Casino City Newsletter: Issue 272\Volume 5 Page 1



Issue 272	November 28 - December 2, 2005	Volume 5	page 1

This Issue

Gaming News

Court's latest patent ruling not rewarding for Harrah's

Landry's pitches $400 million Mississippi hotel-casino

Three casinos set dates for reopening on Mississippi Gulf Coast

Virgin launches a casino poker website

Group aims to block sale of terminal to Senecas

Show Time Kelly Clarkson will be at the Aladdin Theatre for the Performing Arts.

Column The Secrets of Controlled Betting By Larry Edell

Check out our entertainment highlights & upcoming tournaments

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Court's latest patent ruling not rewarding for Harrah's

As reported by Las Vegas Sun

LAS VEGAS, Nevada - Hundreds of thousands of people in Las Vegas carry a card in their wallets that allows them to get free buffets, show tickets and other perks.

It's called a "Boarding Pass" and is offered by Station Casinos, which owns the majority of big local casinos across town. The company uses the card to track how much and how frequently its customers gamble.

It's a powerful marketing tool that has been the subject of an expensive, behind-the-scenes legal battle between Station and Harrah's Entertainment that may be winding down after a federal appeals court ruled in Station's favor last week.

Harrah's sued Station in federal court in July 2001, claiming that Station's Boarding Pass slot club infringed on three patents held by Harrah's. The world's largest casino company, Harrah's has its own player tracking system called "Total Rewards."

The Total Rewards card boasts the largest membership in the casino business. With the company's acquisition of Caesars Entertainment last summer, Harrah's now has close to 40 million names in its Total Rewards database.

More than any other casino company, Harrah's credits its slot club for accelerating profit growth by keeping its customers coming back to Harrah's properties instead of the competition.

In patents filed with the U.S. Patent and Trademark Office, Harrah's claims to be the first to offer a loyalty program that allows gamblers to rack up points across several casinos. Such programs have since been adopted by Station Casinos as well as many other casino companies in Las Vegas and beyond.

The legal dispute has significant consequences for the industry. A victory against Station might have fueled future lawsuits against other casino companies with slot clubs, putting those programs in jeopardy. Instead, Harrah's may now be less likely to sue competitors with similar programs.

On Nov. 15, the 9th U.S. Circuit Court of Appeals affirmed an earlier federal court ruling finding that patents governing the Total Rewards gambler loyalty program can't be enforced against Station in court. The appeals court did not issue an opinion explaining its decision.

In May 2004, U.S. District Judge David Ezra ruled in Station's favor, invalidating two of the three patents at issue. In August 2004, the court declared the third Harrah's patent invalid, resolving the remainder of the claims. Harrah's appealed the ruling in September 2004.

Ezra ruled that the Harrah's patents are invalid and unenforceable because they are too vague and lack an "adequate written description of the claimed subject matter."

Harrah's spokesman David Strow said the company hasn't yet seen the latest appeals court decision, adding that it would be "premature" to comment on it.

Harrah's can push for a rehearing before the appeals court or appeal the decision to the U.S. Supreme Court.

One industry insider who doesn't work for either company suspects Harrah's will drop the matter and move on.

"Things have changed," said the source, who declined to be named. "The cat is already out of the bag. Everybody's got a (player-tracking system). And Harrah's has proven that they can still dominate the market with their (slot club)."

Station spokeswoman Lori Nelson said the latest court victory won't change things much for the company or its customers.

"It's business as usual for our Boarding Pass program," Nelson said. Station will continue to offer the program as it has during the litigation, she said.

Patent disputes turn on specifics, said Rob Phillips, a patent attorney with Greenberg Traurig in Las Vegas, who was not involved in the case.

"Subtle differences between two player-tracking systems can mean the difference between infringement and noninfringement," said Phillips, who has represented gaming companies in disputes over player-tracking systems.

"Harrah's would need to evaluate the other player-tracking systems in view of its patents on a case-by-case basis to determine whether it was sensible to bring a lawsuit," he said.

Neither Station nor Harrah's were the first to offer a slot club allowing customers to gamble at one casino and redeem points at another property, said Jeffrey Compton, a Las Vegas-based gaming consultant and slot club expert.

"Both of them took a similar idea but did different things with it," Compton said. Each program has its own advantages and disadvantages, though both use direct mail as an effective way to reach customers, he said.

Harrah's Total Rewards has probably been the most effective slot club on a national level, Compton said. Harrah's was the first to aggressively market its slot club as part of a bigger effort to brand the company, he said.

