Sunday, November 16, 2008

Two sinking ships tethered

With the recent approval of a referendum on the question of video lottery terminals at Maryland racetracks and the designation of Delaware North as the operator of the casino that will eventually materialize at Aqueduct, a an unbroken chain of “racinos” will soon extend over the length of the Eastern Seaboard.

There is likely to be less prosperity resulting from these money mills than was originally expected. Redistribution of waning wealth squeezed from a shrinking market will be of some assistance in supplementing purses but the reality is that what has happened is an expansion of product in a stagnant marketplace at a time when wagering in all forms is contracting within an economy that will almost certainly be in a deep and sobering recession for years to come.

The projections on which economic forecasts were made in advance of the Aqueduct project, having been calculated during the long-ago burst technology bubble and sustained through the exploded real-estate bubble are no longer valid. Nor, probably, are those sold to voters in Maryland. Alternative gaming at racetracks in no longer an enhancement to the core business but a survival mechanism. With wagering on horse races down nationwide and the gaming industry in freefall, it is a tenuous partnership upon which the racing industry has attached its hope for future prosperity.

At the moment, Magna Entertainment, operator of the Maryland tracks, Gulfstream Park, Santa Anita and as assortment of lesser tracks, all on life support, is insolvent and almost certain to remain so. Its stock closed on Tuesday at $1.80. Churchill Downs stock, $31.96 when the market closed on Tuesday, is besieged by conflicts with horsemen over advance deposit wagering revenue and has been forced to slash purses throughout its network of racetracks. Thinly traded Churchill is well below its 52-week high, $57.55, but not nearly as battered as the largest gaming companies.

Las Vegas Sands, $5.34 at the Tuesday close, is perhaps the most jaw-dropping example of the current morass in the casino gaming business, having traded within the last year at $122.96.

MGM-Mirage, closed at $11.36, well below its $93.19 52-week high.

Wynn Resorts, once a $139.75 stock, closed on Tuesday at $50.10.

The only gaming stock with anything to offer at the moment, Boyd Gaming, closed Tuesday at $4.48, significantly lower than it 52-week high, $39.84, but yields an 8.6% dividend.

The marriage of the ill to the crippled seems a rather flimsy business plan, but, in reality, it is exactly what the partnership of racing and mechanized gaming has become. --PM


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