THE NEW YORK TIMES,
`
`TUESDAY, OCTOBER 15, 1985
`
`D5
`
`A Low Roller’s High-Stakes Gamble
`
`fresh enthusiasm, arguing that Atlan-
`tic City’s potential has yet
`to be
`tapped. Their Las Vegas casinois not
`in prime real estate and still makes
`money, they say. And, they are confi-
`dent that their fixed-price contract
`will protect them against cost over-
`runs.
`“We thought long and hard about
`coming to Atlantic City,’ said Mr.
`Modica, who supervises the project
`from a cluttered office. ‘‘Wefelt there
`was no risk, if we put together are
`own team. We are confident of our-
`selves and what we are doing.”
`Showboat executives may be confi-
`dent, but they have never faced a
`
`challengelike this before. ‘‘This will
`test Showboat’s management capa-
`bility,’’ said Saul F. Leonard, a gam-
`bling analyst for Laventho!l & Hor-
`wath. “It’s much larger than any-
`thing they’ve handled before. But the
`people running it have extensive ex-
`perience and nothing leads meto be-
`lieve they can’t extend it to a larger
`operation.”’
`Right now, all eyes are on the pace
`— and the price — of Showboat’s con-
`struction. Costs have already risen
`slightly, to $215 million from an initial
`price of $200 million, due to higher-
`than-anticipated taxes and design
`changes mandated by government
`
`regulations.
`The project is financed by a $130
`million construction loan from a
`group of New Jersey banks, a $30 mil-
`lion credit line from a Nevada bank
`and the proceedsof a recent $57 mil-
`lion stock and bondoffering. Land for
`the project is being leased from Re-
`sorts International. The construction
`loan is at two percentage points above
`prime.
`Showboat executives are confident
`the fixed-price contract is ample in-
`surance against cost overruns and
`note thatthe builder faces stiff penal-
`ties if
`the project
`falls behind its
`December1986 opening date. ‘‘We’re
`as secure as you can become,”’ said
`G. Clifford Taylor Jr., Showboat’s fi-
`nance vice president.
`But manySay thereis no such thing
`
`as a fixed-price contract in Atlantic
`City. Any design change — for in-
`stance,if the state requires more se.
`curity systemsthan initially planned
`— can open the whole project up for
`rebidding. In addition, analysts say
`that mostcost overruns do not appear
`at the outset of the project, but rather
`in the last phases of construction.
`“Showboat
`is naive,’’ Mr.
`Isgur
`said. “If the state says something’s
`got to be moved, suddenly a fixed-
`price contract goes out the window.”
`Added Drexel’s Mr. Lee: ‘My guess
`is that the project will not come in on
`budget and that Showboatwill really
`have to scramble to find additional
`money. You could wind up with an-
`other empty superstructure along the
`Boardwalk.”
`And it may not be easyto find new
`
`partners, given Atlantic City’s woes,
`and Showboat may be unable to at-
`tract enough money to finish. Or, it
`could be forced to give away so much
`equity that the project will yield only
`minimal returns.
`Investors already have shown some
`skepticism. Showboat had planned to
`issue some 1.25 million shares at $15 a
`share last October. But,
`investor
`reaction was lukewarm and the com-
`Pany was able to sell only 900,000
`shares at $13 a share.
`Noneof that skepticism has seeped
`into Showboat’s executive offices.
`“All we need is our fair share of the
`market for it to be super for us,”’ Mr.
`Modica said.
`‘“‘The casino doesn't
`haveto be extraordinary to be good.
`Andif it’s better than that, it would be
`wonderful.”’
`
`Continued From First Business Page
`ing glamorous. It plans to stick with
`its formula of extending little credit,
`shunning big-name
`entertainment
`and Cultivating slot machineplayers,
`who provide 75 percent of the compa-
`ny’s revenues.
`If successful, Showboat'’s share.
`holders could win big. Since Showboat
`has only five million shares outstand-
`ing, analysts estimate the company’s
`earnings could zoom to $5 a share
`from the current $1 a share, even if
`the casino is only modestly success-
`ful.
