Lanni scores New York racing contract for MGM MIRAGE

Apr 22, 2003 7:00 AM

Terry Lanni may consider the American gaming market as "mature,’ but he won’t hesitate to grab at a ripe plum when he sees one.

That’s exactly what Lanni, chairman and CEO of MGM MIRAGE Inc. (MGG) did last week by joining with the New York Racing Association in announcing that his company would operate the video lottery terminals that will be installed at Aqueduct racetrack.

For Lanni, the much-sought after NYRA contract was a natural. For a number of years, Lanni has been very active in the thoroughbred racing business, both as a horse owner and as a member of the board of directors of Santa Anita racetrack.

In making his selection, Barry Schwartz, president and CEO of NYRA, expressed his confidence that MGM MIRAGE was the best choice to guide his company in creating the nation’s largest racino. It’s expected that the track will have 4,500 video lottery machines.

Schwartz said he felt that MGM MIRAGE’s expertise was needed to create an upscale racetrack gaming parlor that would cost in excess of $100 million. He said he recently met with New York Gov. George Pataki and was convinced the governor would help support a new plan that would increase the track’s share of the VLT revenue to 18% and would boost the education fund portion of the revenues to 62%.

News of the company’s selection came shortly after Lanni and Jim Murren, president and chief financial officer, had reported a substantial drop in first quarter profits for MGM MIRAGE Inc. Net income for the period was $51 million or $0.33 a share compared to the 2002 experience of $82 million of revenue and $0.51 a share in earnings.

Lanni told investors that the country’s weak economy had hurt business, even more than the war in Iraq, and that even though substantial numbers of tourists had nearly filled the hotels on the Las Vegas Strip, they didn’t gamble as much as expected. "People are coming into the buildings same as in the past," Lanni said, "but just not spending the money like in the past."

Both Lanni and Murren said they were cautious about second quarter results although they hoped for improved results later on.

"Global events," said Lanni, "and the current state of the economy create a difficult environment in which to forecast performance, Incoming call volumes are slightly lower than last year."

During the first quarter, the company used $101 million of cash to repay debt and repurchase common stock; invested $88 million of capital in the company’s properties, including maintenance and expansion projects; opened "Tabu," the ultra-lounge at MGM Grand, and "Caramel" and "Mist" as new lounges in the Bellagio and Treasure Island, respectively, and announced a new Irish pub for the New York-New York property.

Another boycott?

France’s anti-American actions prior to the Iraqi War has caused a substantial boycott in the U.S. of French goods. Now some are suggesting that a similar approach should be taken toward Canada.

Led by Canadian Prime Mister Jean Chretien and members of his cabinet, a number of our northern neighbors have been taking potshots at President Bush, resulting in growing resentment among Americans.

Now comes a report out of upstate New York that indicates business has fallen off sharply at Niagara Casino, across the Niagara River from Buffalo, N.Y. According to the report, same-day car trips to Canada over the Rainbow Bridge dropped 15% in January and 20% in February.

However, it may have nothing to do with war feelings, observers note, since the Niagara Casino now has competition. As of Jan. 1, upstate New Yorkers have had the option of visiting the new Seneca Niagara Casino in Niagara Falls. Also, said a spokesman for the Canadian casino, extra-frigid weather during February may have contributed to the business decline.

Budgetary crisis

The reality of a $5 billion budget crisis seems to have Illinois lawmakers facing the prospects of developing a more accommodating gaming environment rather than clouding its future.

"Whether gambling is good or bad public policy is irrelevant now," remarked an Illinois university professor.

And the first issue the lawmakers must address is recent remarks by Gov. Rod Blagojevich that threatened to increase gaming taxes to as much as 70% of total revenues. Illinois will soon have a gaming license that had been valued by as much as $350 million but whose value declined to practically nothing following the governor’s remarks.

Suddenly, lawmakers are listening to gaming advocates who are suggesting that certain adjustments are needed in current gaming laws. Suggested changes would include reducing the current 50% maximum tax to 35% and eliminating the limit on gaming positions to 1,200 per riverboat.

Illinois Gaming Board members have drafted a plan to resolve a dispute over the controversial Emerald Casino license that would eliminate the need for a May 5 meeting to revoke the license. If accepted, the plan would then make the license available for new bidders.

Comparing Connecticut

Wisconsin Gov. Jim Doyle has been renegotiating the state’s gaming compacts with the Indian casino operators in hopes of generating additional revenue for his state. When completed, Doyle expects to pick up about $118 million from the 11 tribes over the next two years.

