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THE WINNER'S CURSE PART II

(previously posted under Keith McCullough: 06/03/08 10:33 AM EST)


Yesterday, Ameristar (ASCA) CEO John Boushy resigned to pursue other interests . Hopefully, those interests do not include topping his own record for the worst casino property acquisition ever.

Luckily, for him, in the current environment sellers are probably willing to unload casino assets for under the 12x EBITDA Mr. Boushy and Ameristar paid for Resorts East Chicago. This acquisition was so bad that even private equity was unwilling to hand over $675 million in April 2007 for an asset in a market with increasing supply.

Of course, ASCA was still smarting over its loss to Columbia Sussex in the bidding war for Aztar in 2006, which rates as probably the worst Private Equity gaming company acquisition ever.

ROBIN HOOD REGULATING GAMING

(previously posted under Keith McCullough: 06/08/08 9:56 AM EST)


Robin Hood Regulating Gaming:

The Illinois Supreme Court ruled that it is legal for the state to collect a surcharge from the profitable casino industry and give that money to the unprofitable horse racing industry.

Ronald Reagan once said "Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

Horse racing stopped moving a long time ago. How telling is this form of economic populism occurring in Obama's home state?

DESTROYING CAPITAL: THE WINNER'S CURSE AND PRIVATE EQUITY

(previously posted under Keith McCullough: 05/30/08 3:11 PM EST)


Back in 2006, 3 companies bid up the price of Aztar Corporation to a whopping 12x EBITDA, an unheard of multiple for a casino company acquisition.

With most of those assets now in bankruptcy, thanks to winning bidder Columbia Sussex's mismanagement (among other factors), the state-appointed conservator cannot give the AC Tropicana away.

Remember, along with Las Vegas land, the AC Trop was the prized asset in the acquisition. Yesterday, the conservator asked the New Jersey Gaming Commission for additional time to complete the sale of the casino.

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WSJ ARTICLE ON MACAU JUNKETS

(previously posted under Keith McCullough: 05/22/08 2:02 PM EST)


WSJ and Macau Article today detailing the junket industry and its impact on the US operators in Macau.

The big issue, which is not directly addressed in the article, is whether the government gets involved, directly or indirectly, in capping the junket commission rate.

Even with the higher rate, US operators are hardly stumbling however. With the exception of MGM, the US operators are generating excellent ROI's. Even MGM's run rate isn't bad and they are still in the ramp up phase with their issues more concentrated on the mass market side, rather than the VIP junket side.

Junkets clearly have pricing power though and unless the government gets involved, a distinct possibility, junket commissions should continue to rise.

MORE TAXES

(previously posted under Keith McCullough: 05/22/08 1:57 PM EST)


In it of itself not a big deal but the parish of Baton Rouge is pursuing a hike in the local casino tax.

As budgets get squeezed from runaway spending and the economic slowdown, state and local governments will continue to go to the well to quench their insatiable thirst for new revenues.

We've got our eye on this developing trend and will proactively report and analyze the impact.

Populism and Gaming

previously posted under Keith McCullough: 05/05/08 12:54 PM EST


This is an interesting submission. Obviously a joke but speaks to several broad and gaming specific trends at the state level:

1. Perception of public education in US not good
2. Public education used as excuse to increase taxes and/or find
additional revenue streams
3. Teachers' Unions on board with anything to get them more money
4. State budgets in trouble
5. Not much of an appetite for reducing spending
6. Gaming likely to expand during this downturn but higher gaming
tax rates also possible - good for slot suppliers, good and bad
for operators

Populism alive and well.


Guest column: "Slots and schools would be a perfect mix"
By STANLEY R. BAKER
Published May 04, 2008

"I vigorously rejected slot machines for years. But now, as a longtime supporter of public education (and a former teacher), I think the Maryland State Teachers Association may well be right about them.
Slot machines should be placed in our schools, from kindergarten through 12th grade. This program - "Slots for Tots!" - would make other states once again view us as an educational leader.
Machines would be allocated based on the number of students in each grade at each school, with more machines for each higher grade. The increased income older students receive from jobs and allowances would get some consideration.

Elementary schools pose a bit of a problem. Machines could be distributed in connection with bake sales and the like, with the most machines per grade going to the biggest hustlers.

The kindergartners would have the longest learning curve to become fully adept at using the machines. Learning what each prize level offers and how to put money in the coin slots will take valuable time from independent playing.

A few guidelines would make sure that the machines, and the schools, are not abused:

Machines would be available one hour before classes begin and one hour after they cease.

The machines would also be turned on for special functions outside the normal school hours: athletic events, back-to-school night, band concerts and school plays.

In order to receive state funding, every school would have to have its full allotment of machines. It would be unfair for a school or county to refuse participation and then reap the bounty produced by machines elsewhere.

Special weekend and vacation hours would be provided so that not a soul would be left behind. Teachers would be the first ones considered to keep the schools open at these time. They could grade papers and make lesson plans when not needed for direct supervision. It would be a dandy supplement to their income.

Only public schools would be allowed to participate. If other schools, groups, organizations or businesses wanted to partake of the revenue, they would need to submit a special grant application indicating why they, unlike any other businesses, should be entitled to feed at this particular public trough.

Funding of public education from tax revenue would be frozen at the 2008 level so that education would receive the full benefit of the slots revenue.

The benefits beyond revenue enhancement would be limitless:

Teachers at all grade levels would rejoice because there would now be something for students to do when rain or snowfall cancel recess.

High school students could perform basic machine maintenance, increasing their post-graduation employment opportunities.

Math classes would find slots a boundless way to teach important concepts, including probability.

Schools would be a perfect place to generate data for long-term studies on gambling addiction. Under their psychology professors, students could do research on why some students, and not others, become addicted.

Our public schools would truly become community centers.

Guidance counselors would find parents always available for conferences, and could see each student's parents or guardians each week. Scheduled conferences would become almost passe.

Bring' em on. These one-armed revenue enhancers fit the bill for a citizenry whose attitude is "Don't raise our taxes, and damn the consequences."

---

The writer is a Gambrills resident.

(letter to the Editor in HometownAnnapolis.com, 5/4/08)

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