Neal St. Anthony: Gaming entrepreneur Berman still betting on turnaround

In the soft economy, Lyle Berman's companies remain gambles

By NEAL ST. ANTHONY, Star Tribune

Last update: November 9, 2009 - 12:05 AM

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Those Lyle Berman stocks are always gambles.

And two of his most prominent companies still amount to losing hands for investors looking for a turnaround from a guy who was a pioneer financier and manager of the Indian gaming business and who has won $1.5 million-plus in high-stakes poker tournaments.

Berman, CEO and the single-largest shareholder of Lakes Entertainment, last week reported a profit of 23 cents per share for the first nine months of the year on increased revenue. That compares with a 72-cent loss in 2008. Word of the profit came during an otherwise grim conference call that attracted only a few questions from analysts.

There's potential. Plymouth-based Lakes announced plans to invest in four casinos approved by Ohio voters last week.

But most of the call focused on the ultra-competitive California market, challenges in Oklahoma and the possibility the company might have to pay $8 million if it loses a lawsuit brought by the Louisiana revenue department. And if things don't work out, Lakes is going to have to raise more capital to fund its obligations, according to Tim Cope, chief financial officer.

Shares of Lakes, which has a market value of about $81 million, rose 26 percent last week to finish at $3.11 on hopes of new opportunities and an improving economy that will put more players at slot machines. In recent months, there have just not been enough customers wagering much money.

Lakes, born of Berman's original gaming-management concern, Grand Casinos, has seen its stock run from about $5 in 1999 to a peak of $17.76 per share during the roaring economy of 2005 to as low as $1.86 earlier this year.

That's almost as bad an investment as the newspaper industry over the past few years.

Mark Smith, an analyst at Feltl and Co., maintained a "buy" on the stock and a price target of $4.50 over the next 12 months, citing cost controls and "ample opportunities for growth." Then again, Feltl has had the green light on the stock throughout the descent.

Meanwhile, in Los Angeles last week, shareholders approved the sale of the assets of Berman-founded World Poker Tour Enterprises (WPTE) for less than $1 per share to Peerless Media, a subsidiary of PartyGaming Plc.

The deal calls for $12.3 million in cash and a 5 percent participation in future gaming and other revenue to Lakes generated by the assets now owned by Peerless.

A majority of the World Poker Tour stock is owned by the Berman family and other insiders.

WPTE was all the rage a few years ago with its cable TV poker tournaments, online gaming and branded merchandise. But it, too, waned. The shell company now sits with millions in cash.

The stock, which closed at $1.10 per share on Friday, peaked in 2005 around $26.50 per share.

Berman, also the force behind hot-to-cold Rainforest Cafe of a few years ago, has a reputation for mercurial, trend-driven outfits. And it was best to get out amid the short-lived northward runs in WPTE, Lakes and Rainforest.

Jamie Dlugosch, the editor of Penny Stock Winners, was perplexed when WPTE's shareholders took the Peerless offer over a higher one.

"Part of the reason for investor skepticism is that management has not disclosed its intentions for the cash, other than to say they will be buying another business, perhaps," Dlugosch said. "There is an interesting story here."

It will be interesting to see what Berman, 68, the cagey gambler, has up his sleeve. Just don't bet any money you can't afford to leave on the table.

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com

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