`Visions of another Resorts Interna-
`tional or Golden Nugget dancein the
`heads of both Showboat executives
`and investors. Both were small gam-
`bling houses — about the samesize as
`Showboatis today — that skyrocketed
`to the top of the industry after open-
`ing Atlantic City casinos. Resorts’
`earnings increased twentyfold in the
`first year of its Atlantic City opera-
`tion,
`the city’s
`first casino, and
`Golden Nugget’s
`revenues tripled
`from its Atlantic City investment.
`The Gamble
`‘‘Showboat's bitten off a great
`deal,’’ said Mark Manson,an analyst
`with Donaldson, Lufkin & Jenrette,
`the company’s investment banker.
`‘But there are few situations where
`the proportional gain is as large as
`with Showboat's stock,
`if things go
`right.”
`Thatis a big if. The flip side, how-
`ever,
`is bleak. Should construction
`costs soar or the casino open behind
`schedule, the debt could strain Show-
`boat
`to the breaking point: “They
`could have to sell the company or go
`into bankruptcy,’’ Mr.
`Isgur said.
`Adding more risk is the fact that
`Showboat, which has operated in Las
`Vegas for
`three decades,
`is not
`licensed in New Jersey. And the deci-
`sion last March to denyalicense to
`the Hilton Hotels Corporation,after it
`hadbuilt a $300 million casino, shows
`that even the best-known companies
`in the business can be rebuffed.
`Showboat’s Las Vegas operation is
`hardly the flashiest. Its big drawis its
`106-lane bowling center, the second
`largest in the world. It is not even on
`Las Vegas’s famed Strip, but is sev-
`eral miles away near a shopping
`malt. The company wasstarted by a
`smali group of Las Vegas business-
`men, andits chief executive, Joseph
`H. Kelley, rarely leaves Las Vegas
`and has delegated the Atlantic City
`project to others in the company. In-
`siders own 32 percent of the company,
`institutions another 20 percent.
`The company has neverbuilt any-
`thing close to the size of Ocean Show-
`boat, the only casino now under con-
`struction in Atlantic City. Yetit is un-
`dertaking a huge project — without
`any partners — in a city notorious for
`cost overruns and where such experi-
`enced developers as Donald Trump
`and Hilton have suffered multimil-
`lion-dollar cost increases. Few casi-
`nos have been spared: The Golden
`Nugget, Caesars Atlantic City and
`The Sands Hotel and Casino all came
`in signficantly sver budget. And the
`specter of the Tropicana Hotel and
`Casino looms over all. That project
`swelled to $330 million from $130 mil-
`lion before it was finished in 1981,
`nearly
` bankrupting
`its
`owner,
`Ramada Inns Inc.
`Revenues Flat
`Atlantic City itself has been under
`pressure as
`revenue growth has
`plummeted from the stratospheric
`levels of seven years ago when the
`first gaming houses opened. The
`revenue slowdown is expected to con-
`tinue. September revenues are flat
`from a year earlier and some houses
`are likely to report losses this winter.
`Casino operating costs are rising,
`while capacity is full, makingit diffi-
`cult for casinos to find new funds to
`cover rising expenses.
`A proposed convention center is
`still on the drawing boards. Hotel
`rooms are in short supply, making the
`city unattractive to gamblers living
`outside the New York and Philadel-
`phia markets. There is no scheduled
`rail service, no scheduled commer-
`cial jet service, and Atlantic City re-
`mains mainly a day-trip market. Air-
`lines say they will continue to stay
`away until more hotel
`rooms are
`built, while casino operators say jet
`service is needed to justify hotel ex-
`pansion. More fundamentally,
`the
`promise of a gambling-induced econ-
`mic boom has yet to become evident
`on the city’s dismal streets.
`And Qcean Showboat has its own
`unique problems. It is situated at the
`most distant, and least desirable, end
`of the Boardwalk. Accessibility from
`the area’s highways is poor; gam-
`blers must drive past nearly all other
`casinos to reach it. The much-dis-
`cussed convention center was to be
`built next door, but now has been relo-
`cated several miles away.
