Significant movement in the broader markets, favorable reports from gaming operators and growth in selected gaming jurisdictions pushed the March 2010 AGEM Index into positive territory for the year as it rebounded from losses witnessed during the first two months of 2010. With a gain of nearly 5.1 percent, the AGEM Index ended the month at 107.45, representing an increase of 5.17 points from February 2010. For comparison purposes, the S&P 500 and the Dow Jones Industrial Average rose 5.9 percent and 5.1 percent, respectively, during the month of March 2010.
Investor caution has mildly subsided as earnings reports for selected global gaming suppliers and operators included forward-looking statements that 2010 and beyond may be more positive than the past year. As part of their year-end earnings report (released in March 2010), President and CEO of Gaming Partners International (GPIC), Greg Gronau, noted, “With our strong cash and low debt position, we are poised to consider potential strategic acquisitions and partnerships that will grow our business.” Various AGEM members have expressed similar optimism as their operations have begun to stabilize and leading indicators point to some improvement in both the gaming and broader economic environment.
Selected positive contributors to the index during the month included: (1) International Game Technology (IGT) posting 1.41 points to the index with a 5.13 percent increase in its stock price and (2) WMS Industries (WMS) reported a 10.57 percent gain in its stock valuation, contributing 1.30 points to the index.
Selected negative contributors to the index included: (1) Bally Technologies (BYI), with its stock price falling 2.10 percent, contributing -0.24 points to the index and (2) INTRALOT S.A. (INLOT) contributing -0.14 points to the index with a 3.46-percent decline in its stock valuation.
While cautious optimism materialized in the broader economy, gaming suppliers continued to operate in a challenging environment as the level of investment in replacement gaming equipment remains somewhat limited. That said, deferred capital expenditures may begin to play a role in operators' financial performances. Global gaming suppliers’ dependence on growth in the U.S. domestic market as well as on the global stage will be key to moving beyond the latest economic cycle.
In the U.S. market, New Jersey introduced a bill that would permit four new casinos with as few as 200 hotel rooms per licensee, down from the current requirement of at least 500 rooms enacted in the 1977 Casino Control Act. The smaller facilities would be approved for a 20,000-square-foot casino, which would increase to 30,000 square feet if the room count expands in the future. Hard Rock International provided support for the bill and plans to look further into building a $300 million casino hotel if the bill becomes law. In the same jurisdiction, MGM MIRAGE plans to sell its 50 percent stake in the Borgata, which it co-owns with Boyd Gaming, as regulators expressed concerns about its joint-venture partner in its Macau property.
Reports out of Macau indicate that the government may not approve new casino projects and while putting forth plans to potentially limit table game growth over the next three years.
In Canada, the potential replacement of 12,000 video lottery terminals (VLTs) in Quebec is expected to benefit manufacturers. Also, Vancouver’s Edgewater Casino, which is operated by Paragon Gaming Co., is proposed to be replaced with a new $450 million hotel casino. The new casino to be located adjacent to B.C. Place is planned to feature two hotels, five restaurants, up to 1,500 slot machines and 150 table games.
Online gaming approvals may be an impediment to traditional growth in expanding and emerging U.S. gaming markets. The Safe and Secure Internet Gambling initiative introduced in March by Rep. James McDermott puts more pressure on Rep. Barney Frank’s legislation to legalize online gambling in the United States. The new bill, which would provide for revenue streams subject to taxation and fee assessments, would go toward closing gaps in state and federal budgets. The Congressional Joint Committee on Taxation estimates the legalizing of online gambling could produce nearly $42 billion of federal income over a 10-year period.