The $15 billion offer to buy Harrah’s Entertainment, the largest casino operator in the world, will probably trigger renewed activity in the US’s $75 billion dollar gaming market.
“The announcement ignited speculation that the United States gambling business, whose ticket of regulations has traditionally kept investment firms at bay, could attract more such proposals,” wrote The New York Times.
Apollo Management and the Texas Pacific Group proposed the buyout of Harrah’s, which the entertainment giant said it is studying.
“If the deal goes through, Farrell said it could trigger a merger-and-acquisition trend in the gaming industry,” Dennis Farrell of Wachovia High Yield Research, told the Las Vegas Review-Journal-McClatchy-Tribune Business News.
“Gaming is the perfect model for private equity; lots of free cash flow,” he said
Up until several years ago, casino operators were generally not subject to buyouts, in part because of Nevada state regulations requiring anyone with equity in a gambling company to get a license.
In the late 1990s, however, Colony Capital established a new ownership structure that opened the door to private investment.
The economic attractiveness of the highly profitable gambling business has since made it more subject to buying and selling.
The US gambling (gaming) industry today consists of about 500 commercial casinos and 160 Indian casinos, with combined annual revenue close to $75 billion.
Companies with large casino operations include MGM Mirage, Harrah Entertainment, and Mandalay Resort Group.
About $30 billion of annual revenue is taken in by commercial casinos, $20 billion by state lotteries, almost $20 billion by Indian casinos, and the rest by horse racing, bingo, charities, and bookmaking, according to Hotel News Resource.
Most casinos are small, limited by the size of the surrounding population. The industry has become highly concentrated: the top 20 companies hold more than 60 percent of the market, according to media reports.
Meanwhile, at Harrah’s, it’s business as usual and no transaction is expected to be completed for 18 to 24 months.
Report by David Wilkening
