the growth stemmed from its acquisition of the Harvey’s group last year. When Harvey’s contribution is filtered out, Harrah’s performance doesn’t look nearly so robust.

Harrah’s execs respond that their same-store sales grew 9 percent without including Harvey’s. They point to East Chicago, for example, which climbed 17 percent. And Loveman is particularly upbeat about the national reach of Harrah’s Total Rewards program, which accounted for a record 70 percent of the company’s total gaming revenue last quarter.

The prospects of more dockside gaming in Indiana and higher slot minimums in Mississippi are also encouraging. So, too, is the possibility of gaming at horse tracks in Kentucky, where Harrah’s has interests in Bluegrass Downs, Turfway Park and Kentucky Downs. Meantime, New York and Pennsylvania are expected to be in play soon.

Satre, in an earlier conversation about opening the New York market, made his aggressive expansion plans clear. “If someone’s going to cannibalize us, I want to be the cannibal,’’ he said.

But gaming experts, speaking privately, say Harrah’s could be in danger of overplaying its hand. They note that many jurisdictions are eyeing steep increases in casino taxes, which would pinch the bottom line. A softening economy also threatens to squeeze players’ pocketbooks.

Even Harrah’s brass appears to be hedging their bets. Prior to announcing the fourth-quarter results, Satre sold some 326,400 shares of company stock, or 17 percent of his stake. Loveman cashed out 22,500 shares and chief financial officer Chuck Atwood unloaded about 2 percent of his 201,000 shares and options.

While applauding Harrah’s success last quarter, market observers say Harrah’s will be hard-pressed to match its performance going forward ”” especially amidst its large capital construction outlays. Though the company’s Northern Nevada region, which includes Colorado, posted a 42 percent increase in revenue, that black ink would have turned red without Harvey’s on board. In the absence of another Harvey’s deal, the prognosticators say Harrah’s sky-high numbers may quickly fall back to earth.