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TWST: Todd, has the return on investment fallen significantly in this industry?

Mr. Jordan: Absolutely. It was evident in the latest round of openings in Las Vegas over the past two and a half years, where Paris had the highest return on investment, somewhere in the mid-teens, while the other new properties had low double- digit, high single- digit returns. Contrast these ROIs with the historical 20 % plus returns and one should think twice about building in Las Vegas right now. I think the problem is not so much the level of EBITDA they’re generating, but the investment cost. The bar has been raised so high that it’s difficult to make a good return. And if you’re going to build a new property in Vegas, you’re going to want something that is going to outdo the previous resorts. Translation: you are going to have to spend a lot of money. That should really impede new construction in Vegas. It’s interesting to note that the high level of capital put into Las Vegas has really driven demand, but because the returns are so low it has actually hurt the companies that built the properties although it has helped everyone else. One metric that we haven’t talked a lot about yet is RevPAR. I think Mike touched upon how new properties drive new demand into Las Vegas. The overall RevPAR in Las Vegas exploded after these new properties opened, starting with Bellagio in 1998. Vegas RevPAR in 1999 increased something like 7 %. In 2000 RevPAR grew 12 %. However, if you go back to periods where there has been no supply, the RevPAR growth was anemic.

TWST: Todd, what will drive the gaming stocks through 2001, 2002? Is there any likelihood that further consolidation could act as a catalyst for the stocks?

Mr. Jordan: I don’t believe consolidation will be a major catalyst for 2001 because I don’t think we’ll see the blockbuster-type transactions, like an MGM Grand/Mirage type transaction. However, there will likely be a change in the goodwill amortization rule that will make acquisitions much more accretive. Since public companies are always afraid of dilution and how their shareholders and the market will react to a dilutive transaction, certain value-enhancing transactions may have been put off in the past. Now it is going to be very easy for these companies, given their low cost of capital in the debt markets, to make accretive transactions. I don’t know whether or not these smaller acquisitions will act as catalysts because, as I said, I don’t think we’ll see huge blockbuster transactions among the big four.

TWST: What would you do with IGT today, Todd?

Mr. Jordan: IGT (NYSE:IGT) has been under significant pressure over the last three days. Actually over the last week it’s come off from mid-$50s down to I think it was around $47 when I left the office today. It looks expensive on a valuation basis, but given the pullback and what I see as strong fundamentals for at least the next two quarters, I think the stock could run back to that mid-$50 level. I believe they are going to beat estimates over the near term and be very positive about their outlook here for the rest of 2001. We currently rate the stock as an Add. Longer term I’m concerned with the drop-off in growth from 2001 to 2002 for reasons that I discussed before, the main one being California and the difficulty of replacing California sales in 2002 from 2001. From that respect, I think as investors start to discount that lack of growth, they may not want to own IGT into 2002, depending of course on where the valuation is at that time.