Detroit casinos oppose slots for nearby race tracks

Oct 1, 2002 7:24 AM

   When the three successful bidders for casino licenses made their plans for temporary, and later permanent casinos, little did they think that they would be facing competition, especially since the Michigan law restricted Detroit to just three gaming properties.

   But that was before the dramatic growth of so-called “racinos,” where racetracks, many of them floundering, were permitted to add slot machines, or video lottery machines as they are called, to their gambling mix.

   Tracks in Delaware, Iowa, Connecticut and West Virginia have flourished just by installing slot machines on their premises.

   And, that’s exactly the threat now being faced by MotorCity, MGM Grand Detroit and Greektown Casinos whose operating profits have been huge.

   Michigan racetracks, on the other hand, have been languishing. Without some kind of economic stimulus, some will have to padlock their facilities. That’s the plight they are pointing out to elected officials, many of whom won’t be around when the new legislative session takes over in January.

   Racing supporters are now feeling the pressure to do something before they leave office, a tactic that is being decried by the casino operators. Yet, they realize that those who support the tracks have the added impetus of declining revenues and a growing state budget.

   Making a major lobbying effort is Magna Entertainment Corp. (MIEC), the Canadian-based company that has been gobbling up racetracks across North America. In the past two years, the company has purchased Great Lakes Downs in Muskegon. But, the thrust of Magna Entertainment’s lobbying has been toward approval of off-track and account betting systems, popular in other major racing states. Other track operators, however, especially people affiliated with the trotting tracks, Hazel Park Raceway and Northville Downs, both neighbors to Detroit’s casinos, have focused their lobbying on slot machines.

   As one pundit phrased the situation, “Racetracks are already in the gambling business and the state needs the extra money.”

Aladdin’s future

   Conversation heated up last week with press reports that two gaming companies would join forces to acquire the bankrupt Aladdin Hotel/Casino. They were identified as privately-held Colony Capital LLC and Pinnacle Entertainment Inc. (PNK).

   Speculation was that the two would get together with a major hotel company, believed to be Marriott Hotels, to make a “stalking horse” bid. Analysts estimated that the casino companies would ante up $35 million each and Marriott would kick in $20 million to provide a nest egg of $90 million to renovate the property. Meanwhile, the banks would be asked to restructure the existing $437.5 million debt with a longer term and at a lower interest rate.

   Meanwhile, Aladdin Gaming LLC has asked the bankruptcy court for a two-month extension of its exclusive period to file a Chapter 11 reorganization plan. This would give the current operators further time to solicit bids. If approved, it would extend the exclusive period to Dec. 2 and the deadline to secure acceptance for the plan would be Dec. 30.

   Still sitting on the sidelines are Aladdin’s neighbors, Park Place Entertainment Corp, (PPE) the holder of about 30% of Aladdin’s bonds that were purchased prior to the death of former PPE chief executive officer, Arthur Goldberg, and MGM MIRAGE Inc. (MGG) Some analysts indicated that certain conditions have discouraged Park Place from making a bid while MGG have too many projects on their plate already.

Online move

   MGG MIRAGE Inc. is ready to launch its online casino, according to a report in the New York Times.

   Quoting Bill Hornbuckle, the MGM MIRAGE executive who was given the responsibility of putting together the online casino with a license granted by the Isle of Man, the casino may be launched as early as next month.

   Hornbuckle was quoted as saying, “We see billions of dollars being made out there.” He added that the company wanted to be ready if and when the U.S. laws make such gambling legal.

   When the oneline casino is launched, MGM MIRAGE will introduce software that will prohibit anyone from the U.S. from participating, since Internet gambling has been labeled a violation of U.S. law by the Justice Department.

Maryland licenses

   Don’t give away the gaming licenses, they are too valuable, says a Maryland taxpayer advocacy group. They’re referring to racetrack slot machine licenses that are expected to be legalized with the next session of the legislature.

   The Maryland Tax Education Foundation, a non-partisan group, said the state, which like so many others will be desperate for additional tax dollars to fund the state budget, could raise more than $1.5 billion if the politicians elected to auction off the licenses rather than just grant them to existing race tracks.

   “The right to operate slot machines is a license to print money,” said a representative of the group. He added that “major gaming firms will pay heavily for the privilege.”

