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N.J. casinos, regulators scramble as budget hopes fade

Jul 1, 2003 6:48 AM

Facing the disastrous possibility that the Atlantic City casinos would be forced to close at midnight Monday, the Casino Association of New Jersey ran to the courts seeking an exemption from a mandate to close at midnight if lawmakers failed to pass a state budget.

Despite a weekend of failed negotiations, the two sides in the budget discussions were hung up on the final details of the state’s $24.1 billion budget. But an adamant Gov. James E. McGreevey, who was insisting on raising the tax on gaming revenue from the present 8% to $10% to generate $90 million annually, said all state services would cease at midnight if no budget was presented to him that he could sign.

In New Jersey, casinos must have representatives of the state Casino Control Commission on site in order to operate. These CCC employees were designated as "non-essential" state workers and thus would not be permitted to work their casino jobs if the state is shut down. Also, the Casino Control Commission said it might schedule a late meeting on Monday to suspend the operations certificates of the casinos, thus dealing them out of the casino business.

"Are they going to affect the biggest holiday weekend this business has and the opening of the first Atlantic City Casino in 13 years?" asked a spokesperson for the Casino Association.

She was referring to the planned opening Thursday of the $1.1 billion Borgata Hotel Resort, a property owned by the partnership of Boyd Gaming Inc. (BYD) and MGM MIRAGE Inc. (MGG).

IGT buys AGAM

Gaming machine manufacturing giant International Game Technology (IGT) announced Monday it is acquiring Acres Gaming Inc. (AGAM) in an all-cash deal for $130 million.

The company said the boards of directors of both companies had agreed to merge the Las Vegas-based bonusing technology and casino management system developer into a subsidiary of IGT for the equivalent of $11.50 per AGAM share.

"The combined IGT/Acres product offering will provide all of our customers with more product choices, increased customer service and exciting innovations that will enhance the gaming experience of the player," commented Rich Pennington, executive vice president of product development for IGT.

Earlier this year, the two companies announced a resolution to a patent-license litigation with IGT agreeing to pay Acres Gaming $8.6 million to settle the dispute.

Following Monday’s announcement, Bud Glisson, Acres’ CEO, said, "Acres and IGT have worked together on many successful initiatives over the years. The actual combination of our technologies and people will further strengthen our capacity to continue to provide reliable and innovative system products in the gaming industry."

Before the acquisition is consummated, it must be receive federal clearance and must be approved by the shareholders of both companies. The transaction is expected to be completed sometime during the fourth quarter of this calendar year.

Red Faces

Lawyers involved in litigation regarding a track license granted to MTR Gaming Group Inc. (MNTG) and opposed by Magna Entertainment Corp. (MECA) were shocked last week by a Pennsylvania Commonwealth Court ruling.

Prior to the court ruling, representatives of the two companies had resolved their differences and Magna was prepared to withdraw their objections to the actions of the Pennsylvania racing regulators. Reportedly, the resolution came about because Magna’s legal team didn’t really expect a positive reaction from the court.

In its decision, the court said the state Horse Racing Commission was wrong in awarding the license for the Chester area without letting other applicants, including Magna Entertainment Corp., cross-examine witnesses. As a result, the court vacated the license.

Anticipating that the state would ultimately approve racetrack slots, a number of companies have sought the state licenses still available. One was the harness racing license granted to MTR Gaming Group, the company that operates the racetrack, Mountaineer Park, in West Virginia, and also has a casino in North Las Vegas, Nev.

State officials said the racing regulators had two options, either appeal the court ruling or reinstitute the hearing process. Since MNTG and MECA have resolved their dispute, it is expected that MECA would not object should the license be granted again to MNTG.

Meanwhile, Pennsylvania House members were facing a Wednesday deadline to act on the Senate bill that satisfies Gov. Ed Rendell’s wish for between four and eight racetracks with 3,000 slots at each. With this bill, the state’s share of slots revenue was expected to exceed $300 million.

British deal

After months of negotiations, Harrah’s Entertainment Inc. (HET) announced last week it had developed a joint venture with a British company to develop a number of casinos in the United Kingdom.

However, the deal will only take effect if British lawmakers pass legislation that would deregulate current gaming laws that are too restrictive to permit gaming expansion.

Given the go-ahead, Harrah’s and its British partner, Gala Group, will put into play some $1 billion to develop a distribution network representing some eight regional casinos ranging in size from 30,000 square feet to 50,000 square feet of gaming space. The casinos will carry the Gala name, well-known throughout the U.K. because of its scores of bingo halls, but will be stimulated by the Total Rewards program that Harrah’s uses to link its many casino operations in the U.S.

When a study commission reported its finding that suggested England should pave the way through legislation for the expansion of gambling, it was felt that such laws could be approved by 2004. However, industry leaders in the U.K. are now suggesting that such new laws won’t be effective until sometime in 2005.

