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US Gaming Stocks Show More Promise Today 
Than  In The Last Two Years,  Says Jason Ader
LAS VEGAS - March 1, 1999--US gaming stocks show more promise for investors today than at any point in the last two years, said Bear Stearns senior managing director Jason Ader. Mr. Ader spoke Saturday at an investment forum led by legendary broadcaster, Louis Rukeyser, attended by an estimated 10,000 people at the MGM Grand in Las Vegas. Upticks in visitation and air traffic, a first quarter packed with exciting events and attractions plus more Asian gaming in Las Vegas bode well for the sector in the short-term. Indeed, Mr. Ader upgraded shares of Circus Circus Inc. (CIR) from Neutral to Attractive last month and raised target asset values for MGM Grand (MGG) and Mirage Resorts (MIR). But in the long term, he said, huge additions to Vegas' hotel room supply and an increasingly competitive gaming environment should give investors pause. Meanwhile, Mr. Ader does expect more consolidation among small-cap gaming firms.

An Oasis in the Desert

"Seeing the recent signs of life in the gaming sector is like finding an oasis in the desert," Mr. Ader said at the Rukeyser forum. "Vegas' visitor volume rose 6.7 percent in December, the best rate since 1995, as typically anemic air traffic to Vegas rose 1.7 percent in the fourth quarter, 2.6 percent in January and 2.8 percent so far in February, all positive signs," Mr. Ader said. Length of visitor stay also rose during the period.

"Additionally, Vegas' first quarter was rife with exciting and successful crowd-massing events, including robust Super Bowl wagering, a better-than-expected Chinese New Year that brought Asian revelers to town, the NCAA Basketball tournament, the CONEXPO trade show and a Mike Tyson bout, which alone meant millions of dollars in economic impact," Mr. Ader noted. But Mr. Ader is concerned about trouble spots for US gaming ahead.

No Oasis Extends Very Far

"As good as we all feel today about the sector, it's hard to ignore Vegas' 'edifice complex' that will add 13 percent to hotel room supply through 2001 -- far outpacing even the rosiest visitation projections," Mr. Ader notes.

"Lavish and appealing new rooms at the Mandalay Bay, Venetian and Paris properties will hurt operators of older hotels that lack compelling 'must-see' attractions and restaurants," Mr. Ader said. "Older operators will feel pressure on revenue per available room, and they'll feel it soon. They may also find they need to boost outlays for marketing and promotion just to retain market share. That'll hurt."

And although new long-haul carrier National Airlines will help bring more gamblers to Vegas, it won't bring them in the numbers required to fill the gaming capital's new hotel rooms, he adds. (A similar effort by Mirage Resorts Incorporated and AirTran to boost air service to the Mississippi Gulf Coast gaming market is likewise helpful but no solution, Mr. Ader says.)

In a striking irony, some visitors who are staying longer in Vegas are primarily focused on Vegas' family-oriented, non-gaming attractions, including art, retail, conventions and so on, which offer minimal return for gaming firms.

"Beyond this pleasant oasis of 1999, there are many, many miles of blazing sun and thirst ahead, and to some extent, all gaming firms will make that journey together," Mr. Ader said at the Rukeyser forum.

Mr. Ader reminded his audience that overall, US gaming revenues will rise only 5 percent this year, down from 6 percent in 1998 and 15 percent in 1997, according to Bear Stearns.

Beyond Las Vegas

Other threats to the long-term outlook of the US gaming sector include the following, Mr. Ader said.

Overall, very few new US jurisdictions are voting to accept gaming, offering gaming firms few if any chances for geographic expansion.
Nevada gaming operators anxiously eye the ultimate impact of California's Proposition 5, currently in abeyance. Bear Stearns estimates at $300 million the potential impact of Prop 5 on southern Nevada gaming operators who target lower and middle market segments. Prop 5's impact on northern Nevada operators is estimated at $125 million. Meanwhile, California-based tribes are eager to proceed with casino development plans -- and may act without legal approval.
Also in California, horse racing and card clubs may push for approval of slot machines at race tracks, potentially impacting Vegas.
Potential legalization of riverboat gaming, slot machines at race tracks and video poker in taverns in Pennsylvania would severely harm Atlantic City gaming operators. Philadelphians in particular are major Atlantic City visitors. A gaming measure has passed the Pennsylvania House of Representatives. State Senate and voter approval and other steps are still required.

Positioned to Succeed

Best positioned to prosper in the gaming industry of the next millennium are the well-capitalized and well-diversified brand-intensive players with compelling new properties, Mr. Ader said. These companies include Circus Circus (CIR), Hilton gaming spinoff Park Place Entertainment (PPE), MGM Grand (MGG), Mirage Resorts Incorporated (MIR) and Harrah's Entertainment Corp. (HET), which is the most diversified US gaming operator, according to Mr. Ader.

Consolidation Ahead

In a slower-growth environment, more small-cap gaming operators will be drawn to mergers and acquisitions, according to Mr. Ader. Capital constrained, geographically constrained and facing mammoth public competitors in the major markets, small-cap gaming firms will team for advantage or seek buyers among the big public firms, Bear Stearns says.

"Lower borrowing costs, reductions in general and administrative outlays as well as purchasing economies of scale will drive earnings growth for consolidated small-cap gaming firms," Mr. Ader says. Some recent deals involving small-cap gaming firms include Jackpot Enterprises-Players International, MGM Grand-Primadonna Resorts, Hilton-Grand Casinos and Harrah's Entertainment-Rio Hotel  Casino.

Some likely future small-cap MA candidates include Station Casinos, Aztar Corp., Ameristar Casinos, Isle of Capri, Argosy Gaming, Coast Resorts and Horseshoe Gaming, Mr. Ader said.

Bear, Stearns  Co. Inc., a leading worldwide investment banking and securities trading and brokerage firm, is a major subsidiary of The Bear Stearns Companies Inc. (NYSE: BSC). With approximately $18.9 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales and trading, private client services, derivatives, asset management, correspondent clearing, securities lending and custody services. Headquartered in New York City, the company has over 9,500 employees located in domestic offices in Atlanta, Boston, Chicago, Dallas, Los Angeles and San Francisco; and an international presence in Beijing, Buenos Aires, Dublin, Hong Kong, London, Lugano, Sao Paulo, Shanghai, Singapore and Tokyo. For additional information about Bear Stearns, please visit our website at http:/

Stephanie Stegich
Bear, Stearns  Co. Inc.
(212) 272-4356
Also See: New and Better Slot Machines Play Bigger Role in Casinos' Future / Sept 1998 
U.S. Gaming Revenue Growth to Drop by More Than 5O Percent This Year, Bear Stearns / April 1998 

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