Hot tourism market lifts casino stocks

March 5, 2004 - Strong year-end financial results from gaming operators as well as a marked improvement in the overall tourism market in February, continued to drive up values of industry stocks, according to Applied Analysis Gaming Index (AAGI) for February. Average daily share prices of eight top publicly traded gaming corporations covered by the AAGI continued to punch holes through former ceilings to sit at new record highs.

Based on the stock price and market capitalization of five casino operators and three gaming manufacturers, the AAGI composite hit 234.43 in February, gaining 9.76 points, or 4.3 percent, from the prior month. The base index of 100 was established in January 1998.

Following the release of strong financial reports, operators MGM Mirage and Station Casinos became the main engines for the AAGI's growth, accounting for 5.32 and 2.11 points respectively. MGM's daily share price averaged $42.20 for the month, an 8.44 percent increase over January, while Station's did that feat one better as its $35.89 per share average in February was an 11.49 percent rise.

According to Brian Gordon, a principal at Las Vegas-based research firm Applied Analysis, Wall Street investors have been rewarding as well as cashing in on the Strip's increased productivity with its hospitality product.

"The trend we're seeing, which was triggered by 9/11, is that casinos are operating more efficiently as the ratio of the number of employees per room continues to decrease," he says. "Less employees per room equates to more profits. They're doing more with less."

That news is driving growth in the number of rooms per property. The recent addition of THE Hotel at Mandalay Bay Resort, along with planned expansions at the Bellagio and the announcement of a second tower at Wynn Resorts before the completion of the first, is setting a new standard of 4,000-plus room for the mega-resorts on the Strip.

"More rooms certainly drive critical mass to a property," says Gordon. "When you throw in an additional two thousand people in a hotel per night, you don't have to increase pit employees because they're still manning [the same] tables."

While the expected expansion of Indian gaming in California next door might put a crimp in state visits, operators are not flinching but continue to open their eyes wide for the opportunities, such as Caesars Entertainment agreement in February with the Big Sandy Band of Western Mono Indians to develop and manage a $200 million casino near Fresno.

"Although [Indian gaming] is a clear threat to Northern Nevada, I don't see it affecting Southern Nevada," says Gordon. "No place is going to match the experience Las Vegas provides ...[and] the ability to generate extra cash flow as a part of management agreements is clearly doing the job for operators."

On the manufacturing side, only juggernaut International Game Technology (IGT) posted a gain on the AAGI in February, adding 2.80 points as its average daily share price rose 3.75 to $37.48 per share percent for the month. Game makers Alliance Gaming and WMS Industries were relatively flat for the month, but Gordon notes that Alliance stock has been jumping up since the beginning of March on reports that its software systems are a potential target for buyers at IGT.

While the February AAGI posted a 76 increase from the same month last year, more than twice the 37 percent gained by the S&P 500, Gordon notes that the comparison is with the fear last year of the coming war in Iraq, which depressed travel numbers. Future gains will not be as spectacular. "As long as the national economy continues at its current clip, [gaming] will continue to expand," he says. "But once we get later in the year, comparisons to the same period in 2003 become more difficult to improve upon."

Good works

Local casino operator Station Casinos is rolling out its 2004 Community Partners program for the fourth year, which provides $50,000 to six local charities as well as an intense public awareness campaign for each organization. Using its local marketing muscle, Stations will blitz television and radio as well as print media for two months with ads featuring the charity of choice in an effort to increase awareness of its good work, proving once again that charity begins at home, in front of the TV set.

Charities are asked to submit a proposal on what they would do with the $50,000 and the accumulated plans are reviewed by a six-member committee of Station executives before the six organizations are chosen informally. This year's recipients are the Problem Gambling Consultants, Boys and Girls Clubs of Las Vegas, Catholic Charities, the I Have a Dream Foundation, Operation School Bell and Interfaith Hospitality Network.

While the $50,000 donation is self-explanatory, Stations spokesperson Lesley Pittman explains that the marketing effort is aimed at broadening support for the groups by introducing them to the 6,000 new residents added every month.

"Most of them might have been involved in their former communities and might be interested in getting involved here," she says. "It is designed to get newcomers. We (Stations) can do a lot but we can't do it all."

The casino operator spends about $325,000 in total on the marketing campaign to draw further help for the causes. According to Catholic Charities community relations manager Sharon Mann, the campaign is as crucial to organizations like hers as the actual monetary donation.

"Most people want to help but don't know how," Mann says. "As a non-profit organization, it is difficult to have an advertising budget to help educate the community on what we do."

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Article Copyright ©: S. Mihailovich, LV Business Press