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 Consolidation in the US Gaming Industry May Not Benefit Smaller Casinos and Value-Driven Customers
/ Jason Ader
ATLANTIC CITY, NJ - May 5, 1999-- Atlantic City's biggest casino operators are among those who'll benefit most from consolidation in the US gaming industry, said Bear Stearns senior managing director Jason N. Ader today at the 1999 Mid-Atlantic Gaming and Entertainment Congress and Expo in Atlantic City. But operators' gain could come as much at the expense of value-oriented Atlantic City casino customers as it does from smaller casino operators, he added.

"Park Place Entertainment's purchase of Caesar's from Starwood last week gives the company massive new scale in Atlantic City," Mr. Ader observed. "With Caesar's, Park Place is neck-and-neck with the Trump Organization's roughly $1.1 billion in annual gaming revenues -- or 29 percent -- of the gaming market in the seaside town," Mr. Ader said, citing figures from the just-published 1999 Bear Stearns Global Gaming Almanac.

"That sheer size shelters Park Place and Trump from smaller casinos' efforts to gain market share by launching drastic, overly generous promotional give-aways," he says. The gaming industry's common -- but costly - customer incentives often cut deeply into company earnings, Mr. Ader observes.

And as incentives for offering promotions evaporates, Atlantic City's "value-oriented" customers will find it tougher than ever to locate the cash handouts and deals to which they have become accustomed over the years, Mr. Ader said.

"For `value' customers, it's a different environment today. Those, particularly from New York, who visit Atlantic City purely on the basis of generous give-aways, could be lured elsewhere," he said.

One alternative is for Park Place and Trump to keep a hand in the discounting and give-away game, Mr. Ader suggested, offering some room comps, meal specials and other incentives that are competitive with the market -- but not dilutive to earnings.

"Park Place's and Trump's sheer size also allows them to offer some incentives not to gain market share, but to retain value-oriented customers who could be lured to other gaming destinations," Mr. Ader said. But it's a delicate balance, he added.

Mr. Ader estimates that in the city's new ownership make-up, the big Atlantic City casino operators should aim to offer promotions of no more than eight percent to 10 percent of revenues to retain value customers. That's less than the 10 percent to 12 percent on average Atlantic City has seen in recent years.

"It may be a less generous discount, but it's significant for Atlantic City's average visitor, who is a 59 year-old working female with annual income from $30,000 to $35,000 and a strong value orientation," Mr. Ader said, citing the 1999 Bear Stearns Global Gaming Almanac.

For their part, smaller casino operators must find new ways to achieve growth from existing market share. "For smaller players including Resorts International, The Sands, Tropicana and The Claridge, aggressive give-aways for customers can bring little gain and only damage financial results," Ader observed.

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 $19.3 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 approximately 9,600 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

Stephanie Stegich
Bear, Stearns  Co. Inc.
Also See: Gaming Expansion to New US Locales Is Limited By Economics / Jason Ader / April 1999 
New York City Legal Gaming Market Valued At $2.6 Billion, Bear Stearns Analyst Reports / Feb 1998 
Comments on the Gaming Industry: Big and Getting Bigger / Dr. Charles F. Urbanowicz / April 1999 

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