MTR GAMING GROUP PERFORMANCE REVIEW

MTR Gaming Group operates Mountaineer Casino, Racetrack, and Resort in Chester, WV, Presque Isle Downs & Casino in Erie, PA, Scioto Downs in Columbus, OH, and RacelineBet, a national account wagering service. Mountaineer and Presque Isle are Thoroughbred racetracks and Scioto Downs is a Standardbred track. Mountaineer has a hotel, restaurants, a golf course, a fitness center, convention space and an entertainment center; it offers slots and table games. Presque Isle offers slots and table games but does not have a hotel. Scioto Downs offers pari-mutuel wagering only.

Total revenues declined by 5.3% from 2008 to 2009, from $478.8 million to $454.1 million. Gaming revenues fell from $418.1 million to $400.6 million (-4.2%); pari-mutuel commissions decreased from $14.5 million to $12.8 million (-11.4%); food, beverage, and lodging dipped from $36 million to $32 million (-11.1%); and other revenues declined from $10.3 million to $8.8 million (-14.9%). Operating income decreased from $38.2 million in 2008 to $$22.9 million in 2009, or by 40.3%. However, operating income for 2009 included charges for extraordinary items, most notably, $9.8 million for lobbying in Ohio and impairment losses of $10.4 million pertaining to non-operating real properties. The net loss was $22.5 million in 2009 versus a negative $17.7 million in 2008. Basic and diluted earnings per share were -$.86 per share in 2009 compared to -$.16 per share in 2008.

MTR Gaming Group is heavily indebted with 85.5% of its total capital structure being comprised of debt and only 14.5% in equity. The debt-to-equity ratio is 5.9-to-1. The debt position has worsened since 2008, when the debt-to-equity ratio was 4.5-to-1. The current ratio is 1.6-to-1.

The nearly $10 million that MTR Gaming Group spent in 2009 for lobbying in Ohio was for two purposes: to (unsuccessfully) support the legalization of slots at Ohio racetracks, so as to benefit Scioto Downs, and to stop a casino ballot that ultimately passed and authorized four full-scale casinos—in Cincinnati, Cleveland, Columbus, and Toledo. Therefore, all the lobbying was a failure.

In 2009, the governor and legislature of Ohio attempted to allow Ohio’s seven racetracks to install slots in 2010 via the Ohio Lottery (rather than have a statewide vote), but the Ohio Supreme Court blocked the effort. Instead, the slots issue at racetracks will be on the 2010 ballot. Whether Ohio’s new casino proprietor in Cincinnati and Cleveland (Dan Gilbert, founder of Quicken Loans and owner of the Cleveland Cavaliers of the National Basketball Association) will fund a campaign against the slots issue is unclear. Penn National Gaming has the rights to build casinos in Columbus and Toledo and owns Raceway Park harness track in Toledo as well, plus has just purchased Beulah Park Thoroughbred track in Columbus, so it is likely that Penn National will put money into getting the slots initiative passed in November 2010. One or more parties is already funding a group that is campaigning against racetrack slots, but the name of the donor or donors supporting the group financially has not surfaced. The Ohio Supreme Court stopped the Ohio Secretary of State from requiring the opposition group to reveal its donors.

MTR Gaming Group’s properties in West Virginia and Pennsylvania are vulnerable because much of their business comes from Northeastern Ohio and Western Pennsylvania. Ohio will in a couple of years or less have four new casinos, one in Northeastern Ohio in Cleveland, and Pittsburgh has a new casino, as does The Meadows, the harness track and casino just south of Pittsburgh in Washington, PA. All of these casinos are permitted to have table games in addition to slots. Finally, Harrah’s has a tentative agreement to purchase Thistledown racetrack near Cleveland. If Ohio legalizes racetrack slots, this venue will provide even more competition for MTR Gaming’s West Virginia and Pennsylvania casinos. MTR Gaming Group’s Scioto Downs in Columbus, OH would benefit greatly if slots were to be legalized, but voter assent is not a foregone conclusion. Without slots, it is doubtful that the racetrack can survive.

MTR Gaming Group is a heavily indebted company facing fierce existing and upcoming challenges to its core markets in West Virginia and Pennsylvania. On the one hand, the January 2010 legalization of table games in Pennsylvania will be a boost to Presque Isle Downs. Yet the addition of table games at casinos in Pittsburgh and Washington, PA will erode traffic at MTR Gaming Group’s nearby Mountaineer property in West Virginia. What’s more, the new casino in Cleveland will dissipate much of the Ohio traffic that otherwise would have gravitated to Presque Isle Downs and Mountaineer. The legalization of racetrack slots would be a big gain for MTR Gaming Group’s Scioto Downs, but the outcome of the ballot issue is a wild card.

MTR Gaming Group’s near-term financial outlook should improve along with the economy, at least until such time that the Cleveland casino opens in a temporary facility or a permanent site. MTR Gaming Group’s position in the face of so much increased competition is weakened considerably by the huge extent to which it is leveraged.

MTR Gaming Group’s common has traded in the past 52 weeks (Nasdaq.GS) in a range of $1.14-$4.15 and the closing price on April 23, 2010, was $2.05. At the current stock price, the view here is that it is overvalued.

Bill Shanklin is not currently an MTR Gaming shareholder.

Copyright © 2010 Horse Racing Business

Comments

  1. The Pennsylvania gambling law provides 10% of slot revenue to be set aside for horse racing purses and incentives, the new Ohio gambling law provides 3% of slot revenue for its horse racing program. Pennsylvania is missing an opportunity to upgrade its horse tracks and provide the necessary facilities to attract the more affluent horse bettors. The lack of grandstands, private horse player facilities and the intergration of bars, music, dancing, entertainment being mixed in the same are that horse players are trying to concentrate on the reason they are at the facility.
    Las Vegas and all major tracks have separate horse racing facilities for horse players, private horse clubs with betting facilities, adequate supply of handicapping information etc., etc.,
    These horse players travel with other gamblers who play slots and gaming tables, the higher purses in Pa. will attract better horses and more affluent people and gamblers, instead of crying about the potential of a competitive demographic
    situation and a saturation of gambling, the Pa. race tracks need to recognize they have the best horse race program in the country and need to upgrade the horse betting part of the casino to compete with the balance of the market.

    Pa. has the potential of being one of the best horse racing markets in the country but needs to provide the horse racing bettor with the type of facilities that will attract the more affluent gamblers.

    George Vietze
    http://www.senecacountryland.com

Speak Your Mind

*