May 30, 2000


    The most storied company in the history of the gaming industry disappears
on Wednesday when Mirage Resorts becomes a division of MGM Grand (MGG).

    The acquisition is bound to have dramatic effects on the industry:

    • Atlantic City, and to a lesser extent Las Vegas, become oligarchies.
Harrahs (HET),  Park Place (PPE) and Trump Resorts (DJT) will now control 70
percent of the business in AC while MGG, PPE and Mandalay Resorts (MBG) will
control 70 percent of the LV Strip.

    • This dominance should make it easier for these companies to
cross-market to drive business and to reduce promotional costs, squeezing
more dollars out of their rooms, table games and slot machines. Implicit in
this isat least tacit cooperation among the giants. The Sun Herald newspaper
in Biloxi-Gulfport is already reporting a new spirit of cooperation among
Beau Rivage and  PPE’s Grand Casinos executives.

    • The once hope-for wave of development in Atlantic City may not come, or
at least it should be reduced from what might have been.

    • Yet one or two more major mergers may be in the works as MBG and HET
survey the new landscape, or perhaps as some of the riverboat or private
companies decide they need to become larger. And what about the mid-size
companies such as Station Casinos (STN) Boyd Gaming (BYD) and even Sun
International (SIH) if its effort to go private fails?

    Meanwhile, as important as MGM Grand’s purchase happens to be, it is only
one of several developments that suggest profound change:

    • California Indian gaming promises to be a boon for many of the supplier
companies. And it now appears the Indians might have played coy with the
governor who thought he negotiated a cap of 45,000 machines. Many more may be
on their way.

    • New York and the New England states continue to struggle between
wanting Indian gaming for its economic benefits and wanting not to be overrun
by limitless casinos. At this point, it looks like there will be more Indian
casinos in the northeast. Maybe many more. It will take several years to devel
op, but that will be good timing for the same suppliers who by then will have
filled California to its limits.

    • Fall out on Las Vegas and secondary markets from this proliferation of
gaming. Reno already has suffered a steady decline and it will have little
reason to stay a major gaming city as Californians enjoy convenient gaming at
home and as the Reno economy continues to diversify. Tunica and the Gulf
Coast reported lower revenue in April after a long period of explosive
growth. It may be that their potential to become destination resorts will be
limited if casinos sprout in even more markets.

    As for Las Vegas, the numbers on visitation, room rates, and revenue from
gaming, entertainment and shopping continue to be powerful. A record 3.13
million people visited LV in March, a 5.4 percent increase over 1999. Las
Vegas has truly become the world’s entertainment capital. And in a more
affluent and ever more global world, there is no reason to believe that
growth won’t continue.

    • The Internet. What greater change can there be? The Las Vegas Review
Journal reported Monday that Sen. Richard Bryan (D-Nev.) believes the major
casino companies will move into Internet gaming in another year if it is not
outlawed. Certainly, the Internet offers opportunities for both new revenue
and cross-marketing. And in a medium where credibility is critical, names
like Harrahs, Mirage and Caesars will be immediately the most powerful on the

    • Other technology. Will machines go coinless, and who will win that
race? Giants like International Game Technology (IGT) or entrepreneurial
upstarts such as Coinless Systems (CLSY)? Is Shufflemaster’s new PC-based
slot platform so revolutionary that the entire industry will have to go
through its doors, or are technological innovations coming so fast that the
best SHFL can hope for is 15 minutes of fame?

    • Supplier consolidation. Attention is focused on casino company mergers,
but the supplier sector of the industry has too many little companies
snapping at each others’ tails with competing products and lawsuits.
Consolidation seems inevitable. Some companies may simply fall away. But,
with intellectual property being the key to entree, there will always be
little companies aborning.

    • Bubbling up from the bottom. Likewise, while attention is focused on
the merging giants, smaller companies can grow into considerable enterprises,
too. Look at Argosy (AGY) and Isle of Capri (ISLE) among the riverboats. Or
look at the potential of private companies to finance expansion by going
public -- Horseshoe, Coast Resorts, Sands (Venetian), Hard Rock, the Maloof
family, Colony Capital (Harveys and soon Pinnacle Entertainment), the Sahara.
And who’s to say that Indian tribes, armed with new wealth and operating
knowledge, might not begin buying or developing for-profit gaming companies.

    In brief, the gaming industry is changing rapidly in every phase That
spells opportunity.

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