Riverboat Gambling Pays Off for Players Intl. : Calabasas: After years of swallowing losses on another venture, the company posts a $6.3-million profit in latest quarter.
For eight years the Fishman brothers struggled selling memberships in Players Club, a sort of discount travel service for medium-stakes gamblers. Even with actor Telly Savalas pitching the club on late-night television commercials, their company, Players International Inc., mostly swallowed losses.
But now their luck seems to have changed. Last February, the Calabasas-based company stopped marketing its club and teamed up with celebrity Merv Griffin in launching a riverboat casino in Metropolis, a town of 6,700 at the southern tip of Illinois. Since then, Players has been on a hot streak, although analysts warn that in the long run the company faces a potentially saturated market.
On Monday, Players reported a profit of $6.3 million on revenue of $18.3 million in its fiscal first quarter ended June 30. That included a $3.5 million tax credit for a change in its accounting method. Still, it’s not bad for a company that lost $11 million in its fiscal year ended March 30, when Players was restructuring.
Its stock, which had languished at a couple bucks per share during most of the 1990s, shot up to $20 this summer. It closed Monday at $18.38 a share, up 25. And last month Players raised $87.5 million by selling new shares of stock to the public. Even the great Midwestern deluge missed Players’ riverboat in Metropolis, which docks on the Ohio River, about 45 miles from the flood zone.
“We haven’t even had any rain recently” in Metropolis, said Ed Fishman, 50, Players’ chairman and chief executive. His brother, David, 45, who is vice chairman, added: “Last couple of years it was very difficult with the recession. But we saw the riverboat casino industry coming alive. I’d say our luck’s changed.”
Riverboat gambling has indeed come alive--and quickly. It was only in April, 1991, that the first riverboat casino in decades emerged on the Mississippi River in Iowa. Since then five more states have approved riverboat gambling. Now about 20 riverboat casinos are operating, and that number is likely to double in a year.
Players plans to open its second riverboat casino, in Lake Charles in southwestern Louisiana, by year’s end. The company is spending $27 million to build a 24,000-square-foot riverboat, which will be filled with 800 slot machines and 45 table games. Players is also in the hunt for a casino license from Indiana, the latest state to approve riverboat gaming.
States are allowing riverboat gambling because they’re hungry for new tax dollars. The cut to Illinois, for example, is 20% of the gambling revenue. For casino operators, the attraction is potentially huge profits in a relatively untapped market.
About 55% of the country’s population approves of casino gambling, said Bala Subramanian, marketing research director for the Promus Companies, whose Harrah’s subsidiary is developing riverboat casinos.
Players International Riverboat in Metropolis shows Middle America’s appetite for gambling. From April to June, 320,000 people took a three-hour ride on Players’ riverboat, paying an average $10 admission and wagering a total of more than $100 million. The company’s win--or gross revenue--totaled about $16 million, of which analysts estimate one-third was operating income.
“Players has put some pretty impressive numbers on the board so far,” said David Leibowitz, a gambling-industry analyst at Republic New York Securities Corp. in New York. But he added this caveat to an otherwise rosy forecast for the company: “It’s difficult in the gaming industry to look too far out into the future.”
Clearly the biggest threat to Players is other nearby casinos. For now the company enjoys a virtual monopoly in Metropolis; its nearest rival riverboat is about three hours away in East St. Louis, Ill. Similarly, its closest competitor in Louisiana will be a two-hour drive away--which experts say is about the maximum distance a person will typically travel to visit a riverboat casino.
But casino gambling is burgeoning nationwide, both on riverboats and on land. Kentucky, for example, is considering allowing casino gambling at its race track sites because of the financial threat from nearby riverboat gambling in Indiana. One race track is in Paducah, Ky., about 10 miles from Metropolis.
Players’ potential rivals are formidable. Harrah’s, Hilton Hotels Corp., Circus Circus Enterprises and ITT Sheraton Corp. are among the giant companies developing riverboat casinos. Players is one of several relatively small and inexperienced casino operators.
