October 19, 2016

Tampere selected to host Finland’s second casino

RAY, the Finnish Slot Machine Association, has selected the Central Deck and Arena project in the southern city of Tampere as the location for the second casino in Finland. The €550m project announced earlier this year is being developed by local property developer SRV and will include diverse restaurant, accommodation and entertainment services.

Tampere Arena“This is great news for SRV, and we are delighted that RAY selected our multifunctional arena as the location for their new game and event centre,” remarked Timo Nieminen, SRV Executive Vice President. “We will be proud to continue promoting this unique project, which – if realised – means that Tampere will have a completely new district.”

Several locations were considered for the Scandinavian country’s second casino license but RAY indicated that the combination of tourists and locals in Tampere as well as good transport connections would draw enough customers to make the facility profitable. SRV was selected in February 2016 to develop the project with plans for it to connect the eastern and western parts of Tampere. Negotiations have been ongoing during the year on the financing of the project and investor cooperation.

In addition to the casino, which will be the nation’s second in addition to Casino Helsinki, plans for the new 1.29 million sq ft development also include the largest sports and event arena in Finland. The complex would form a new hybrid block, combining a multifunctional arena, offices and apartments.

The first phase includes covering the southern railway yard with a deck, on which the event arena, two tower buildings and a training hall will be built. The second phase includes the building of a northern deck and three tower buildings. The entire site will include a total of 120,000 sqm and over a 1,000 apartments. The aim is to begin construction work of the southern deck and the event arena in spring 2017. According to the estimated schedule, the first phase will be completed in the summer of 2020, and the whole area in 2023.

October 18, 2016

William Hill scraps Amaya merger talks after shareholder dissent

Bookmaker William Hill has scrapped plans for a multibillion-pound merger with Canadian online poker giant Amaya just days after its largest shareholder openly opposed the deal.

The London-based betting firm said it would consider alternative plans that have the potential to grow sales, fleshing out its four priorities: "online, technology, efficiencies and international". The company will also restart share buybacks, which it suspended in July.

Last week, Parvus Asset Management — an activist investor with a history of blocking large takeovers — waded into the discussions, accusing William Hill of pursuing a tie-up that had “limited strategic logic” and would “destroy shareholder value”. Parvus has a 14.3pc stake in the company.

“After canvassing views from a number of William Hill’s major shareholders, the board has decided that it will not pursue discussions with Amaya," the bookmaker said today. “Accordingly, the board has informed Amaya that it is withdrawing from discussions and wishes Amaya well for the future.”

William Hill was in talks with Amaya, the parent company of the PokerStars online casino, even before it received a £3bn takeover bid from a consortium of Rank Group and 888 Holdings, which it subsequently rejected in August.

The company — which is currently seeking a new chief executive after ousting James Henderson for failing to revive its struggling online business — said performance had continued to be positive in the second half of the year.

William Hill expects operating profit for 2016 to be at the top end of the previously guided range of £260m to £280m.

Ladbrokes Coral’s ‘disappointing’ shops sale

Ladbrokes Coral was busy celebrating on Monday overcoming the “last significant hurdle” to its merger agreement. But the news that the company could only fetch £55.5m for the combined parcel of 359 shops it has offloaded to Betfred and Stan James will likely send shudders throughout the sector.

The shops sale was mandated by the Competition and Markets Authority (CMA) in the summer which said between 350 and 400 outlets needed to be sold in order to satisfy local competition issues from the merging of the two estates.

The disposal will see Betfred pick up 322 shops for a total of £55m while Stan James will pick up the rump of 37 shops for £0.5m. It leaves the Ladbrokes Coral combination with a total of 3,626, the largest estate in the UK, pushing William Hill into second place with 2,330 and with Betfred now rising to 1,688.

The shops in question generated an EBITDA contribution of £28.5m which translates to a multiple of around 2.2 times and analysts were quick to brand the price-tag as disappointing. Richard Stuber at Numis said he had previously pencilled in proceeds of circa £108m, based partly on speculation in the press that Boylesports would be willing to pay around £100m for the parcel.

Indeed, Gala Coral chief executive Carl leaver hinted that other bidders might have been willing to pay more for the shops but Ladbrokes Coral had opted for certainty in order to get the deal over the line and move towards final CMA clearance.

