This sector overview, written by Tourism and Leisure analyst Jenny Owen, recommends a more defensive outlook towards the listed stocks, due to a spending slowdown from the GST and Olympics.

"Spending trends on leisure and entertainment indicate a slowdown, attributed to the introduction of GST, and competition from the Olympic games in September for discretionary spending," wrote Ms Owen.

"GST has increased the cost of most forms of leisure and entertainment spending, other than gaming.

"This, plus the weak exchange rate, the emergence of a recovery in Asia, increased interest rates and oil prices, and the Olympics could slice discretionary spending on traditional forms of entertainment and leisure by $730 million or 3.2% of the total amount spent by Australians in FY00 on recreation and culture."

Reporting season concluded with few surprises from the major stocks, although an interesting trend was the strong performance of the major casinos. Sky City, owners of the New Zealand casino and more recently the Adelaide casino, was rated as the top performer, with Melbourne's Crown Casino the "most improved".

"The most notable feature in the gaming sector for FY00 was that all of the listed casinos participating the international premium play market reported above-theoretical win in this segment," the report explained.

Turnover is estimated at $32 billion for the five major casinos, with Crown taking around 50%, and Star City, Jupiters' two properties, and Burswood accounting for around $5 billion each.

Crown has the largest reach of the casino groups, operating seven overseas marketing offices. Their acquisition of an exclusive membership of the Capital Golf Course at 30 July for $36 million signals their intention to continue to be the premium destination for International commission business in the region.

Tabcorp, who own Star City, have decided to focus on junket operators and away from premium players, with a view to lowering the volatility by attracting higher volume of patronage but with smaller minimum bets than is the case for individual high stakes players. Conversely, Burswood's new MD, John Schaap, is intending to focus more heavily on individual high stakes players rather than junket operators, in order to lower the cost of attracting turnover in this segment.

Jupiters, who own AWA Keno and Technology Services, Centrebet and Gaming operations, will redevelop their hotel and casino on the Gold Coast beginning June 2001. Capital expenditure is budgeted at $84 million, and is due to be completed in June 2003. According to the report, some softness in spending on slots is being attributed to the introduction of the GST, and uncertainty relating to this. Jupiters anticipate a pickup in demand as a result of post-Olympic tourism to the Gold Coast.

TAB Limited is the only listed stock that Smith Salomon Barney recommend as a buy. They are in the process of rationalizing their existing operations, which will include branch closures, direct provision of on-course totalisator services, commission changes, and removal of printing costs. The Central Monitoring System and Links will be operation in the second half of the current fiscal year. TAB are also continuing to negotiate with other international racing bodies and telecasters to establish a 24 hour racing channel.

Tabcorp reported growth from all three of their divisions. Wagering was largely through increased cost cutting, gaming from ongoing growth in per machine spending in Victoria, and the Star City casino, which added $30 million to profit before tax for the 8.5 months ownership period. Main gaming floor revenues grew by 7%, with slot machines only up 4.7%. Slot replacement was initiated to address the weakness in this area. Tabcorp have targeted net machine revenue of $500 per day for slots at Star City, compared to the average of $296 per day in FY00. They are also committed to the commission part of the business and ran an active program to attract premium players throughout the Olympic period.

On an international level, the major manufacturers of casino style slot machines have rallied strongly from July 1. Aristocrat for instance, has appreciated 19%. Aristocrat was compared with U.S. listed companies IGT, Anchor Gaming, and Williams, reflecting that the company is trading at a premium to their competitors on a price to earnings basis..

It is important to note that the largest trade show in the industry, the World Gaming Congress & Expo, was held late October, and offered a number of new product releases. The main new products are Alliance's Blondie games and WMS Jumble, Pictionary and Scrabble games.

"This trend of licensing existing characters and themes for gaming applications became evident two years ago," explained Ms Owen in the report, "and is increasingly the trend in the US market."

Aristocrat are very close to the approval of the Hyperlink game in the NSW market, and display this product in the US in October. The new game platform, Mark 6, is also now available.

Side box

Flat outlook for box office spending

According to Salomon Smith Barney's report, the top 10 films grossed $125 million to September 20, exactly the same amount for the same period in 1999. Village Roadshow confirmed that spending on the box office in September were in line with August, being held up by ticket discounting in the month to a flat price of $8.50, but no boost from the 3 week school holiday period was received. School holidays normally lift attendance by up to 30%. Theme park attendance held relatively steady, despite expectations of a GST and Olympic related slump. Around 50% of international visitors to the Olympics were anticipated to visit Queensland after the event, hence attendances could receive a boost in October and November as a result.