NOTES FROM THE ROAD: PA & AC TRIPS

May seems to be a weak month in the East for gaming and we are hearing similar things across the country.  Here are our notes from our 2 day trip.

Sands Bethlehem (5-24-2010)

• Table games should be up and running by mid-July.  The state is looking to open 3 properties at a time over a 3-week period.
• The hotel is scheduled to open in May 2011 with 300 rooms.  Think that the hotel will help them keep growing their business.
• Busing program:
  • Focusing on busing Asian customers.  Have 5 runs per day from Chinatown/Flushing and Port Authority NYC.  Most of the busing is from PA and NJ. 
  • On busy days, they bring in 1,500-1,800 people and on slow days, they bring in 500-800 people.
  • Customers pay for their own bus tickets (roughly $15/day from NY for example).  The cost to Sands gives customers $30/day in free play and a $5 coupon for food.
  • When tables go in, they can increase busing programs to Chinatown & Flushing to 15-20 tables per day.
  • Pulling out most of the electronic tables when they go live with tables.  Of the 28 tables they have now, they are only keeping 6 E-tables.
  • Slots mix:  IGT- 45%, BYI - 24%, WMS- 13%, Konami – 4%, ALL- 6.5%, Speilo/ Atronic less than 2%
  • There are no participation games in PA, only leased games.
  • 6% of Sands slots are leased.
  • Have 780 employees at the facility and will add 400 more when tables games are added.  330 of the employee additions will be dealers.
  • 50% of business is local.
  • May could be their best month, primarily due to the ramp in their database.  Tables 16% tax rate decreasing to 12% in 2 years.
• Sands may have the most incremental growth from the addition of table games in PA.
  • Will be the closest casino with table games to NYC
  • Big Chinese population in NYC
  • Will offer a significant number of Baccarat tables
  • Efficient busing from Chinatown and Flushing - the two Asian centers

PENN MGMT meeting notes: 5/24/2010

• Not building to get a mid-teen return, but rather to optimize returns as much as they can on each project.
• Columbus - will be a home run.
  • Downtown vs westside.  Westside supports the construction / downtown doesn't.  Prefers new site - more suburban - can expand if there is capacity.
  • Own Beal racetrack outside of Columbus - if slots at tracks get passed, they will try to move the license.
  • Columbus should be the best ROI on their return.
  • Think that Vegas will have underperformance for another 6-18 months of softness, so they may get another bite at the apple.  They are following City Center very closely.  Like Mirage for their customer base.
  • Aqueduct came out with an RFP - they submitted questions and are waiting for answers.  Bids are due at the end of July and decision will be made in August.

Harrah’s Chester 5-24-2010

• Struggling in May because of construction disruption to make room for tables and overall demand weakness.  They are moving 2,200 games.
• How they deal with the AC vs. PA conflict:
  • Don’t see a conflict-- view it as “Earn here, play there” mentality
  • Get a lot of trip frequency in PA but less spend per visitor
  • PA will have credit for the first time with the intro of table games.
  • Think that they will get $75-$78mm of incremental table revenue.  Think that the table margins are going to be a little higher then slots even after taking into account for the lower tax rate.
  • With tables, Chester can get up to 20% margins.
  • Will begin to seed their database with communication about table games in June and use their Philly/AC database to market to them.
  • Will only keep 4 electronic table games or 20 out of 120 seats for now.
  • Don’t need a hotel
  • Racing business makes a couple hundred thousand
  • Only have 100 or so leased games.

Tim Wilmont, CEO of PENN (5/25/2010)

• Iowa and WV are the only 2 states that have previously allowed tables to be added to slot-only facilities.  On average, slot revenues increased 6-8% when that happened.  Table games generated 10-15% of total revenues in competitive local markets.
• Cecil County: 1,500 VLTs, 95mm of capex, 1600 parking spots. Hollywood Perryville will be located 30 miles NE of Baltimore. The investment in Cecil is targeting an addressable population of 375k – however, until other facilities open, its addressable population will be more like 1MM - so the initial returns should be very good.
• Ohio:  Thinks gaming will be a $2bn industry in Ohio; 33% tax rate; $50mm upfront fee per casino; $250mm min spend; 34k new jobs (19k construction 16k permanent jobs).  $1bn of gaming revenues is currently generated by Ohio residents gambling in neighboring states.
• City of Columbus voted no on issue 3 so they had to move one of their sites. They decided it was easier to go to a new site that was cooperative then a contentious one.  The facility will have 2,000 permanent employees.
• Toledo - hope to break ground in 3Q 2010.  Area has 71% of the population of their Penn National Race Course (PA) location.
• Ohio Timeline:
  • June 3: Deadline for enabling passing of gaming legislation
  • Fall 2010: Effective date of legislation
  • 4Q 2010/1Q2011: Appointment of a gaming commission
  • 1Q2011: Licensing investigation