But as Paul Leyland, founder at gambling consultancy Regulus Partners, said the low multiple still reflects the long-term earnings decline at the high-street bookmakers and the potential impact of the Triennial Review of gaming machine stakes and prizes which is likely to be officially announced by the government within weeks.

The news of the divestment sent the analysts back to the drawing board with their valuations for high-street bookmakers. Simon French at Cenkos said the “very disappointing valuation” achieved or these shops “must raise significant questions over the appropriate medium-term multiple with which to value both the enlarged Ladbrokes Coral retail estate and that within William Hill”.

Stuber at Numis said the “risk to future retail cash flows has clearly increased over last few months”.

Although he said he appreciated the forced nature of the sale and cautioned that it couldn’t give a read-across the entire estate, he said it would be prudent to cut its valuation of the combined group’s high-street business from nearly six times EBITDA to a multiple of four times.

The news that it was Betfred and Stan James that had won the race for these divested shops will no doubt be a disappointment to many, including the failed bidders and other interested parties such as the British Horseracing Authority which had lobbied the CMA to ensure true competition by allowing for a new competitor to enter the high street.

As Leyland from Regulus said: “The divestment to two established UK high-street operators will no doubt satisfy the CMA requirement that the acquirers must be qualified. However, it also means that the merger will not create a challenger brand, nor is it likely to drive material change within the (increasingly stale) offer available to British licensed betting office customers, in our view.”

October 12, 2016

The End Of An Era: Atlantic City’s Trump Taj Mahal Closes Its Doors

Beginning with the closure of the Atlantic Club in January 2014, Atlantic City has seen the fat trimmed from its casino industry. The city has gone from 12 casino properties to just seven, following today’s closure of the Trump Taj Mahal.

The closure of Trump Taj Mahal is hitting people differently than the other four casinos that closed over the course of 2014 — Atlantic Club, Showboat, Trump Plaza, and Revel — due to the iconic nature of “The Taj,” which will forever hold a place in gambling history.

The Taj becomes an icon

Despite its persistent financial troubles, The Taj was the gambling destination on the East Coast for over a decade.

Its place in the pantheon of gambling destinations shouldn’t be overly surprising considering it was the first billion-dollar casino on the East Coast, and the only billion-dollar casino in Atlantic City for over a decade. Borgata, opened over a decade later, and just barely eclipsed the cost of the Trump Taj Mahal, coming in at a final cost of $1.1 billion.

In effect, The Taj was a Las Vegas Strip casino in Atlantic City.

The Taj poker room was the place to play poker, with poker players traveling from New York, Philadelphia, D.C. and Boston to grab a seat in the weekend games at The Taj. As popular as the poker room was, it was the movie Rounders that made The Taj poker room as well known in poker circles as the World Series of Poker, and really cemented its place in poker history.

The Taj tries to shoot the moon

As mentioned above, the beauty and impressiveness of the property hid Trump Taj Mahal’s big secret.

The casino was a financial disaster from the day it opened its doors in 1990, with only brief periods of prosperity in its two-and-a-half-decade history.

The Taj’s financial woes didn’t come about because the casino wasn’t busy, or because it was seen as lacking in any respect. The problem wasn’t execution; it was planning. The price tag to build it, and the interest rates on the bonds Donald Trump agreed to pay in order to get the necessary financing for the casino simply set the property up to fail. The Taj was doomed before it ever dealt a card or rolled a dice.

As Politifact has reported:

“He [Donald Trump] funded the construction of the $1 billion Trump Taj Mahal casino in Atlantic City, N.J., which opened in 1990, primarily with junk bonds at a whopping 14 percent interest. A year later, the casino was nearly $3 billion in debt, while Trump had racked up nearly $900 million in personal liabilities.”

In 1991, Trump Taj Mahal filed for the first of what would eventually be four bankruptcies:
  • The second bankruptcy occurred in 2004 (Trump Hotels and Casinos Resorts);
  • The third in 2009 (Trump Entertainment Resorts);
  • The fourth in 2014 (Trump Entertainment Resorts).
Trump’s personal interest in the casino was reduced from 47 percent to 27 percent following the 2004 bankruptcy, and to just 10 percent following the 2009 bankruptcy. His name remained on the side of the building but Donald Trump had been ousted as the chairman and lost control of operations following the 2009 bankruptcy.

