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Ask gamblers what their goal is, and they will tell you "to strike gold." In fact, for investors playing the stock market the answer is exactly the same. Most investors will tell you that to strike gold in the stock market you must accurately assess the expertise of company management According to our Third Annual Survey of gaming industry CEOs, there is an abundance of gold in the mines of Minnesota.  Both top-performing CEOs in this year's survey are from Minneapolis: Lyle Berman of Grand Casinos (top operator) and John Breeding of Shuffle Master (top supplier).

The survey ranking was based on our pay-for-performance model, which incorporates performance indicators such as stock appreciation, return on equity, revenue and earnings growth, and relates them to executive compensation. The result is a Value Index that ranks the CEOs relative to their industry peers. This year the indices ranged from a low of 0 to a high of 205, exemplifying that some CEOs gave shareholders great value in 1995 while others gave very little.

The gold standard

We divided the top performers into two categories: operators and suppliers. All five operators were newcomers to the list, with Lyle Berman of Grand Casinos making the largest jump from last year's survey. Berman and Grand won numerous accolades in 1995, including recognition from Fortune magazine as the fastest-growing company in America. The challenge for Berman will he to stay at the top of the list as Wall Street has questioned the company's  investments  in Stratosphere and Tunica.

Barron Hilton gave up his place on the top performer list to new CEO Steve Bollenbach. A wise move: since the change Hilton's stock increased by $4, followed by the Hilton/Bally merger. A low-odds bet is that Bollenbach will grace the top performers list next year. Tom Gallagher's performance was also impressive, taking the bankrupt Resorts International and turning it into a winner.

In the supplier category, consistency was the norm Shuffle Master's John Breeding and CDS's Steven Weiss have traded top honors for the past three years. Bill Malloy of Scientific Games has also been a reliable top performer. Al Barber's performance is definitely noteworthy. Barber, having inherited a spot in last year's bottom performers, turned Stuart Entertainment's fortunes around in just one year. It shows how fickle the stock market can be year to year, turning bedrock into gold and vice versa.

The bedrock

The bedrock in the gaming industry continues to be the small cap stocks that promised a lot but delivered very little. It would come as no surprise to see these companies taken over by the better capitalized and managed organizations, or perhaps see them divest of gaming altogether. We believe that the great consolidation of the gaming industry will not occur, but that stock market volatility will put some brand names into play. The big question is which companies will be most vulnerable to stock market volatility.

Salaries & bonuses

The average salary for gaming CEOs was $485,000 in 1995, an increase of 9.7% from 1994. Steve
Wynn of Mirage and Arthur Goldberg of Bally had the largest base salaries two years in a row,
making over $2 million . We could find no clear approach to offering stock options, there  appeared to be little  rhyme or reason to the amount and frequency  of the grants, an issue board compensation  committees  must address. Steve Wynn and Clyde Turner were the stock option kings, with values close to $19 million.

Comparing the karats

Based on the value of In-the money stock options, Wynn, Turner. Araskog and Goldberg also have the greatest future payday.. Wynn alone has option worth some $136 million. In terms of beneficial ownership of stock, Wynn was only eclipsed by Barron Hilton, who is worth nearly $500 million.

Gaming’s big money players, including Steve Wynn, Arthur Goldberg, Rand Araskog, Terrence Lanni and Clyde Turner, all had Value Indexes over 100, indicating that a large paycheck is not necessarily inappropriate. Our analysis demonstrates that in creating vast shareholder wealth these executives have been compensated accordingly. Remember investors, it’s not what a CEO gets paid, it’s how they get paid that matters. As for the industry’s leaders, performance over the next two to three years will determine whether their mines will hit a motherload of gold or just bedrock.

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