Goodbye and Good Riddance
Will 2009 be any better than 2008?

Investors in gaming stocks will say a glad good-bye to 2008.

Everyone knows by now that, as bad as consumer discretionary stocks in general were hit, casino stocks were hit harder, with some of the most storied names plunging more than 90 percent from their highs.

Gaming stocks have mostly bounced off their lows, rising 50 percent to more than double in many cases, but they are still way down.

However, barring a really worse turn in the economy or a collapse in the big Las Vegas-centric companies because of all the new capacity coming on line, the worst may be over for stock prices.

The regional casino operators were helped by winning referendums in Colorado and Missouri that liberalized rules.

In Las Vegas, casino operators might be helped by the opening of Wynn’s Encore as the first new must-see resort in years is generating the kind of excitement that can be infectious.

As is often the case, we think regional casino operators have the best chances for improving their bottom lines that to their lower cost structures and customers close to home for whom gambling is convenient entertainment.

And, of course, the business model of the regional casino can be sustained by gamblers. The upscale Las Vegas properties need free-spending on dinners, shows, retail and hotel rooms, none of which is likely without an economic recovery.

We also are more sanguine about supplier companies, thinking they’ve taken their worst hits and are at a stable level with even the chance for improvement as the industry expands and slot floors age.

Suppliers also have the opportunity to push products aimed at cutting costs or enhancing productivity, and they can lease them to operators who have tightened their capital expenditure belts.

Finally, there are some specific reasons to think industry fundamentals, hence stock prices, should improve in 2009, even in recession.

Consider:

1. Colorado and Illinois begin the year with apples-to-apples comparisons with what was a new smoking ban in 2008.

2. Atlantic City has reverted to the 75/25 smoking ban, after having a full ban hit October and November revenues.

3. Gasoline prices have fallen dramatically. This is especially important for retired gamblers who do not have the security worries of younger customers.

4. Missouri has repealed its loss limit and Show Me State casinos, especially Pinnacle and Ameristar will have had time to begin marketing the change and cultivating high rollers.

5. In July, Colorado lifts its bet limit from $5 to $100, allows 24/7 gaming, and adds blackjack, craps and roulette.

6. It is likely that the Obama administration will pass a stimulus package aimed at the mass of the American population, thus putting discretionary dollars into customer pockets.

7. Little new capacity is being added outside of Nevada, with Las Vegas Sands’ Bethworks in Pennsylvania being the most significant. But even there, the full facility will not open in 2009, just the casino.

By Frank Fantini

Frank Fantini is the editor and publisher of Fantini’s Gaming Report. A free 30-day trial subscription is available by calling toll free: 1-866-683-4357 or online at www.gaminginvestments.com.

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