Hello friends. The Market Pro is on vacation, so Baywalk features Dean S. Tripodes as our guest commentator.

Have you heard it on CNBC? I'm not talking about Jimmy Rogers contrarian reports. I'm talking about opera stars Andrea Bocelli and the lovely Sarah Brightman singing in front of this enchanting Italian villa on a lake. On the eve before Steve Wynn's Bellagio opening, let's take a look at Mirage (NYSE: MIR) and the financial implications of the new hotel and resort. Mirage is currently trading around $14, at a three-year low.

On earlier openings for Mirage, we saw illusionists Siegfried and Roy and their mystical white tigers. For Treasure Island, we were treated to pirate sea battles in the middle of the desert. Now, gaming mogul Steve Wynn, is betting $1.9 billion that the masters -- Van Gogh, Monet, Renoir and Picasso -- will entice more high-rollers to the Las Vegas Strip. During a tour of the resort, he promised that Bellagio, which includes $300 million in art masterpieces and resembles a small, elegant city, will be "an alternative to Paris." Bellagio is named after a picturesque town on Lake Como in Italy.

Let's describe the hotel, and ask yourself if you would like to be there. Fronted by an 11-acre lake, the 36-story resort is reached by a winding road that climbs up from the Strip. Off the main lobby is a conservatory five stories tall with settings that change with the seasons, and nearby is the Bellagio Gallery of Fine Art. Wynn has spent some $300 million on the artwork, half of it from a personal fortune valued at $500 million. A dozen restaurants overlook the lake or one of five swimming pools, and are run by some of the top restaurateurs in the country. They include Le Cirque and Circo from New York, Olives from Boston and Aqua from San Francisco. One of the restaurants, Picasso, features works by the master.

Does this sound appealing?

Now let's talk about the stock and the industry in general. Key issues are:

• Over capacity and cannibalization
• Global recession and U.S. economic slowdown
• California gaming referendum to allow more Indian gaming

The first question that arises is whether Bellagio's snaring casino customers will cannibalize the Mirage and other high-end properties. There is no question Bellagio caters to the highest end of the market, and that in itself should help Mirage's bottom line. The best companies cannibalize their own products before the competition does. Witness Gillette which abandoned its wildly successful Sensor razor for the Mach III. If Steve Wynn didn't build it, competitors from Hilton, Sands, MGM, and Circus Circus would -- and they are.

Another question to consider before looking at Mirage, is the sharp decline in the stock market and the economic problems around the world. Has this reduced the amount of money available for leisure activities? The answer is yes, but as always, some people will have leisure money to spend. This money will be spent on the best locations, which doesn't bode well for the Riviera and the Stardust. Critics claim that casino profits have stalled after the industry added 15,000 hotel rooms in the past two years, bringing the city's inventory to more than 100,000. To fill them, operators cut prices. Certainly Bellagio will not maintain its introductory "must see" rates, but they should ride the wave. If Bellagio's rates go down (and they will), then its competitors will sink even lower. Still, changes in the landscape, meaning the addition of Bellagio and the coming Paris (by Hilton Hotels Corp.) and Venetian (by the Las Vegas Sands Inc.), could reverse the slump in visits to the city, which fell 1.2 percent to 17.6 million through July compared with the year-ago period, according to the Las Vegas Convention and Visitors Authority.

No one can predict the long term effects of Indian gaming. There will be a certain population that is content to drive to Palm Springs or other local places within an hour or 90 minute drive. The Vegas mega-resorts have countered that by making Las Vegas an entertainment destination. People want to see the Star Trek presentation at the Hilton. They want to shop at Caesar's Forum Shops. They want to ride the roller coaster at New York New York and have a great steak at Gallagher's. The Indian casinos, though likely to affect downtown Las Vegas casinos, shouldn't affect the Bellagio and Mirage's top tier properties.

In conclusion, Mirage is a stock to watch. Earnings for Mirage rose less than one percent last year to $207.6 million, and fell 31 percent in the first half of 1998 to $103 million. Mirage's shares have also tumbled, dropping more than fifty percent in the past year to about 14. In the same period, the Standard & Poor's 500 Index fell about one percent. Still, when Vegas recovers, Mirage should be the one to reap the benefits first.

Dean S. Tripodes - October 14, 1998