Hardly comparable to the revenue generated by the two casinos in Connecticut. They’re expected to come up with about $400 million in state taxes this year.

But, then again, the Connecticut deal with the Mashantucket Pequot Indians was unique. And no one, except possibly gaming executive Mickey Brown, who was advising the Pequots at that time, had any idea how much revenue could be generated from slot machines. Brown offered 25% of the total revenue, but also guaranteed at least $100 million, so the state could balance its annual budget.

History has shown that even Brown’s liberal view fell short of the eventual revenues.

Slow approval

The racino bill in Minnesota that would benefit Canterbury Park Holding Corporation (ECP) has been progressing without much fanfare.

Last week, the bill passed the House Ways and Means Committee by a 13-12 vote while a Senate version was tabled by the State and Local Government Operations Committee.

"We are very pleased to advance this bill to the House floor, where we expect the vote will be very close," said Canterbury Park’s president Randy Sampson. "Canterbury Park and our supporters will continue to work with legislators to make our case for how the racino can create jobs and generate much needed economic development revenues for Minnesota," he added.

For months, the company’s stock traded in the $5 range but with the advent of the racino proposal the shares have risen in price to the mid-$15 range.

SARS concern

Foxwoods Resort Casino had scheduled a show that involved Asian entertainers but because of the recent outbreak of the respiratory illness SARS the property has postponed the show to a later date.

Explaining the move, Foxwoods spokesman Bruce McDonald was quoted as saying, "Given the climate of concern and the travel restriction that were making it difficult to get here, we thought it would be easier to postpone the event."

Reportedly, there are four suspicious cases of respiratory disease under investigation in Connecticut. It was believed that there were two probable cases of SARS and two others that were still unidentified.

SARS originated in southern China and spread to Hong Kong and then to other locales. Since it was identified, the illness has infected some 3,000 people with as many as 170 listed as fatalities.

Revenues grow

Since Indiana lawmakers removed the requirement for riverboats to cruise, gaming revenues have grown. In fact, during the month of March, revenues throughout the state grew by 11.4% in March.

For the northern Indiana casinos, including Horseshoe, Majestic Star, Trump, Harrah’s and Blue Chip, the revenues jumped 14.6% while in southern Indiana, involving Belterra, Aztar, Caesars, Grand Victoria and Argosy, the revenues increased by 8.1%.

However, the increased revenues may not have been enough to offset an accompanying increase in gaming taxes. Some analysts have estimated that revenues would have to increase by 15% to offset the race boosts.

On time, budget

Now that singer Celine Dion has had a triumphant opening in her new venue at Caesars Palace, the builders, Perini Corp. (PCR) reports that it completed the $95 million project six weeks ahead of schedule and within the established budget for owners Park Place Entertainment Corp. (PPE).

The Colosseum at Caesars Palace seats 4,100 people with a circular design that provides guests with an intimate theater experience.

Perini Corp. said constructing the elliptical structure during the 13 months allotted posed a unique challenge to the company that has the reputation of having been involved in more hospitality and casinos projects that any other company in the U.S. Complications included having the design taking place during construction, the architect being located in Oklahoma and the designer living in Canada.

The Insider

Magna Entertainment Corp. (MECA) has completed its acquisition of Flamboro Downs in Ontario Canada.

Casino Windsor Prexy Bobby Yee may be leaving his post to take up residence in Las Vegas but he didn’t leave before presiding over the winning of the largest progressive slot machine jackpot in the property’s history. A man from nearby LaSalle, Ontario, hit a MegaBucks jackpot for $1.98 million last week.

Giant retailer L.L. Bean won’t permit casino gambling to become a reality in Maine without a fight. The company says it will contribute money to fight a proposed $650 million casino in southern Maine.

Multimedia Games Inc. (MGAM) has received the approval of the Gaming Laboratories International Inc. (GLI) for its GameOps (4) gaming system.

Century Casinos Inc. (CNTY) announced the successful opening of its casino aboard the Insignia cruise ship, part of the Oceania Cruises operation.

With the help of a strong showing by Greektown Casino, Detroit set a new gaming record for the month of March. Revenues for the period were up a total of 1.3% but Greektown showed an increase of 6.3%.

March also proved to be beneficial to the activities at Connecticut’s two tribal casinos. Foxwoods had a slot win of $67.6 million during the month while Mohegan Sun reported slot win of $67.5 million.

The not-yet-opened Borgata Hotel Casino & Spa in Atlantic City will host the Gaming Hall of Fame Charity Dinner and Induction Ceremony on July 26.