In recent weeks, other major casino companies have developed relationships in England to take advantage of any gaming expansion. They include MGM MIRAGE Inc. (MGG) and Kerzner International.

Business update

May turned into a bumper business month for Park Place Entertainment Corp. (PPE) and the results pushed management into raising its earnings guidance for the second quarter that ends June 30.

The company said it was raising its quarterly earnings estimate from the previous seven to eleven cents a share to 11 cents to 15 cents a share.

There was no indication whether the company was motivated by better business at all its properties or whether strong business results were concentrated in one section. It has been publicly reported that May was an outstanding month for gaming revenues in Atlantic City.

The announcement was well received on Wall Street where investors reacted by pushing the company’s shares prices from the low $8 level to Friday’s closing of $9.16. On Monday, the shares were up an additional two cents.

Slots fail

An effort by supporters of racetrack slot machines in Ohio to give the electorate a chance to vote on the matter in a November referendum was shot down last week even though the proposal had earmarked gaming revenues to provide discount prescription drugs for the elderly.

But the decision to kill the move was made by one man, Sen. Kevin Coughlin, chairman of a committee scheduled to hear and act on the proposal. Coughlin said there were ongoing discussions between drug manufacturers and labor leaders and he didn’t want the legislation to interfere with those talks.

Earlier, the House passed a bill that would have authorized voters in a constitutional amendment to choose between the slots and paying a penny-per-dollar sales tax increase beginning July 1.

However, the Senate pulled the authorization out of the budget bill and let the increased sales tax take effect.

Official fired

Illinois Gov. Rod Blagojevich was incensed when he heard that Philip Parenti was leaving his post as head of the Illinois Gaming Board in order to immediately take a job with Harrah’s Entertainment Inc. (HET).

He fired Parenti, who had planned to remain on the state payroll until the end of July.

Said Blagojevich: "As the leader of the gaming board, his departure and imminent start at Harrah’s raised a lot of red flags about potential conflicts of interest. We don’t think the taxpayers should be paying Mr. Parenti on administrative leave when he has already decided to make his bet with Harrah’s."

Parenti had indicated when he announced his resignation that his work with Harrah’s would not involve any activity in Illinois, thus keeping him from violating the state’s prohibition against public officials leaving their jobs to work for company’s they used to regulate.

Speaking for Harrah’s, Jan Jones was quoted as saying, "It’s an unfortunate move. He’s been an excellent regulator. We operate in 13 states, We have more than enough work for Mr. Parenti to do.

Venetian expands

The Venetian Resort-Hotel-Casino on the Las Vegas Strip has expanded both its hotel facilities with an additional 1,000 suites in a new tower and an additional 150,000 square feet of meeting space.

The expansions mean that the hotel will be offering over 4,000 suites, with 122 exclusive concierge-level suites featuring private lounge and upgraded amenities, and nearly 1.9 million square feet for corporate meetings, trade shows and conventions.

"Our one campus philosophy allows us to attract many major programs to The Venetian and Sands Expo and for that matter to Las Vegas as a whole," said Eric Bello, vice president of sales for The Venetian.

"We sell luxury, location, service, and convenience to our meeting planners," he added.

The Insider

Mikohn Gaming Corporation (MIKN) has received approval for placement in New Jersey casinos of its Trivial Pursuit Easy as Pie slot machine. Also analysts at Roth Capital Partners announced they had initiated coverage of the company’s shares with a "strong buy" rating.

Nevada Gold & Casinos Inc. (UWN) board of directors has approved a plan to expand the stock repurchase program for an additional 100,000 shares. This comes after the company has completed the previously authorized purchase of 100,000 shares.

Moody’s Investors Services has revised the debt ratings of Mandalay Resort Group (MBG) to stable from negative.

The University of North Dakota has announced a $7 million addition to the Ralph Engelstad Arena to provide facilities for its basketball and volleyball programs. The arena was constructed with a $100 million donation made by the late Ralph Engelstad, owner of the Imperial Palace Casinos in Las Vegas and Mississippi. Engelstad was an alumnus of the university.

GTECH Holdings Corporation (GTK) says it has signed a five-year contract extension with the New Zealand Lotteries Commission beginning on July 1 and running through June 30, 2008.

Slot machines at the four tracks in West Virginia had net revenue of $420 million during the fiscal year just ended. The tracks operate more than 9,000 video lottery machines.

Magna entertainment Corp. (MECA) announced it had closed on the purchase of the long-term operating rights for the Portland Meadows racetrack in Portland, Ore.

International Game Technology (IGT) will report its third quarter earnings during a conference call at 6 a.m. (PDT) on Thursday, July 17.