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First-quarter reports about as bad as it gets

First-quarter reports about as bad as it gets

First-quarter earnings-or in many cases, loss-reports were even uglier than expected, as casino company after casino company saw revenues, cash flow and earnings fall.

And it did not matter how big or small the company or what segment it occupies. They all fell-big companies with Tiffany properties like MGM Mirage, geographically diversified operators like Harrah’s and Boyd, regional little Tiffanies like Ameristar and Pinnacle.

What has become clear is that casinos now are cyclical like cars and cruises.

And yet, we are not in a recession, at least not by government statistics.

Perhaps Ameristar CEO John Boushy best described the phenomenon. We are in a discretionary recession, he said. By that, Boushy meant that consumers are making decisions on how to spend their discretionary income, and it is more often than before going to gasoline or groceries, not entertainment. Or, at least, they are spending less on entertainment.

The latter seems to be the case. Illinois provides some evidence. Casino visitation fell 9 percent in April, but the amount casinos won dropped 19 percent. Obviously, people stayed away from casinos. And those who visited spent less.

OK, so casinos are in a funk, but there may still be investment opportunities elsewhere in the gaming sector.

Here are a few thoughts in that regard:


Asian Gaming Boom

Asia has been, and promises to be, the big growth story for casinos for a long time to come. Already, companies such as Las Vegas Sands, Wynn and MGM Mirage have projects and partners in Asia.

But there are lots of other publicly listed companies in the region that are participating in the growth.

Some of them, such as Elixir Gaming Technologies and Melco PBL, trade in the United States. Many others trade in Hong Kong or elsewhere, but may be worth a look.

Among casino companies: Hong Kong-listed Galaxy; Australia-listed Crown Gaming; Singapore-listed Genting. And a wild card-Amazing Holdings, a London-listed stock angling to build a casino in Taiwan.

Suppliers include Elixir mentioned above, Aristocrat and Ainsworth in Australia, Aruze and Sammy Sega in Japan, and U.S.-listed PacificNet.

Another interesting approach is AMAX. This Hong Kong-listed company aggregates the VIP casino junkets that fill Macau’s higher-roller gambling rooms, in this case for Melco PBL.

There are more, but this should provide enough homework to get started.

Before we leave Asia, we should note that Wynn Resorts is producing record revenues in Macau.


Internet Gaming

Always speculative, and once high-flying, the internet companies got killed when the United States government began cracking on down i-gaming.

But all of that is old news. Now, i-gamers are coming back, both because they are resuming growth after having lost their American customers, and because they have learned how to reach out to new markets elsewhere in the world.

But the U.S. government, once their bane, could become their friend if Rep. Barney Frank and the Poker Players Alliance win legalization of i-gaming in the U.S., as appears more likely today than it did two years ago.

And European governments might give a boost, too, if they bow to pressures from the European Union to break up their government gambling monopolies and allow companies to compete in their countries.

Publicly listed companies that stand to benefit from American and/or European liberalization include Party Gaming, 888, BetAndWin, and bookmakers such as William Hill and Ladbrokes.

Software suppliers such as Cryptologic and Boss Media will benefit from any i-gaming explosion.

Meanwhile, even without liberalization, GigaMedia is a fast-growing company focusing on Asia.


Supply Side

Suppliers, of course, benefit from all the international casino growth, plus the proliferation of slots in the United States.

In addition to companies mentioned above, the suppliers include some well-known names: IGT, Bally, WMS and Shuffle Master.

It should be noted that WMS knocked the cover off the ball last quarter, and promises more of the same. And Bally has been abuzz about its improving business outlook for some time, even as the stock weakened.


Government Lotteries

Lotteries remain the stealthy way for governments to expand gaming, whether to allow lotteries to run VLTs or slot-like keno, or to use their expertise and systems to extend into slot and amusement-with-prize systems.

The two best-known publicly listed companies are Lottomatica in Milan, Italy, and Scientific Games. But Athens-listed Intralot is the second-largest lottery company, and growing aggressively.

Finally, for the brave and the patient, casino companies are selling at low levels and should go much higher when the economy turns.

So, there are a bunch of names-without recommendation as buys, sells or holds-to put on your radar screen.


Frank Fantini is the editor and publisher of Fantini’s Gaming Report. A free 30-day trial subscription is available by calling toll free: 1-866-683-4357 or online at www.gaminginvestments.com.

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