`Yet Showboat executives have a
`
`-
`
`All brokers are not created
`equal.
`We know that. We train our
`Account Executivesfor a long-
`lasting relationship rather than a
`briefand unrewarding one.
`That’s why, according to
`Business Week, “...Experts say
`E.F Huttonhasset the industry
`standard in advancedtraining”
`Hutton Account Executives
`also have the support of a broker-
`age firm with over $1 billion in
`capital, anda full range ofprod-
`ucts andservices to fulfill vir
`tually any client need.
`But perhaps most important,
`E.F Hutton Account Executives
`know that the most successful
`way to do businessis through
`valued, long-term client relation-
`ships. If that’s the kind ofbroker
`you've been looking for, call your
`local E.F Hutton Officeorcall
`1-800-EFH-2626 for more
`information.
`
`
`nen iE Hutton tal
`people
`listem.
`
`
`NNYT10155R Z.00
`
`Member SIPC”
`
`EX-1016 PGR2024-00035
`
`various Columbus locations.
`
`Coca-Cola Test
`Of Plastic Cans
`
`ATLANTA, Oct. 14 (AP) —
`Coca-Cola U.S.A. said today
`that it will begin testing a plas-
`lic soft-drink can this week in
`Columbus, Ga.
`The announcementsaid plas-
`tic cans of Coca-Cola, Coca-
`Cola Classic, Diet Coke and
`Sprite would be delivered to se-
`lected food stores.
`It said no
`other soft drink in the United
`States is sold ina plastic can.
`Dan Haas, packaging man-
`ager for Coca-Cola U.S.A., said
`in a statement that use of the
`plastic can ‘‘is a market test,
`and we have made no firm
`decision on the long-term com-
`mercial application of the can
`in the soft-drink market."
`An important aspect of the
`test will be to study collection
`methods for recycling the plas-
`tic cans,
`the company said.
`Vending machinesthat collect,
`crush and pay consumers for
`retumed plastic cans will be at
`
`EX-1016 PGR2024-00035
`
`
`
`TUESDAY, OCTOBER 15, 1985
`
`D5
`
`A Low Roller’s High-Stakes Gamble
`
`fresh enthusiasm, arguing that Atlan-
`tic City’s potential has yet
`to be
`tapped. Their Las Vegas casinois not
`in prime real estate and still makes
`money, they say. And, they are confi-
`dent that their fixed-price contract
`will protect them against cost over-
`runs.
`“We thought long and hard about
`coming to Atlantic City,’ said Mr.
`Modica, who supervises the project
`from a cluttered office. ‘‘Wefelt there
`was no risk, if we put together are
`own team. We are confident of our-
`selves and what we are doing.”
`Showboat executives may be confi-
`dent, but they have never faced a
`
`challengelike this before. ‘‘This will
`test Showboat’s management capa-
`bility,’’ said Saul F. Leonard, a gam-
`bling analyst for Laventho!l & Hor-
`wath. “It’s much larger than any-
`thing they’ve handled before. But the
`people running it have extensive ex-
`perience and nothing leads meto be-
`lieve they can’t extend it to a larger
`operation.”’
`Right now, all eyes are on the pace
`— and the price — of Showboat’s con-
`struction. Costs have already risen
`slightly, to $215 million from an initial
`price of $200 million, due to higher-
`than-anticipated taxes and design
`changes mandated by government
`
`regulations.
`The project is financed by a $130
`million construction loan from a
`group of New Jersey banks, a $30 mil-
`lion credit line from a Nevada bank
`and the proceedsof a recent $57 mil-
`lion stock and bondoffering. Land for
`the project is being leased from Re-
`sorts International. The construction
`loan is at two percentage points above
`prime.
`Showboat executives are confident
`the fixed-price contract is ample in-
`surance against cost overruns and
`note thatthe builder faces stiff penal-
`ties if
`the project
`falls behind its
`December1986 opening date. ‘‘We’re
`as secure as you can become,”’ said
`G. Clifford Taylor Jr., Showboat’s fi-
`nance vice president.
`But manySay thereis no such thing
`
`as a fixed-price contract in Atlantic
`City. Any design change — for in-
`stance,if the state requires more se.
