Argosy stays put but tax hike hurts company’s bottom line

Dec 24, 2002 6:29 AM

   It was supposed to be a case of give and take. The State of Indiana would take by increasing the gaming tax but would give by permitting the state’s riverboats to remain dockside instead of requiring cruising as it did in the initial gaming law.

   The deal sounded good to officials of Argosy Gaming Corp. (AGY) who did the numbers and estimated that increasing gaming by eliminating the cruising would more than offset the rise in the tax.

   Sounded good but it didn’t materialize, totally.

   Last week, the company became the first gaming company in this quarter to pre-announce that it wouldn’t meet its previous guidance for the fourth quarter of this fiscal year.

   Based on the gaming experience during both October and November, the company said, it appeared that they would miss their previous forecast by about $0.08 a share.

   “A significant portion of the shortfall is the result of lower than anticipated revenue growth at the company’s property in Lawrenceburg, Indiana,” the announcement noted.

   The announcement was consistent with a research paper produced by Robin Farley, chief gaming analyst at UBS Warburg.

   “In our note yesterday,” she wrote, “we compared revenues reported to date with our expectations for the quarter, which came to a shortfall of $0.07 below our $0.65 estimate.”

   She noted that the Argosy shortfall was attributed to the “lower than expected revenue at Lawrenceburg following the move to dockside gaming in August.” Revenue growth, she said, would be 7% higher “in the first half of the year when the property has comparisons without dockside gaming. Lawrenceburg had 20% and 15% increases in its first two months of dockside gaming, followed by a disappointing October when revenues grew only 6%.”

   As a result of the reduced revenues, she said, “we are lowering our fourth quarter earnings per share estimates to $0.56 from $0.65 mostly due to lower expectations at Lawrenceburg.”

   She added that she also was lowering her target price for the next 12 months to $23 a share compared to the previous $26 a share. However, she did retain her “buy” recommendation on the shares.

Track supported

   Former Clinton aide and newly-elected New Mexico Gov. Bill Richardson is on record as supporting the construction of a new racetrack in Hobbs, N.M. He has named horseman Jack Cole to serve on the racing commission.

   The controversial Hobbs measure has been on hold since outgoing Gov. Gary Johnson dumped three members of the Racing Commission in order to prevent a quorum from voting on the Hobbs track. Johnson said he wanted an evaluation to determine whether the state needed a new track and a determination whether the track would create legal problems with the state’s Indian casinos.

   Not specified but also a consideration were the three applicants for the Hobbs license. They included R. D. Hubbard, owner of Ruidoso Downs, and the individual who appeared to have the license in his pocket based on the indications of the former commission members; Las Vegas racetrack investor Shawn Scott whose bid was turned down without an explanation, and the former owner of the Downs at Santa Fe.

   Hubbard was recently fined by the Indiana Gaming Commission as chairman and CEO of Pinnacle Entertainment Inc. (PNK), operator of the Belterra riverboat. The casino allegedly imported party girls to entertain high-rollers at a golf outing. Hubbard also was forced to give up his Indiana gaming license.

   It was not immediately known whether Richardson favored a specific party to own the Hobbs license.

New cruise director

   Mark Juliano, longtime Caesars World executive before his retirement a few years ago, has emerged as the chairman of Titan Cruise Lines with plans to bring a casino boat to St. Petersburg, Fla.

   Titan’s plans seem to have the backing of city officials even though opponents have attempted to delay approval by pointing to such negatives as the ship being 20-years-old with an unknown past; that its operators have recently incorporated in the Cayman Island and have no experience in operating a cruise ship and that Juliano had problems with the Internal Revenue Service.

   Juliano reportedly underreported income for the years 1995 through 1997 and ended up paying the IRS more than $55,000 in back taxes. At the time, Juliano was chairman of the Atlantic City Convention and Visitors Authority.

