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Redstone puzzles Wall Street
with focus on Midway Games

Dec 30, 2003 7:40 AM

Sumner Redstone, the Wall Street financier who has put together one of the world’s largest media companies under the heading of Viacom, has his fellow investors puzzled.

Why, they are asking, is Redstone making such a huge investment in Midway Games Inc. (MWY)?

Midway Games is collectively considered a loser. At one time, the pioneer developer of such popular video games as Pac-Man, Spy Hunter and Defender was flying high. It had added such winners as Pong and Mortal Kombat to its list of popular games but since then the well has dried up.

The company has lagged the market with financials showing 15 consecutive quarters in red ink.

Still, Redstone has been buying Midway Games shares. He began his journey some five years ago, investing as well in Midway’s former parent, WMS Industries (WMS). And, despite the problems that Midway Games has encountered, Redstone continues to buy. Recently, he said he wants to increase his holdings in the company to somewhere between $50 million and $100 million.

That prompted a message to the Securities and Exchange Commission who wanted to view the possibility of antitrust violations.

Last week, the antitrust commissioners removed all restrictions permitting Redstone to go forward with his plans.

The man whose business acumen permitted him to take over CBS, MTV, Nickelodeon, Paramount movie studios, Blockbuster movie rentals and Simon & Shuster publishing must have a reason for his Midway Games investment but Wall Streeters are still scratching their heads on this one.

Reno casinos hurting

Pressure from a northern California Indian casino has caused declines in profits for some of the casinos operating in Reno, Nev.

Showing sharp drops in revenue for the most recent reporting period were the Eldorado Hotel & Casino, down 63% in net profit from a year ago, Circus Circus Hotel casino, down 60%, and The Silver legacy with similar declines.

Blame for the losses has been placed on the recently-opened Thunder Valley Casino, an Indian-owned property that was financed, built and is being operated by Station Casinos Inc. (STN).

In a recent filing with the SEC, operators of the Eldorado wrote, "We believe Thunder Valley Casino had a significant impact on our operating results.

Voters to decide

Voters in the Maine towns of Westbrook and Saco will decide this week whether they will permit Scarborough Downs to build a casino in their community. On the November 4, ballot, voters in Scarborough turned down the track’s bid for slot machines.

Under Maine law, the racetrack can place their racino within five miles of their facility, thus the moves to either Saco or Westbrook.

Certainly the voters should be well informed before making their decisions. State officials have indicated that campaign spending on the issue has already exceeded $600,000. Both sides acknowledged that the $75 million to $125 million in annual profits a racino would produce are helping to fuel the flurry of spending.

Affected by the vote will be Penn National Gaming Inc. (PENN) whose officials have already contributed $150,000 to a pair of pro-racino groups. A company spokesman said he believes spending that kind of money on a campaign is a good investment.

Joining the opposition is Capital Seven, a company owned by Las Vegas gaming investor Shawn Scott, who already owns Bangor Raceway, a harness track he hopes to convert into a racino. However, he must receive approval from state regulators before he can complete that project.

Casino contract

Nevada Gold & Casinos Inc. (UWN), operator of casinos in Colorado and Nevada, has signed a contract with the Muscogee (Creek) Nation to be the exclusive developer and manager of a gaming entertainment complex in Tulsa, Okla.

The contract, which gives the company operating rights for five years, is subject to the approval of the National Indian Gaming Commission.

The plan calls for Nevada Gold & Casinos to develop the casino along the Eastern banks of the Arkansas River, on and around the Creek reservation. Total investment is expected to be $100 million.

THE INSIDER: Gaming analysts at J.P. Morgan have placed a "neutral" rating on the shares of both Penn National Gaming Inc. (PENN), and Alliance Gaming Inc. (ALLY).

Louisiana Congressman Jim McCrery opposes the policy of the U.S. Bureau of Indian Affairs to permit Indian tribes to build casinos on land that is not part of their reservations and is particularly upset with plans to permit the Jena Band of Choctaws to build a casino in Logansport. He is contemplating restraining legislation.

The Ninth Circuit Court of Appeals has upheld California’s Prop. 1. The successful referendum granted Native Americans the exclusive right to operate casinos with slot machines in that state. Prop 1 was challenged by the owners of four card clubs who said they were being denied their constitutional right to equal protection.

A federal jury ruled in favor of singer Wayne Newton who faced a breach of contract suit brought by Isle of Capri Casinos Inc. (ISLE).

Iowa law enforcement officials are concerned that drug dealers are laundering large sums of money through local casinos. A convicted drug dealer admitted that he used the casinos to break large bills that he felt would have attracted the attention of investigators.

A renewed effort is being made in Indiana to permit two racetracks to install legal video gambling machines that have been designated as Class II machines. Known as pull-tab machines, the devices are popular with Indian casinos that want to avoid intrusion from state officials.

Evangeline Downs has become the third racetrack in Louisiana to open a video lottery machine parlor. The facility has 1,527 machines that will be open all year round.

New York state authorities are advertising for a person to monitor the New York Racing Association during its 18-month probationary period. Among the names being mentioned for the job is that of former N.Y. Gov. Mario Cuomo.

Hoolae Paoa, president of Vernon Downs, the upstate New York trotting track that is seeking to become a racino, has given up his position while he appeals the decision of New York regulators to deny him a racing license.