Big Casino on Wall Street

Gambling stocks yield quick wins and many worries

Not in years had Wall Street investors seen anything quite like the market's current high-rolling fad: gambling on gambling. All summer long, shares in companies that operate casinos--and many other outfits only remotely or even mistakenly associated with them--have been soaring higher than a Vegas showgirl's kicks. As the Labor Day holiday approached, the speculation became so frantic that for a time it seemed the gambling bubble was about to burst. But last week gaming issues bounced back strongly.

The prime mover was Resorts International, which set off the gambling stock boom by opening the first (and so far only) casino in Atlantic City, N.J., in May. This time, the Florida-based firm's big news was that its boardwalk betting palace had grossed $60 million in its first three months, about triple the revenues of the largest Las Vegas casinos.

Resorts' Class A stock rose $13 in four days on the American Exchange, closing at a high of $123.50. That was a 560% increase since Jan. 1. Not bad for a company that has never paid a cash dividend. Resorts will soon split 3 for 1, and it is scarcely the only big winner. Some others, with their rises from April through August: Caesars World, 583%; Playboy, 351%; Bally, 283%; Del Webb, 281%; and Harrah's, 213%.

To send its stock flying, all a company has to do is hint that it might get into gambling. Shares of Ramada Inns, which is merely rumored to be interested in diversifying into gaming, have risen 267% this year. Reflecting the market's irrationality as well as its volatility, Wurlitzer, the jukebox producer, climbed several points after announcing that it was not expanding into slot machines. Though worried by the jumpiness of the stocks, the New York and American exchanges had been reluctant to do anything that might spoil the action that is profitably increasing volume and enticing people into the market. But the speculation turned even wilder last month after a bullish report by Merrill Lynch cited the gambling industry's "potential to be one of the high growth segments of the economy during the next five years."

Finally the exchanges moved, lifting the initial margin requirements for gambling issues from 50% to 75%--meaning that buyers would have to put up at least $750 for every $1,000 stock purchase. The Big Board said it was acting "to insure the protection of public investors and the maintenance of a fair and orderly market." One firm, A.G. Becker of Chicago, banned all credit on five particularly jittery stocks. These moves depressed the gaming issues, but not for long. Indeed, the gambling-stock rebound last week helped spark a broad market rally. The Dow Jones industrial average rose 28 points, closing at 908.

The rush to gambling stocks is not likely to slow soon. Already negotiating or planning to open casinos in Atlantic City are Caesars World, Playboy Enterprises and Bob Guccione, owner of Penthouse. Despite strong suspicions, so far unproved, of underworld ties to the gambling industry, other states are following New Jersey's lead. A referendum that would legalize casino gambling in fading Miami will be on the ballot this fall in Florida. New York State voters may be asked to approve a similar measure next year.

Brokers are sharply divided on the merits of the gambling mania. Some regard it as a welcome sign that the small investor is at last returning to the market. Many more would agree with E.F. Hutton Vice President Anthony Correra, who warns that gambling stocks "have run up too far, too fast. We think traders should sell and take their profits while they can." That is what the smart money may have been doing. In June, Securities and Exchange Commission records show, Resorts officers sold 24,800 shares in their own company, which were then valued at $1.87 million. .

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