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Is Empire Resorts, Inc. a Gamble Worth Taking or Will Competition Lead Gaming Operator to Crap Out

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It has been hard to ignore the recent buyout rumors that have been swirling around Empire Resorts, Inc. (NASDAQ: NYNY) as investors have been placing their bets on both sides of the racetrack operator’s future. Whether it’s optimism or just wishful thinking there has been talk that the Asian investors who own nearly 50% of the Monticello Raceway operation are poised to offer $2.25 per share; a healthy gain for those who have bought in at the current depressed price sitting around the 1.06 – 1.12 range.

Times have been hard for the New York-based company which operates the Monticello Casino & Raceway, a harness racing track and casino located about 90 miles outside of Manhattan and they certainly haven’t received any support from Gov. David Patterson who appears to be closing in on a deal with the Wisconsin-based Stockbridge-Munsee tribe of Mohicans that would open the door for them to operate a full casino in the town of Thompson, becoming a direct threat to the traffic heading toward Empire Resorts.

While Native American casino deals often dissolve before anything is ever agreed upon it appears as if this one could very well be on its way to completion as most of the federal hurdles are said to be cleared and it is being billed as a win for New York as it would increase revenue significantly through entertainment, convention business and tourism as well as provide employment opportunities.

Unlike Empire Resorts, which provides just over 1,000 video gaming machines to go along with their horseracing operations, the Munsee tribe would be operating New York’s first full-fledged casino in close proximity to New York City.

Empire Resorts could find an ace-in-the-hole with potential lawsuits filed by New York tribes who remain perplexed by Patterson’s decision to grant the out-of-state Munsee’s a land settlement. In a press release issued by Empire in response to the Patterson deal the company eluded to the possibility of legal issues stating, “After the press conferences are over, the lawsuits begin and the people of Sullivan County are left with nothing.”

If all goes through then it may also be shareholders who are left with nothing as it would be hard to imagine that a buyout would be attractive to those Asian investors. Obviously Empire would be operating at a disadvantage as they don’t offer tables, a considerably attractive and profitable draw for any casino. That’s not to say that Empire hasn’t been trying to build a full casino complete with slot machines and table games including poker, blackjack and craps but their most recent efforts with the St. Regis Mohawk Tribe ended when the tribe announced it was ending its exclusive negotiations with Empire Resorts.

Empire is already operating at a disadvantage as they face stiff competition from Yonkers Raceway which also has a harness horseracing facility, has roughly 5,500 VGMs, a number of food and beverage outlets and is closer to NYC. NYNY is also facing a serious drawback in traffic due to a recent legislation in Pennsylvania that approved table games in its existing slot-machine facilities.

All of this contributed to a rough third quarter for Empire in which revenue dipped 7% compared to the same period last year. In their 10-Q they showed a 52% drop in revenue from their racing operations and a 12% drop in food, beverage and other revenue while revenue from their VGM operations increased by 4%. With the increased competition it’s hard to imagine that those figures will get any better.

Shares in NYNY hit a three-month high of 1.56 on Nov. 18 but have dropped significantly over the course of the week and are currently trading just ahead of the 50-day moving average of 1.02 yet trailing the 200-day moving average of 1.45. That being said, volume has certainly spiked for the shares as the five-day average has topped 1 million compared to their three-month average of just over 220,000.

For those willing to bet on a long shot the hopes of a buyout may be enough to lure them in to investing at a low price but with the deck stacked against them it would be hard to imagine the attraction of such an event taking place. As competition continues to build and with revenue from their racing operations severely depressed it may be time for shareholders to consider folding.

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