“Five years from now the whole industry will be dominated by four or five companies,” not the more than a dozen operating today, said Marvin Roffman, a money manager in Philadelphia who tracks casino stocks.
The Fishmans say their strategy is to operate casinos where there are no nearby rivals. And Players is trying to maintain that monopoly in Metropolis. Players recently signed a development option for a 15-acre riverboat casino dock site in Evansville, Ind., which is about 90 miles from Metropolis. And last week, the company said it signed an option that will allow it to build a casino in Paducah, if Kentucky legalizes casino gambling.
But as more states and cities allow casino gambling, it will become harder for Players to remain the only game in town. Bill Eadington, director of the Institute for the Study of Gambling at the University of Nevada in Reno, thinks it will only be a matter of time before more states allow land-based casinos, beyond those already established by Indians on reservations. And when that happens, “riverboats won’t make any sense,” he said, because a ship is expensive to operate and inconvenient for customers who can only gamble at certain times.
“There’s also the threat that the next (casino) license is going to be harder to get,” said Ian Gilson, an analyst who follows Players for L. H. Friend, Weinress & Frankson, an Irvine-based investment banking firm. Players can hardly ignore, for instance, what happened to President Riverboat Casinos.
The Iowa-based company’s stock plunged to $28 a share in late June, after flirting with the $50 range earlier in the month, partly on the news that it had failed to win a riverboat casino license from Louisiana.
Gilson said Players also needs more capable casino operators if it is to grow. “At this point they don’t have the depth of management,” he said.
Ed Fishman agrees that in the long run, riverboat gambling is a bit like a crap shoot. But he said, “As long as we pick our sites well, I can only foresee our company having a great decade.”
Ed Fishman has already hit the jackpot from the sudden leap in riverboat casino stocks, many of which, like Players, have surged in the last year.
Last month, Fishman sold 297,000 of his Players shares at $18.75 each for a total of $5.6 million. He and his brother together still own 11.5% of the company’s common stock. Merv Griffin’s company, the Griffin Group Inc., is Players’ single biggest shareholder, with 12.4%.
Griffin, the former singer and talk-show host and creator of game shows Wheel of Fortune and Jeopardy, said he met the Fishman brothers in 1988 when they were organizing a blackjack tournament at Resorts International casino in Atlantic City, which Griffin owns. “It was immediate chemistry,” Griffin said. Now 68, Griffin visits Players’ riverboat frequently and is the company’s spokesman.
Like Griffin, the Fishman brothers started out in television game shows. In the mid-70s, they produced Dealer’s Choice, a Las Vegas game show, and they started organizing blackjack tournaments.
The Fishmans formed Players International in 1985, selling club memberships for $125 a year that offered gamblers discounts on air fare, lodging, food and entertainment at such places as Las Vegas and Atlantic City.
Players turned its first profit in fiscal 1989, and its membership reached 100,000. But with the recession and increased competition in gambling, hotels began marketing discounts directly.
After losing $11 million in fiscal 1993, which included $2 million to terminate a contract with former spokesman Telly Savalas and $5 million for restructuring, the company is trying to sell Players Club.
The brothers say they know what gamblers want, having marketed services to them through Players Club. And they’re trying to offer more than just gambling. In Metropolis, Players is building a hotel and 400-seat theater for live entertainment next to Merv Griffin’s Landing, where the riverboat docks.
Still, experts don’t think such additional amenities will make much difference in the long run.
If rival casinos crop up nearby, as expected, it will surely slice the gambling dollars thinner and thinner for everyone in the business.
“At the moment, Players is in pretty good shape,” said I. Nelson Rose, a law professor at Whittier Law School in Los Angeles who has written books and lectured on the gambling industry. “But in the long term there’s going to be more land-based casinos. And the speed of change is picking up.”
Rage in Riverboat Gambling
Players International, a longtime marketer of Las Vegas travel services, launched its first riverboat casino in February in Metropolis, ILL. Since then, its stock has surged amid Wall Street’s latest craze, riverboat gambling.
Monthly high and low closing bid prices per share:
High closing in July: $18.13
Low closing in July: $16.00
