A Run of Bad Luck in Gambling Stocks

IN last summer's declining stock market, the shares of companies that own casinos in Las Vegas rose as high as gamblers' hopes. They have faded just as fast. A combination of boardroom battles, rumors of underworld links and Government investigations, reports TIME Correspondent Roger Beardwood from Las Vegas, have tarnished the investment luster of the gambling industry. The downward slide of casino companies' stocks has left many investors feeling as though they had fed the family fortune into a one-armed bandit.

"Skimming" Profits. The companies' winning streak started shortly after Invisible Billionaire Howard Hughes bought the Desert Inn and the Sands in 1967. Rumors ran through Wall Street: the Strip was becoming respectable. Mob-connected casino operators who had been hounded by the Internal Revenue Service for "skimming" profits before paying their taxes were selling out to a new generation of professional managers. And the new casino owners seemed to be on to a sure thing. Last year, for example, Las Vegas gaming tables took the gamblers for $338 million, 24% more than in 1968. But soon, casino company stocks were doing no better than the gamblers. Some recent performances:

> Parvin/Dohrmann Co., the hotel-equipment supply firm that bought the Aladdin, the Fremont and the Stardust, has seen its stock drop from a 1969 high of 141 1/2-a share to last week's 28 3/8. Last year the Securities and Exchange Commission accused company officials of manipulating the stock and making misleading statements about proposed mergers. For a while, Parvin/ Dohrmann stock was suspended from trading. The SEC claimed that, at the behest of Company Chairman Delbert Coleman, Parvin/Dohrmann had paid Washington influence-peddler Nathan Voloshen $50,000 in a vain attempt to raise the ban. In February, Coleman resigned and trading was resumed. Parvin/ Dohrmann reported a profit of $10.2 million for last year, compared with a $618,000 loss in 1968. Its casinos made all of the money, but company officers said last week that they will change its name to Recrion Corp. because of "the adverse publicity."

> Continental Connector Corp., a mini-conglomerate that bought the Dunes, has experienced a stock drop from last year's high of 83 5/8 to 27 3/8 in mid-December, when the American Stock Exchange halted trading. The ban will be lifted when the company re-certifies its financial statements for the past three years. The SEC accused Continental Connector's management of issuing two proxy statements falsely stating that an audit, which included the Dunes, had been made in accordance with generally accepted accounting principles. As one result, the owners of the Golden Nugget casino have called off merger talks with Continental Connector.

> International Leisure Corp., which is controlled by Millionaire Kirk Kerkorian, bought the Flamingo and built the 1,519-bedroom International Hotel. Earnings more than doubled last year to $6.5 million, but the company's stock plummeted from a 1969 high of 64 to last week's 13 3/4.* Dragged down in part by the dismal image shared by many casino-owning companies, it also had troubles with the SEC. Last year International Leisure needed audited financial statements going back to 1964 for a proposed stock offering. Company officers said that they could not supply the figures because the Flamingo's previous owners had refused to hand them over.

> Levin-Townsend Computer Corp., which owns the Bonanza, has suffered the sharpest decline of all the casino companies--an 87% fall from last year's high of 57 1/2 to last week's 7 1/8 a share. In the last nine months of 1969, the company had a $15.9 million loss. Too small and poorly managed to compete with the giants, the Bonanza has been closed and may be sold. Unless they find a buyer, officials of Levin-Townsend say that they may be unable to pay off some notes held by Kerkorian, the previous Bonanza owner. In that case, they will have to give the casino back to him. Not all of Levin-Townsend's woes result from the gambling business. Its former chief, Howard Levin, was ousted by the board on charges of having made acquisitions without consulting directors (TIME, Feb. 2), and he is waging a proxy fight to return.

> Lum's Inc., a restaurant franchise company, paid $60 million last fall for Caesars Palace; the price of the company's stock tumbled from 26 3/8 last November to last week's 8 1/8. The casino has been doing well, but Lum's other business has not been able to keep up. The company has changed its accounting method. Lum's recorded an 18% fall-off in net income for the six months ended Jan. 31; under the old accounting system, the drop would have been 77%.

> Del E. Webb Corp., the Phoenix-based construction company, owns the Sahara and the Thunderbird among others; its casinos are thriving, though its stock has dropped from 23 5/8 in 1969 to 10 1/4 last week. Contributing to the decline was a scandal that surfaced last month, when a Webb subsidiary sued the estate of a deceased Sahara official for $500,000 that he was alleged to have siphoned out of the casino. Investigations have uncovered evidence of blackmail and possibly murder.

Overlapping Eavesdroppers. Everywhere they look, the public companies see trouble. They face higher labor costs: a 94-hour strike of kitchen workers and bartenders was settled last month for a 31 1/2% rise in wages and fringe benefits over three years. There are also political problems ahead. George Franklin, Clark County district attorney who may run for Governor this year, wants to ban public companies from holding gaming licenses. For one thing, he says, criminals can too easily violate Nevada law by buying into casinos through their local stockbroker. To ensure state control over the casinos, Franklin prefers that public companies rent them out to private operators.

All along the Strip, a small army of investigators--the D.A.'s men, SEC investigators, IRS and FBI agents--are getting in one another's way searching for information on cases ranging from suspected murder to income tax evasion, blackmail, embezzlement and stock fraud. It is probably no coincidence that some hotel and casino officials have left town in a hurry. Pierre P. Mottoros, an analyst with Equity Research Associates, explains the entire situation with deliberate understatement: "I'm afraid that Las Vegas and casinos still have an image that deters conservative money."

* Since their highs of last year, the paper value of Kerkorian's controlling holdings in International Leisure, Western Air Lines and MGM have shrunk by some $497 million to an estimated $147 million. But Kerkorian has never been known to panic at a run of bad luck. He paid only $4 each for his 5.4 million shares of International Leisure, and even after a 79% drop in market value, he is still nearly $73 million ahead.

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