   St. Pete Mayor Rick Baker said bringing the ship to the city’s port is a safe bet. “I think it’s an acceptable level of risk in relationship to the opportunity before us,” he was quoted as saying.

On the road to slots

   Meanwhile, Florida lawmakers, faced with a budget deficit of between $1.5 billion and $2 billion, are asking themselves, “Where are we going to get the money?

   Part of the answer, say some, would be revenue from slot machines at the state’s racetracks. Legislation was filed last week by Sen. Steve Geller whose district includes Gulfstream Park racetrack.

   “The state’s budget is in a huge fiscal mess,” he said, adding, “VLTs (video lottery machines) at pari-mutuel facilities could raise a significant amount of money.”

   A strong opponent to any expansion of gambling has been the state’s governor, Jeb Bush. Yet, even his rhetoric has recently toned down his objections, leading some to believe track slots could get his approval.

Montana gaming?

   Through the 1990’s, gaming expanded throughout the U.S., even to some of the smaller states such as Montana.

   Few people probably are aware that Montana has 1,700 casinos (small properties with slot machines) and that these properties in 2001 broke the $1 billion mark in revenue.

   In fact a recent study by the Bureau of Business and Economic Research at the University of Montana concluded that “any attempt to restrict the gambling industry would negatively impact a sizable portion of Montana’s economy.”

   The research director called it “good hard data.”

   The study found that an average casino gets about 27% of its revenue from gambling with 19% coming each from food and alcohol sales.

More bad news

   Fraudulent penny-stock financier Bob Brennan, currently serving nine plus years in federal prison for market manipulation, faces another three years based on the recommendation of a federal judge.

   Judge Richard Owen said Brennan was not remorseful in pleading for a lighter sentence and continues to benefit from his misdeeds. Recently a family member gave him $200,000 from a trust fund Brennan had set up in the 1980’s. Brennan had said he was destitute.

   Owen is reviewing the part of Brennan’s case in which the founder of First Jersey Securities violated a court order by concealing $500,000 in revenue from a gambling cruise ship.

   Brennan, 58, said that he is suffering from heart disease and other physical weaknesses that might prevent him from serving out his prison term.

The Insiders

   Blue Suede Acquisition Corp., a wholly-owned subsidiary of Scientific Games International Inc. (SGMS) announced that MDI Entertainment Inc. has agreed to an extension of the tender offer by Blue Suede for MDI to midnight on Jan. 9, 2003.

   A Texas lawmaker says he plans to bring the Astrodome, the world’s first indoor baseball park, back to life, by converting the property into a luxury casino.

   Marnell Corrao Associates, the builder of the original Bellagio in 1998, has been chosen for the $375 million expansion of the property.

   Canterbury Park Holding Corporation announced its stock is now listed on the American Stock Exchange under the symbol ECP.

   Phil Satre, retiring chairman and president of Harrah’s Entertainment Inc. will receive the American Gaming Summit Lifetime Achievement Award at a dinner Jan. 9 at the Rio Suites Hotel.

   Moody’s Investors Service is reviewing the debt of International Game Technology (IGT) for a possible upgrade.

   London Clubs International is selling two South African casinos to generate cash to meet debt obligations.

   The purchase of Louisiana Downs racetrack by Harrah’s Entertainment Inc. (HET) has been approved by the Louisiana Gaming Control Board.

   Louisiana casinos generated $165.5 million in November, up from the $154.6 million won in October.

   Colorado casinos reported winning $56.8 million in November, an increase of 6.3% over the same month a year ago.

   A 57,000 square foot addition at the Tri-State Racetrack & Gaming Center in Nitro, West Virginia, opened last week. The $12 million addition includes 600 new slot machines, raising the total to 1,600 gaming devices.

   Archon Corporation (ARHN) said it plans to purchase an additional $1 million in Archon’s preferred stock. Since December, 2000, Archon has repurchased an aggregate of 674,177 shares of its preferred stock at an aggregate cost of $1,003,307.