Las Vegas Sun

July 26, 2021

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Columnist David Ehlers: Wall Street analysts get first-hand look at LV market

LAST WEEK, most of Wall Street's gaming analysts had an opportunity to preview new industry gaming products at the International Gaming Congress and Expo and interview a variety of gaming company managements in town for the Salomon Brothers Gaming Conference.

As a result, my business associate Tony Mello and I listened to a good many presentations and walked the Expo's widely spread 190,000 square feet of gaming product manufacturers and vendors. Our views of and comments on these meetings and presentations will be set forth in this and next week's columns.

The presentations made by the leading operators, Mirage, Circus Circus and MGM Grand, were excellent. The capital-intensive nature of this segment of gaming dictates that the survivors will be those developer-operators having the lowest cost of capital with the ability to consistently deliver a high-quality product.

* Mirage has, for some time, been viewed by gaming analysts as one of the leading, if not the premier, company of the industry. Accordingly, its clear-cut accomplishments require little discussion.

* Circus, however, may just be coming into a new day in the sun. Monte Carlo's successful introduction and a broadly based capital expenditure program designed to scale up Circus' product are meeting with more and more gaming-analyst believers.

Glenn Schaeffer, Circus' president, indicated at the Salomon conference that the company, from time to time, will consider buying-in Circus stock -- always a welcome step from analysts' viewpoint. Circus' revenue and earnings over the next few years may be expected to increase substantially, reflecting its high level of capital outlays and strategic repositioning. By the year 2000, Circus is expected by many gaming analysts to be the largest of the three companies considered here.

* Of the three companies, MGM Grand is still the least appreciated -- likely because the turnaround in fortunes is of recent vintage. MGM CEO Terri Lanni and Alex Yemenidjian, chief operating officer and chief financial officer, are transforming what we know as today's MGM Grand, complete with the Wizard of Oz, Dorothy (who has a future one-way return trip to Kansas), etc., into the City of Entertainment.

Although the changes are deep and substantial, they are to be accomplished over the next three years to minimize the impact on operations and cash flow. Here again, this keen concern with ongoing profitability plays well in Wall Street. MGM Grand's operating profit ratios during the last three quarters have emerged as the best in the business.

Below the largest and best of the operating companies, one heard much about price wars in Atlantic City, N.J., about too much capacity in Tunica County, Miss., and much discussion about future competitive trends in Missouri.

In both Kansas City and St. Louis, considerable additional capacity will soon come on stream in already competitive markets, the size of which was the subject of considerable discussion. In next week's column, I will discuss the manufacturing segment of the gaming industry with special emphasis on the all-important new game development sector.

Stratosphere Tower

The year's worst perfoming stock in 1996, Stratosphere Tower, may be drawing toward the end of its painful beginning.

For those just returning from Mars, Stratosphere has seen some disquieting days since its April opening. I won't repeat its well-documented woes except to note that Richard Schuetz, a highly regarded former marketing executive at Grand Casinos (owner of 42 percent of Stratosphere), became interim president and fathered a Stratosphere repositioning and marketing theme which kicked off during September's final days.

The evidence is mounting that a new day may be at hand for Stratosphere. The program to reposition the property as a gambling value appears to be generating instant results. Pit bosses, 21 dealers, dice stick men, valet carhops, waitresses, slot techs, change girls, shoeshine people and, yes, some Stratosphere executives all report substantial improvements in revenue and traffic.

These improvements are of a substantial order of magnitude. For example, valet staffing has been increased more than 50 percent, while most employees' number of shifts and hours have been increased to unsustainable levels. On Oct. 6, Stratosphere ran a three-column "help wanted" advertisement in the Sunday Review-Journal/SUN. Officially, Stratosphere has not made any announcement, however, this may reflect the very brief time period and a general hope that the improvement is not just a flash in the pan.

Unofficially, many of the executives are saying that Stratosphere evidences strong indications that the repositioning plan to make Stratosphere "the best place to gamble on the planet" may be working.

In any case, the next five or so weeks may prove interesting. Stratosphere has a major bond payment coming up Nov. 15. If the recent improvements extend themselves, possible scenarios are as follows:

* Stratosphere pays the interest, announces the improved tone.

* Stratosphere pays the interest, announces the improved tone and indicates that it has been unable to come to an agreement with its bondholders for a restructuring of its debt.

* Stratosphere pays the interest, announces the improved tone and indicates that it has been able to come to an agreement with its bondholders for a restructuring of its debt that provides for a sharply reduced rate of interest, assumption of its bonds by Grand Casino, some sort of an equity kicker for bondholders in the form of warrants to purchase Grand Casino which, as soon as practical, would seek the necessary approvals to have Grand Casinos acquire the balance of Stratosphere.

Turnaround investing, per Peter Lynch, is a money-making pastime. It is one that is fraught with peril, however, if, instead of turning around the company is "playing Taps." Since Stratosphere isn't saying much officially, thoughtful investors may wish to conduct their own due diligence by asking the associates (as Stratosphere calls its employees) how the "repositioning" has affected their pocketbooks. If Stratosphere emerges from the intensive care list, Richard Schuetz will be a hero of unusual standing.