On a local basis, however, Station's slot club "is by far the most effective," he said.

Landry's pitches $400 million Mississippi hotel-casino

As reported by Gaming Wire

BILOXI, Mississippi - The recent buyers of the Golden Nugget have made a pitch to bring the casino brand to Biloxi, Mississippi, in an effort to rebuild the hurricane-ravaged Gulf Coast casino community.

Houston-based Landry's Restaurants, which acquired the downtown and Laughlin Golden Nugget casinos in September for $345 million, pitched a $400 million hotel-casino complex to the Biloxi City Council this week.

The waterfront attraction, dubbed Biloxi Boardwalk, would include a Golden Nugget-style casino and would be on 18 acres north of Highway 90 in the Point Cadet area on Biloxi's eastern edge. The land is near the destroyed Highway 90 bridge that connects Biloxi with Ocean Springs.

Hurricane Katrina demolished 13 casinos along the Mississippi Gulf Coast on August 29, nine of which were in Biloxi. Last year, Gulf Coast casinos collected $1.2 billion in gaming revenue and Mississippi is losing $500,000 a day in state and local taxes while the gambling halls remain shuttered.

Three casinos, the Imperial Palace, Isle of Capri and the Palace, have announced plans to reopen next month.

The Landry's project is conceptual, however, because Isle of Capri has the first option rights for the parcel, which is partly owned by the city.

"It's preliminary, but we absolutely love the Biloxi area and the Gulf Coast and we want to help in the rebuilding," Jeff Cantwell, Landry's senior vice president of development, said Wednesday.

"This was one of the main reasons we purchased the Golden Nugget brand," Cantwell said. "We think this casino concept would be a natural fit with the Biloxi market."

Isle of Capri spokeswoman Jill Haynes said the company is focusing on reopening its destroyed Biloxi casino by New Year's and hasn't explored developing the parcel.

After the hurricane, Mississippi lawmakers changed gaming regulations to allow the Gulf Coast casinos to rebuild off water and on land 800 feet from the shore. Isle of Capri is converting its convention area into a 35,000-square-foot temporary casino while it plans a permanent land-based gambling area.

Landry's officials told city leaders its proposed project would be similar to the company's amusement attractions in Houston and Galveston, Texas. In addition to a 60,000 square-foot Golden Nugget casino, the company proposed 600 hotel rooms and a marina for 100 boats. Also, Landry's said it would build a 150-foot-tall Ferris wheel, thrill rides, an aquarium and restaurants.

"We think Biloxi is going to come back bigger and better," Cantwell said. "We had some discussions with the mayor and local officials, and they wanted us to make a presentation to the city council."

Landry's, which operates 300 restaurants operating under 28 brands in 36 states, lost one of its signature Landry's restaurants in Biloxi along Highway 90 to the hurricane.

Cantwell said the company has a $400 million credit line that would enable the casino development in Biloxi.

Biloxi Mayor A.J. Holloway told the Biloxi Sun-Herald that he expects Isle of Capri to also bid on the land.

"We'll be negotiating with them at the same time we'll be negotiating with Golden Nugget," Holloway said.

Before Hurricane Katrina, the 10 acres of city land was used as a farmers' market, parking lot and seafood museum. The rest of the parcel is owned privately by residents and businesses. Almost all the homes on Point Cadet, an older residential community, were destroyed by the hurricane.

Las Vegas-based Ameristar Casinos had considered building a casino on the site earlier this year, but passed on the opportunity.

Deutsche Bank gaming analyst Marc Falcone said he expects other gaming companies to explore opportunities in the Gulf Coast. Several of the previous Mississippi casino operators have not made commitments to rebuild.

"We anticipate that this pitch could be the first of many potential new proposals to enter the Biloxi-Gulfport market," Falcone said in a note to investors. "However, it remains uncertain how many of these projects will proceed. The final competitive environment, area reconstruction, and demand remains uncertain."

Since buying the two Golden Nuggets, Landry's has been remodeling portions of the 1,900-room downtown casino, adding two of its signature restaurants, Vic and Anthony's and Grotto. At the 300-room Golden Nugget Laughlin, Landry's is adding two restaurants, Joe's Crab Shack and Saltgrass Steak House, and a second hotel tower.

"We believe that expanding the Golden Nugget footprint beyond Southern Nevada was part of Landry's initial strategy when it acquired the brand," Falcone said.