Casinos: Vegas Gambling Revenue Fell in FY97; Mirage Fights Upstream

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The news just keeps getting worse for the gaming industry.

Las Vegas, the city that can't build enough casinos, apparently has. At least for the moment. Nevada regulators reported that casinos on the Las Vegas Strip won less from gamblers in fiscal 1997, which ended June 30, than in the previous year. Only twice before in the last 15 years has revenue fallen on a year-over-year basis, and both times the drops coincided with U.S. recessions.

While revenue fell less than 1%, from $3.67 billion to $3.66 billion, the drop gives more ammunition to the growing number of short-sellers who have targeted the ailing sector. With thousands more new hotel rooms set to open over the next three years, including the $1.4 billion

Bellagio

and $1.8 billion

Venetian

resorts, the industry will be unable to keep its rooms full and tables busy if demand doesn't keep rising.

The drop "is a little surprising to me. Obviously the U.S. economy is doing well," said

Nevada Gaming Control Board

analyst Russell Guindon. Guindon noted that the revenue decline came despite a strong U.S. economy and the opening of two major new hotel-casinos, including the widely acclaimed

New York-New York

hotel.

Despite intense publicity for the heavyweight championship rematch between

Mike Tyson

and

Evander Holyfield

, the news didn't get any better in June. Strip revenue fell more than 1%, from $295 million to $292 million, and slot machine revenue slipped closer to 3%.

Still, bullish industry analysts continue to argue that this plateau is temporary and that when Las Vegas expands its airport in 1998, revenue will pick up once again.

Meanwhile, the sector's smart money is sticking with

Mirage Resorts

(MIR)

, the world's largest casino operator, which ranked second on this year's list of

Fortune's

most admired companies. So far, Mirage has reported steady earnings despite the Strip's continuing problems, and analysts are still confident the company's mammoth investment in Bellagio will pay off.

Tuesday, it was

Goldman Sachs'

turn to join the consensus on Mirage. Citing the company's "strong pipeline of projects" and "compelling financial characteristics," analyst Steven Kent projected Mirage would earn $1.20 per share in 1998, exactly in line with the consensus. (He didn't bother to offer quarterly estimates.) Kent, whose firm hasn't done any recent underwriting for Mirage, opened coverage of the stock with an outperform rating and set a price target of 28 to 30.

Oddly enough,

Cowen

analyst Harold Vogel offered precisely the same price target in cutting his rating on Mirage Monday to neutral from buy. Vogel noted that the company's stock had risen from as low as 23 in May to around 26 now and wrote, "We think it prudent to move back to the sidelines at this time.We do not see much upside." Vogel and Kent did not return calls.

But even in his downgrade, Vogel was quick to note he was "reducing

the rating solely on a price basis" and lauded the "astute leadership" of Mirage Chairman Steve Wynn. Indeed, the short-sellers who have lately taken aim at Mirage, increasing their position from 9 million shares in May to 11.4 million in June, might be wise to remember that the company's stock has risen 300-fold since Mirage went public in 1973.

This story was orginally published August 12, 1997