AGEM Index

After a modest uptick last month, the AGEM Index retreated downward during the month of August, erasing the gains witnessed in the prior month of July. The composite score of 17 global gaming suppliers shrank 2.68 points, reaching a value of 87.89 by the close of August 2010. While the 2.96-percent decline is much less than the double-digit drops witnessed during May and June, the latest movement is a concern that gaming suppliers will have more difficulty sustaining a long period of recovery. For comparison purposes, the nearly 3-percent decline in the AGEM Index was less scathing than the broader equities markets. The Dow Jones Industrial Average and Standard and Poor’s 500 Index shed 4.3 percent and 4.7 percent during the month of August, respectively.

With economic uncertainty continuing and the possibility of a double-dip recession, global gaming suppliers will continue to be pressured in the near term. Further contraction in consumer spending could tighten gaming operators’ resources and their ability to fund new projects and replacement equipment. That said, selected markets, including those abroad, have managed to outperform most domestic operations.

Selected positive contributors to the index during the month included:
• Aristocrat Technologies (ATI) adding 0.92 points to the index based on a 9.73-percent increase its stock performance.
• Konami (KNM) contributing 0.47 points to the index based on a 3.89- percent gain in its stock valuation.

Selected negative contributors to the index included:
• International Game Technology (IGT) posting -1.03 points to the index with a 4.20-percent decline in its stock price.
• Lottomatica (LTO) with its stock price dropping 5.45 percent, contributing -1.01 points to the index.

Without raising taxes or severely cutting services, insolvency looms for many state governments that continue to make gambling a core issue and a possible budget-gap savior among lawmakers and voters. These potential “new money” fixes can be challenging to implement.

The expansion of gaming, in part due to the Great Recession, is not helping existing gaming operators, particularly in New Jersey. Pressure continues to be exerted on Atlantic City, where Gov. Chris Christie is trying to improve the area’s economic situation by suggesting the state take over operations of the casino-tourism district. Additionally, New Jersey continues its fight to legalize sports betting, currently banned in the state by federal law, but may not generate significant incremental revenue from gamblers in neighboring states, which are continuing to proliferate their own hometown gaming operations.

Genting, a Malaysian gaming company, received approval to operate the casino at Aqueduct Racetrack in Queens, New York, which is expected to open next year with approximately 4,500 slot machines.

West of New Jersey, the planned Mason-Dixon Resort & Casino near the Gettysburg National Military Park is undergoing public hearings as it vies for a Pennsylvania state casino license. In August, the Gettysburg Battlefield Preservation Association said it supports the 600 slots and 50-table game hotel-casino proposal.

In Toledo, Ohio, Penn National Gaming’s Hollywood Casino broke ground in August. Harrah’s also signed a deal to become part-owner and operator of Cincinnati’s and Cleveland’s casinos. The Cincinnati casino is expected to break ground before the end of the year.

In Las Vegas, The Cosmopolitan of Las Vegas announced that it would partner with Marriot International Inc. The 3,000-room casino-resort, adjacent to MGM Resorts International’s CityCenter is expected to open in December, adding thousands of slot machines to the market.

Las Vegas Sands Corp. announced that its third casino in Macau is facing construction delays due to a shortage of construction workers. The resort will likely open during the fourth quarter of 2011.

While operators are expanding with the proliferation of gaming in new territories, saturation is of concern for many communities. The push for legalizing online gambling in the U.S. is slowly being endorsed with the latest move by the House Financial Services Committee, passing HR 2667 in late July, which regulates online gambling. This is a small step in a very long process that could significantly impact how gaming operators and suppliers conduct business.

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