Losses won't tarnish Majestic Star casino here, analysts say
Majestic Star Casino has lost money the past two years, but that should have little impact on owner Don Barden's ability to build a North Shore slots parlor, analysts said Wednesday.
"Financing for Pittsburgh is not going to be an issue," said Greg Klein, an analyst at BNP Paribas in New York City. "They've already got it lined up, plus the project is going to be a successful project."
Majestic Star, a Las Vegas company that operates casinos in Gary, Ind., Tunica, Miss., and Black Hawk, Colo., yesterday reported a net loss of $14.3 million last year, compared to a loss of $5.3 million in 2005.
Although the planned North Shore casino would carry the Majestic Star brand name, it would be operated by a separate company, PITG Gaming, said spokesman Bob Oltmanns. Investors have committed $450 million to build the slots parlor, he said.
State gambling regulators voted in December to give the Pittsburgh slots license to Detroit's Barden. The two losing bidders are appealing the decision to the state Supreme Court, delaying the state from awarding the license.
Agency spokesman Doug Harbach declined to comment on Majestic Star's financing because of the pending appeals, but said the board will present to the court "a host of information that supports its determination."
The state expects Barden's Pittsburgh casino to generate revenues of $483 million a year.
"Barden really wants this to be his legacy," Oltmanns said this week. "This is not just a casino to him. This is something he wants to leave behind him and give to the people of Pittsburgh."
Oltmanns provided a November report by Lehman Brothers, calling Majestic Star the "best long-term buy in the gaming universe." Despite the company's losses, the analysts cited the value of its Indiana casino boats' dock and a high rate of return for investors.
Cleveland-based Forest City Enterprises, which wanted to open a casino at Station Square, raised concerns this month about Majestic Star's track record when it appealed the state Gaming Control Board's decision to give Barden the license.
Forest City said Majestic Star has "significant vulnerability to default" and "has not exhibited the ability to grow revenue, net income, free cash flow or retained earnings." In Indiana, where the gambling market has been growing, Majestic Star operates two gambling boats in Gary that have suffered revenue declines, Forest City stated.
Analysts said yesterday they have some concerns about Majestic Star but not its ability to find investors for a Pittsburgh slots parlor.
"They've been struggling a little bit," said Keith Foley, a vice president at Moody's Investor Service.
The bond ratings agency gave Majestic Star a negative outlook in November, saying the company's two Indiana casino boats experienced a 13.5 percent decline while the overall market grew about 5 percent.
Barden's company opened one of the Gary boats in 1996 and bought the second from Trump Indiana in December 2005.
The Majestic Star boats faced competition from a new nearby casino, dealt with road construction, and had less money for marketing, according to a December report by Standard & Poor's. That ratings agency gave Majestic Star a negative outlook and, in January, ranked it among the country's 20 "weakest" gambling, lodging and leisure companies.
Pittsburgh would offer Barden's casino a much more open gambling market with less competition, said Peggy Hebard, a Standard & Poor's associate director, who has tracked Majestic Star but not PITG Gaming.
"The demographics are pretty strong in the Pittsburgh market, particularly compared to the other places (Majestic Star) operates where there are four or five competitors," Hebard said.