`curity systemsthan initially planned
`— can open the whole project up for
`rebidding. In addition, analysts say
`that mostcost overruns do not appear
`at the outset of the project, but rather
`in the last phases of construction.
`“Showboat
`is naive,’’ Mr.
`Isgur
`said. “If the state says something’s
`got to be moved, suddenly a fixed-
`price contract goes out the window.”
`Added Drexel’s Mr. Lee: ‘My guess
`is that the project will not come in on
`budget and that Showboatwill really
`have to scramble to find additional
`money. You could wind up with an-
`other empty superstructure along the
`Boardwalk.”
`And it may not be easyto find new
`
`partners, given Atlantic City’s woes,
`and Showboat may be unable to at-
`tract enough money to finish. Or, it
`could be forced to give away so much
`equity that the project will yield only
`minimal returns.
`Investors already have shown some
`skepticism. Showboat had planned to
`issue some 1.25 million shares at $15 a
`share last October. But,
`investor
`reaction was lukewarm and the com-
`Pany was able to sell only 900,000
`shares at $13 a share.
`Noneof that skepticism has seeped
`into Showboat’s executive offices.
`“All we need is our fair share of the
`market for it to be super for us,”’ Mr.
`Modica said.
`‘“‘The casino doesn't
`haveto be extraordinary to be good.
`Andif it’s better than that, it would be
`wonderful.”’
`
`Continued From First Business Page
`ing glamorous. It plans to stick with
`its formula of extending little credit,
`shunning big-name
`entertainment
`and Cultivating slot machineplayers,
`who provide 75 percent of the compa-
`ny’s revenues.
`If successful, Showboat'’s share.
`holders could win big. Since Showboat
`has only five million shares outstand-
`ing, analysts estimate the company’s
`earnings could zoom to $5 a share
`from the current $1 a share, even if
`the casino is only modestly success-
`ful.
`Visions of another Resorts Interna-
`tional or Golden Nugget dancein the
`heads of both Showboat executives
`and investors. Both were small gam-
`bling houses — about the samesize as
`Showboatis today — that skyrocketed
`to the top of the industry after open-
`ing Atlantic City casinos. Resorts’
`earnings increased twentyfold in the
`first year of its Atlantic City opera-
`tion,
`the city’s
`first casino, and
`Golden Nugget’s
`revenues tripled
`from its Atlantic City investment.
`The Gamble
`‘‘Showboat's bitten off a great
`deal,’’ said Mark Manson,an analyst
`with Donaldson, Lufkin & Jenrette,
`the company’s investment banker.
`‘But there are few situations where
`the proportional gain is as large as
`with Showboat's stock,
`if things go
`right.”
`Thatis a big if. The flip side, how-
`ever,
`is bleak. Should construction
`costs soar or the casino open behind
`schedule, the debt could strain Show-
`boat
`to the breaking point: “They
`could have to sell the company or go
`into bankruptcy,’’ Mr.
`Isgur said.
`Adding more risk is the fact that
`Showboat, which has operated in Las
`Vegas for
`three decades,
`is not
`licensed in New Jersey. And the deci-
`sion last March to denyalicense to
`the Hilton Hotels Corporation,after it
`hadbuilt a $300 million casino, shows
`that even the best-known companies
`in the business can be rebuffed.
`Showboat’s Las Vegas operation is
`hardly the flashiest. Its big drawis its
`106-lane bowling center, the second
`largest in the world. It is not even on
`Las Vegas’s famed Strip, but is sev-
`eral miles away near a shopping
`malt. The company wasstarted by a
`smali group of Las Vegas business-
`men, andits chief executive, Joseph
`H. Kelley, rarely leaves Las Vegas
`and has delegated the Atlantic City
`project to others in the company. In-
`siders own 32 percent of the company,
`institutions another 20 percent.