Investigation ends

   Indiana gaming regulators have concluded their investigation into allegations that officials of Pinnacle Entertainment Inc. (PNK) imported prostitutes to entertain guests during a golf outing.

   Cleared of involvement last week was veteran gaming executive Paul Alanis, who served as the company’s chief operating company. Reportedly, Alanis was not present during the June, 2001, outing and did not know that “inappropriate” activities would take place.

   The company was fined $2.26 million while its former chairman, R.D. Hubbard, was fined $750,000 and was forced to give up his state gaming license.

   With both Hubbard and Alanis out of the picture, the helm of the company has been taken over by Dan Lee. He is now chairman and CEO of the company. Prior to joining a dot.com company, Lee was chief financial officer of Mirage Resorts during the tenure of Steve Wynn.

More rain coming

   A major coastal storm last week forced several Mississippi casinos to shut down their operations resulting in a loss of about $5 million in revenues, according to the Mississippi Gaming Association. The state’s loss was about $400,000 while local governments will end up about $200,000 short.

   But, that may not be the end of the problem.

   On Monday, a new tropical storm was working its way toward the Gulf Coast, with the potential of causing a repeat performance for the Mississippi casinos.

   The news caused consternation on the part of Mississippi officials who noted that they “were still trying to assess the amount of damage” that may have been left by the previous storm. Another hit won’t help the situation.

Churchill boost

   Churchill Downs Inc. (CHDN) was upgraded by equity analysts at Bear, Stearns on Monday, moving it to “peer perform” based on the company’s “attractive valuation and strong fundamentals.”

   In a research paper, analyst Michael Tew said he believed these factors would flow into the fourth quarter particularly in light of the Breeders’ Cup World Thoroughbred Championships being held on Oct. 26 at Arlington Park, a property owned by Churchill Downs Inc.

   From an operating standpoint, he wrote that most of the company’s tracks have already completed their race meets this quarter providing excellent earnings visibility. Most tracks had race meets either in-line or ahead of expectations, in particular Calder Race Course up 25% in 2002 estimated EBITDA, and Hollywood Park, up17% of 2002 estimated EBITDA.

Connecticut battle

   Now that the Eastern Pequot Tribe of Indians has received federal recognition, tribal officials have begun eyeing the Connecticut landscape for a site to build a casino that they envision could mirror the successes of both Foxwoods Resort and Mohegan Sun.

   But that won’t happen until a battle from state officials and three towns is resolved. In an appeal, these officials contend the Bureau of Indian Affairs (BIA) did not have the authority to lump together two groups of Indians — the Eastern Pequots and the Paucatuck Eastern Pequots — into a single tribe. They said the action was unprecedented and not permitted under the federal statutes.

   The two tribes currently share a reservation in North Stonington.

   Meanwhile, another tribe, the Golden Hill Paugussett Indians, are awaiting federal recognition so that they can pursue a casino in Bridgeport.

The Insider

   Harrah’s Entertainment Inc. (HET) will release its third quarter financial results on Tuesday, Oct. 22.

   Harrah’s, the country’s most extensive gaming company with locations from North Carolina to California, is in talks with the Poarch Creek Indians to build a $100 million video gaming and hotel complex in Alabama.

   Gary Loveman, Harrah’s president and CEO, will be the keynote speaker at Racino 2002 to be held Nov. 6-8 at Dover Downs & Conference Center in Dover, Del.

   Acres Gaming Inc. (AGAM) has sold its Bonusing and Casino Management System to the Agua Caliente Band of Cahuilla Indians for their casino in Palm Springs, Cal. The sale will have a combined value of $4.1 million.

   Ameristar Casinos Inc. (ASCA) has named Kristal Surick to the post of corporate director of human resources.

   Wall Street analyst Jeffrey Martin of Roth Capital Partners has begun coverage of Shuffle Master Inc. (SHFL) with a “buy” rating.

   Boyd Gaming Corp. (BYD) has dropped Hawaiian Airlines for its Hawaii-Las Vegas charter business and replaced it with Omni Air International.

   The New York Racing Association (NYRA) reportedly has talked with Donald Trump about installing and operating the slot machines it has been authorized to install in Aqueduct racetrack.

   Despite strong opposition from religious sources, Tennessee voters are expected to approve a state lottery on Nov. 5. Recent polls indicate a 2-1 majority in favor of the lottery.

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