In July 2004, Pennsylvania Gov. Ed Rendell signed into a law a bill authorizing the installation of up to 61,000 slots at 14 sites -- seven racetracks, five "slot parlors," and two resorts. While the racetrack licenses are basically set -- with Penn National Gaming
Two of the slot parlor licenses have been allocated for Philadelphia, with Trump Entertainment Resorts
In Pinnacle's initial announcement on Wednesday morning, the company said it plans a $250 million to $400 million project along I-95 just north of downtown Philadelphia. Pinnacle may be the best of the rest in terms of size and experience; however, the company already has $775 million worth of projects in St. Louis on its plate and a highly leveraged balance sheet. And with Pennsylvania's sky-high 54%-plus gaming tax rate, the lower returns on investment might not compensate Pinnacle for the added risk.
If I were a Pinnacle shareholder, I would almost hope that Pinnacle doesn't gain a license.
Boyd Gaming and Isle of Capri
Harrah's Entertainment, which paid $275 million last year for a 50% stake in the Chester Downs racetrack near Philadelphia, reportedly also submitted applications for licenses in both Philadelphia and Pittsburgh. However, the state's gaming laws should prohibit Harrah's from owning a full stake in a casino in either city, due to the company's share of the racetrack.
The state's gaming tax rate is relatively high compared to the states in which the big casino operators typically operate. For reference, the gaming tax rate next door in New Jersey is a measly 13 percent. That said, Pennsylvania's $50 million license fee does leave money on the table: Last year, Illinois' dormant tenth casino license fetched $518 million in auction before being challenged and eventually revoked.
So while the high tax rate will lead to lower-than-average returns on investment, demand for new development opportunities is high, and new domestic development opportunities are in short supply. At the same time, the demand for gaming is almost certainly there, which is why these companies are willing to pay up.
A decision on the five slot parlor license winners is expected by the end of 2006.
Konami's three little pigs denied
Video game fanatics should be familiar with Japan's Konami
And in an interesting story, the Nevada Gaming Commission last Friday denied approval of Konami's new video slot machine game entitled ChinnyChin Chins, voting 3-1 against and overturning the Gaming Control Board's previous 2-1 vote in favor of the game. The game is based on the fairy tale "Three Little Pigs."
The state's regulation is that games can't be based on children's themes. And though the ChinnyChin Chins game is technically Asian-themed, and the idea is more than 200 years old, that qualification apparently applies here.
I have two thoughts on that:
- Kids probably shouldn't be around slot machines in the first place.
- If children's themes were allowed, video game companies such as Nintendo and THQ would be power players in video slots, with games geared toward the younger end of the eligible gambling audience.
That second thought actually applied to Konami, except that Konami's games are more serious in nature, where video slots tend to be cute and funny. Still, given Konami's experience, the company by all rights should be a top player.
Beyond that, is a Three Little Pigs-themed game so bad, when we already have games from International Game Technology
On WPTE CEO Steven Lipscomb's letter
Lipscomb started by addressing some concerns over standard filming releases players must sign before they play in a World Poker Tour tournament. He also emphasized the importance of the player as a business partner to the World Poker Tour, and that the player should "keep an open mind and look for the reality" rather than "just accept misinformation."
He also did something somewhat counterintuitive: In an attempt to refute the notion that the WPT is an "evil empire" that is making "massive profits" and refuses to share that success with its players, he downplayed the success of the business. Lipscomb pointed out that WPTE has yet to turn a profit in four years of business, and that Lyle Berman -- CEO of WPTE parent Lakes Entertainment -- has yet to sell a share or profit off his investment in the WPT.
Basically, the gist of Lipscomb's message is that the company is investing in the partnership -- partly by funding its Professional Poker Tour with $2.5 million out of its own pocket, with no TV deal in place. The company has yet to receive a dime for the PPT. And thus far, every player who has ever made a final table of a WPT event has made more money off of the WPT than WPTE has.
Clearly, this was not a message meant to boost investor confidence.
That said, though some of Lipscombe's points came across a bit awkwardly, The Motley Fool has long advocated shareholder communication. Since poker players -- the lifeblood of the World Poker Tour -- clearly qualify as stakeholders, I find Lipscomb's effort here commendable.
There was one other item of note: Lipscomb said that Lakes -- which has said it may need to sell part of its 62% stake in WPTE in order to fund its own business -- has yet to sell a share. That potential share sale is part of the reason the stock has been beaten down further and further; it now sits at a new low, under $6 per share. And when a stock gets beaten down for reasons external to the business -- such as potential share sales due to the financial needs of a parent company -- it starts looking a bit more like an investment opportunity. If I were interested in the stock (and if there weren't other more attractive and lower-risk investment opportunities available), I would venture that now might even be the time to examine WPT as a possible buy.