`The company has neverbuilt any-
`thing close to the size of Ocean Show-
`boat, the only casino now under con-
`struction in Atlantic City. Yetit is un-
`dertaking a huge project — without
`any partners — in a city notorious for
`cost overruns and where such experi-
`enced developers as Donald Trump
`and Hilton have suffered multimil-
`lion-dollar cost increases. Few casi-
`nos have been spared: The Golden
`Nugget, Caesars Atlantic City and
`The Sands Hotel and Casino all came
`in signficantly sver budget. And the
`specter of the Tropicana Hotel and
`Casino looms over all. That project
`swelled to $330 million from $130 mil-
`lion before it was finished in 1981,
`nearly
` bankrupting
`its
`owner,
`Ramada Inns Inc.
`Revenues Flat
`Atlantic City itself has been under
`pressure as
`revenue growth has
`plummeted from the stratospheric
`levels of seven years ago when the
`first gaming houses opened. The
`revenue slowdown is expected to con-
`tinue. September revenues are flat
`from a year earlier and some houses
`are likely to report losses this winter.
`Casino operating costs are rising,
`while capacity is full, makingit diffi-
`cult for casinos to find new funds to
`cover rising expenses.
`A proposed convention center is
`still on the drawing boards. Hotel
`rooms are in short supply, making the
`city unattractive to gamblers living
`outside the New York and Philadel-
`phia markets. There is no scheduled
`rail service, no scheduled commer-
`cial jet service, and Atlantic City re-
`mains mainly a day-trip market. Air-
`lines say they will continue to stay
`away until more hotel
`rooms are
`built, while casino operators say jet
`service is needed to justify hotel ex-
`pansion. More fundamentally,
`the
`promise of a gambling-induced econ-
`mic boom has yet to become evident
`on the city’s dismal streets.
`And Qcean Showboat has its own
`unique problems. It is situated at the
`most distant, and least desirable, end
`of the Boardwalk. Accessibility from
`the area’s highways is poor; gam-
`blers must drive past nearly all other
`casinos to reach it. The much-dis-
`cussed convention center was to be
`built next door, but now has been relo-
`cated several miles away.
`Yet Showboat executives have a
`
`-
`
`All brokers are not created
`equal.
`We know that. We train our
`Account Executivesfor a long-
`lasting relationship rather than a
`briefand unrewarding one.
`That’s why, according to
`Business Week, “...Experts say
`E.F Huttonhasset the industry
`standard in advancedtraining”
`Hutton Account Executives
`also have the support of a broker-
`age firm with over $1 billion in
`capital, anda full range ofprod-
`ucts andservices to fulfill vir
`tually any client need.
`But perhaps most important,
`E.F Hutton Account Executives
`know that the most successful
`way to do businessis through
`valued, long-term client relation-
`ships. If that’s the kind ofbroker
`you've been looking for, call your
`local E.F Hutton Officeorcall
`1-800-EFH-2626 for more
`information.
`
`
`nen iE Hutton tal
`people
`listem.
`
`
`NNYT10155R Z.00
`
`Member SIPC”
`
`EX-1016 PGR2024-00035
`
`various Columbus locations.
`
`Coca-Cola Test
`Of Plastic Cans
`
`ATLANTA, Oct. 14 (AP) —
`Coca-Cola U.S.A. said today
`that it will begin testing a plas-
`lic soft-drink can this week in
`Columbus, Ga.
`The announcementsaid plas-
`tic cans of Coca-Cola, Coca-
`Cola Classic, Diet Coke and
`Sprite would be delivered to se-
`lected food stores.
`It said no
`other soft drink in the United
`States is sold ina plastic can.
`Dan Haas, packaging man-
`ager for Coca-Cola U.S.A., said
`in a statement that use of the
`plastic can ‘‘is a market test,
`and we have made no firm
`decision on the long-term com-
`mercial application of the can
`in the soft-drink market."
`An important aspect of the
`test will be to study collection
`methods for recycling the plas-
`tic cans,
`the company said.
`Vending machinesthat collect,
`crush and pay consumers for
`retumed plastic cans will be at
`
`EX-1016 PGR2024-00035
`
`
`
`Also Available at:
`
`https://www.nytimes.com/1985/10/15/business/coca-cola-test-of-plastic-cans.html
`
`EX-1016 PGR2024-00035
`
`
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