Carl Icahn took control of the casino this year, and promised a $100 million investment in the property that many thought would breathe new life into the once opulent casino that had fallen into an extreme state of disrepair.

Icahn had recently turned around the Tropicana in Atlantic City, but a labor dispute resulted in a month-long strike, and with North Jersey casinos at least a possibility, Icahn decided to pull the plug and cut his losses.

Closure of the Taj Mahal may not be the end

Atlantic City’s capacity to support 12 casino properties was an open question well before neighboring states got into the casino business.

Once casinos started popping up on all sides of New Jersey, the question being asked wasn’t if Atlantic City could support 12 casino properties. Rather, it was “how many casinos need to close in order for Atlantic City’s casino industry to right-size itself?”

The current number of operational casinos in Atlantic City is seven. Developer Glenn Straub is trying to reopen Revel (which has been rebranded to TEN), which would bring the number of operational casinos in Atlantic City back up to eight. That may or may not be a viable number.

Some analysts think the market could support as many as eight casinos depending on other circumstances in the city and beyond. Others feel the proper number is no more than five or six casino properties, and even less if casinos are built in the northern part of the state in the coming years.

What happens next?

What happens to these shuttered casino properties will dictate the future of the once popular resort town.

Showboat has been green-lighted to reopen as a non-gaming hotel. If Trump Plaza, Atlantic Club, and Trump Taj Mahal can be repurposed in somewhat similar ways, it could be a boon for the city and its remaining casinos, all of which have seen operating profits rise since the 2014 casino contraction.

There are any number of uses for these massive properties:

They could be:
  • converted to housing;
  • turned into a non-gaming entertainment complex;
  • turned into shopping malls with retail and dining options.
  • The key is finding a way to repurpose these buildings so they’re not an eyesore on the Atlantic City skyline, or a depressing reminder of the city’s lost glory.

October 11, 2016

In poker terms, Amaya is offering William Hill a marginal hand

When William Hill threw out a cheeky three-way merger proposal from the Rank Group and 888 Holdings a couple of months ago, its chairman, Gareth Davis, explained robustly that the bookmaker would not be doing a deal based on “risk, debt and hope”.

Quite right, too. Life has become tougher for William Hill over the past year, and it has lost its chief executive on the way, but there was no reason to panic.

But now comes a deal the board wants to look at – a potential “merger of equals” with Amaya, the Canadian company whose PokerStars website dominates the world of online poker. But, using Davis’s own yardsticks, the appeal looks wobbly at best.

On risk, Amaya brings at least two big ones. The more obvious is a $870m (£704m) penalty in the US state of Kentucky. Amaya is probably correct in thinking it will not end up paying anything like that sum, but one can never be sure given US authorities’ past (baffling) attempts to combat online poker.

The other risk is that William Hill ends up with too much exposure to unregulated markets, meaning those where gambling is either banned or the rules are so unclear that your local operation can legislated out of existence. At the moment, William Hill’s exposure to unregulated territories is an admirably low 5%. After a merger with Amaya, the ratio would rise to about a quarter of the business. Big difference.

On debt, Amaya would bring a bundle. The combined group’s borrowings would be about 3.5 times the top-line profits. Historically, William Hill has aimed for under two times. If high levels of debt are not your bag, Amaya is a strange choice of partner.

The hope element is that cross-selling will do wonders for both companies – that Amaya’s poker players will want to bet on sport with William Hill, and vice versa. That seems plausible, but the degree is untested.

Add it up and we can agree that Amaya looks a better gamble than the complex Rank/888 proposal, where the debt ratios would have been even higher. The Canadian company is a fearsome generator of cash and it is digital and international – qualities prized by William Hill. All the same, there’s a whiff of desperation in the idea that an overdose of online poker, a game that’s barely growing these days, is the thing to fire up William Hill.

Note the limp reaction in the share price, up just 3%. In poker terms, Amaya is offering a marginal hand. William Hill’s investors may fairly feel the self-help cards are stronger.