Gamers getting feisty

Gary Thompson

Thursday, Oct. 29, 1998 | 10:48 a.m.

Bellagio's main numbers cruncher was playing his cards close to the vest Wednesday.

But to many big investors at a Salomon Smith Barney gaming conference in Las Vegas, Dan Lee seemed suspiciously like a high-stakes poker player holding an unbeatable hand.

Lee, chief financial officer of Mirage Resorts Inc., was coy when it came to disclosing results of the first 10 days of operation for Bellagio, the company's $1.9 billion (with art) gamble on the future of Las Vegas.

"The sales of the CD have quadrupled since we began running the Bellagio TV ad nationally," he said wryly, referring to the spot's excerpt from singer Andrea Bocelli's hauntingly beautiful recording "Romanza."

"But I'm not going to give you the numbers for the first 10 days of Bellagio because I don't want to mislead you," he said.

"This hotel is going to be here for a hundred years, and right now we're interested in getting things just right for our customers. And so far, their response has been overwhelmingly positive.

"I will say that every revenue number and expense number is higher than we had forecast -- the expenses because we're paying a lot of overtime. And the retail numbers are off the charts, although that will come down.

"All in all, the first 10 days were pretty good," he said, trying hard to conceal a smile.

Comments from other gaming executives ranged from the cautious to the upbeat and, in some cases, to the combative.

Apparently irked at Wall Street's trashing of gaming stocks over the past two years, Circus Circus Enterprises Inc. President Glenn Schaeffer was in a particularly feisty mood.

"We're not in the slot business but in the entertainment business," he said. "Anybody can get in the slot business in this country, apparently even illegally, if you have the right birthright."

That was a clear shot at Indian gaming in California, where some tribes are operating slot machines that state and federal authorities claim are illegal. Polls indicate California voters will approve Proposition 5, which could lead to expansion of Indian gaming -- a development Circus and several other major Las Vegas gaming operators are opposing.

Schaeffer also promised Circus will raise restaurant prices at its Las Vegas properties, which have lost money on food service to date.

"If you want food for free, it's at the mission downtown," he said.

He disclosed that Circus has no plans to enter the Atlantic City gaming market after pulling out of its proposed Marina District venture with Mirage Resorts. Instead, the company will concentrate its growth prospects on Las Vegas, Detroit and Mississippi.

In Las Vegas, he said, Circus is building "a strip within the Strip" that stretches from The Excalibur to Mandalay Bay, its new $950 million project scheduled to open March 2.

He said the 43-story, 3,700-room resort will include three hotel products -- a high-end, 424-room Four Seasons "that will be the only five-star hotel in Las Vegas," 100 rooms with a House of Blues decor and about 3,200 rooms with the Mandalay Bay's South Seas theme.

Noting that "most of the existing rooms on the Las Vegas Strip were built before 1972," Schaeffer said, "The new rooms will get the business." And that should result in a $110 to $120 average daily room rate and a 70 percent profit margin on room revenue for Mandalay Bay, he predicted.

With two 30-acre parcels adjacent to Mandalay Bay, Circus is in a dominant competitive position, he said. "The Las Vegas Strip is a Monopoly board, and we control most of the places (where) you can build on the Strip."

Harrah's Entertainment Inc. Chief Financial Officer Colin Reed said his company's investment in proprietary customer-rewards programs and the new Las Vegas-based National Airlines will prove beneficial to Harrah's shareholders.

Harrah's "Total Gold" rewards program lets customers earn bonuses for extended play and "will increase profitability without us getting one new customer," Reed said.

"We now get 36 percent of our customers' annual gaming dollars, and if we can move to, say, 41 percent of that spending, our revenues will rise $200 million and our EBITDA" -- earnings before interest, taxes, depreciation and amortization -- "will go up $100 million."

"If we execute this strategy right, we think we can become the Microsoft of this industry," Reed said.

Reed acknowledged that Prop 5 could pose a problem for some operators, and that poor roads and decline air service have kept some potential visitors away.

"But there's nothing on earth like Las Vegas," he said. "We invested in National Airlines to provide the infrastructure to get here.

"If companies continue to rely upon intermediaries to deliver their customers, they'll have a tough time in the future."

No matter what California voters do next Tuesday, International Game Technology Chairman Charles Mathewson said, "It's inevitable that a wave of expansion in Indian gaming will occur."

And he said IGT, the world's largest producer of slot and video poker machines, will be ready.

"To date, we haven't sold any machines in California. But I think that's going to change."

IGT President Thomas Baker said the company will release fourth-quarter and fiscal 1998 results Tuesday, "and it will be a record year for earnings and earnings per share, with double-digit gains." He forecast similar gains for fiscal 1999.

Station Casinos Inc. Chief Financial Officer Glenn Christenson announced the company had just negotiated a new $425 million bank credit line that will enable it to complete expansions at two Las Vegas properties that were put on hold when Crescent Real Estate Equities pulled out of a planned merger.

And as for pending lawsuits between Crescent and Station, he said, "I don't see a situation where we'd ever have to pay a breakup fee. And we do have a claim for $400 million in damages that we think is a very realistic claim."

Christenson said Station will use $60 million of free cash flow -- earnings after interest expenses -- to pay down debt. "With 35 million shares outstanding, that $60 million equates to about $1.70 a share for a stock that's trading in the $5 range," he said.

Boyd Gaming Chief Financial Officer Ellis Landau said the company will defer any major spending on its aging Stardust resort on the Strip, which he called "a tremendous asset with long-term strategic value."

"It's no secret we've been on the fence with the Stardust," he said. "We recently decided not to move ahead with a major expansion, but to concentrate on increasing our mid-week business there."

Boyd Gaming will also focus on expanding its share of the Las Vegas locals' market, on riverboat acquisitions if good opportunities arise, and on its $750 million joint venture development with Mirage in Atlantic City.

"We expect to break ground on the Atlantic City project in about a year and open it in 2002," Landau said.

Boyd will put up about $150 million cash, Mirage $60 million cash and $90 million of land, and the venture will borrow the remaining $450 million in an off-balance sheet financing.

Mirage's Lee said the company now expects the average daily room rate at Bellagio to range from $175 to $190 over the next year, which could be welcome news to operators of other properties hoping a higher rate will benefit them.

But getting the increased number of people needed to fill the 127,000 rooms expected to be open by 2001 will depend "on whether those other new places deliver on their promises," Lee said.

The two-day Salomon Smith Barney leisure-industry conference drew about 300 representatives of institutions, hedge funds and pension funds to the Rio. The surprisingly large turnout could indicate renewed interest in gaming stocks, which have lost 30 percent to 60 percent of their value in the past two years.

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