Missouri casinos prepare for new cross-border battle
January 24, 2012
When the Sam’s Town Casino opened in September 1995, there was concern that the Kansas City market couldn’t support three gambling boats. Sam’s Town joined Harrah’s North Kansas City and the Argosy Riverside. Then in 1996 the Hilton Flamingo and Station Casino Kansas City opened. It turned out four casinos could thrive here — but not five. Sam’s Town lost millions throughout 1996 and 1997, and it closed in July 1998.With Hollywood Casino at Kansas Speedway planning to open Feb. 3, the question rises again: Can the Kansas City market support five casinos?The consensus is optimistic that it can, though the other casinos will feel the competition.“I don’t foresee anyone going under,” said Mike Winter, executive director of the Missouri Gaming Association, a trade group. “The casinos on the Missouri side are all great quality, and they have a good feel for what they need to do to retain customers.”Their tools include databases to help track their customers and tailor their marketing so that they could, for example, mail special offers to their regular patrons who come over from Kansas. They also have loyalty programs, much like airlines’ frequent-flier miles, that offer cash back or breaks on meals, hotel stays and merchandise.Harrah’s general manager Tom Cook said: “I don’t think people realize how exceptionally competitive, how tough, this business is. But we know how to take care of people 24-7 and keep them entertained. And we know how to use customer data and query (survey) data for direct marketing.”Even so, no one is denying that the Kansas-side competitor will take a bite out of the Missouri casinos’ business. Some expect Hollywood Casino, a $200 million project with 2,000 slot machines and 40 table games, to take in around $200 million in annual revenue.The Missouri Gaming Commission, in a November 2010 report, pegged that lower, estimating that the Kansas casino would generate $175 million in revenue its first year. The commission also estimated that it is likely to take at least half of that from the Missouri casinos. That would be a big hit for those casinos, but there also are big differences between 2012 and the previous five-casino era:• Area casino revenue was $416.7 million in 1997, the only full year the area had five casinos. Revenue grew every year since then till the recession, peaking at $720.7 million in 2007 and staying near that despite the tough economy. That’s a lot more revenue to share with a fifth competitor.• The area’s casinos are not like Sam’s Town circa 1997, which was a relatively small riverboat trying to get established. And in many ways the area’s casinos aren’t even the same operations they were in the late 1990s. Two have changed names and ownership — Flamingo to Isle of Capri, and Station to Ameristar — and all four have been upgraded. Harrah’s and Argosy in particular have been made over, expanding with the area’s appetite for casino gambling. And all but the Isle of Capri have their own hotels, something the Hollywood won’t have when it opens. • The Kansas City market has basically been flat for five years, not exactly what an industry wants with a new competitor coming on. But officials at most of the casinos noted that other casino markets had fared much worse.“We haven’t seen the economy rebound greatly, but on the other hand we’ve had stability — no tremendous losses and closures of businesses” in the area, said Sean Barnard, general manager at Ameristar. “You have to take your joy where you can find it.”John Caszar, who became general manager at the Argosy in August, coming to Kansas City from Baton Rogue, La., said: “This market doesn’t feel as impacted by the recession. The real estate market held up a lot better … and the economy is more diverse, much more stable” than many others that have casinos. The area casinos’ combined revenue did slip in 2011 for the second straight year, to $710.4 million, but that was down only 0.5 percent after a 2009-to-2010 drop of less than 1 percent.Not surprisingly, top officials at all four Missouri casinos declined last week to share any estimates they had for potential lost business. But in 2010 their companies gave such estimates to the Missouri Gaming Commission, which was evaluating applicants for a 13th casino license in Missouri. The Gaming Commission also assessed attendance data that included where customers lived.The commission kept the details of that proprietary information confidential and did not break out how much business each Missouri casino thought it would lose. But it did report that the casinos overall estimated that their 2011 revenues would be $717 million ($6.6 million too high, as it turned out) and drop to $632 million in 2012 because of the opening of the Hollywood Casino in 2012.Further, using a “gravity model” based on where customers lived to try to predict the Kansas casino’s effect, the Gaming Commission pegged the Missouri area casinos’ 2012 revenue total even lower, at $607 million.Actually, there’s already a casino in Kansas City, Kan.: 7th Street Casino, which opened downtown in January 2008. But the tribal-run slots parlor, with about 600 slot machines, doesn’t regularly release results.The Kansas City market could have gotten even more crowded next year had the Gaming Commission granted that 13th Missouri license to a proposal in Sugar Creek. But the commission licensed a proposal in Cape Girardeau in southeast Missouri, where a casino is now expected to open in 2013. The commission’s research and November 2010 report indicated that that casino, though smaller than the Sugar Creek plan and another proposal in St. Louis, would generate the most net revenue and jobs for the state because it would not take substantial business from Missouri’s 12 other casinos.Last week the Gaming Commission released its numbers for December from Missouri’s 12 casinos. Total revenue was almost $1.81 billion for the calendar year, up just under 1 percent from $1.79 billion in 2010. Here’s a look at how the Kansas City area’s casinos fared in 2011 and their managers’ thoughts on the year’s highlights and hopes for 2012:AmeristarAmeristar is the area’s largest casino and, although its revenue slipped 1.3 percent in 2011, has been No. 1 for several years with a share of the market’s revenue around 33 percent. It also is the farthest from the new Kansas casino, a 26-mile drive that Mapquest estimates at 33 minutes.Barnard said: “We plan on remaining the market leader and staying with our emphasis on providing the best product, the best service, and emphasizing cleanliness and safety. … We’re going to have everything look as good as we can, from the hotel to the food in our dining areas.”As far as product goes, he said, “we’ve stuck to our new slots program” under which fresh slot machines are brought out and highlighted regularly. “In the year ahead we’re still committed to introducing new slots, sometimes dozens of the latest ones, every 90 days.”Barnard noted that Ameristar had been able to keep its workforce about the same at 1,300 full- and part-time employees.One thing Ameristar didn’t do in 2011 was go through with plans to add 100 hotel rooms. But Barnard saw positives in that decision, too.“Bids came in at significantly more than we expected. We took a hard look and decided this doesn’t pencil out,” Barnard said. “So instead we still have 184 rooms with occupancy in the high 90s and avoided the risks of expansion.” Argosy RiversideArgosy Riverside saw its revenue rise 1.3 percent in 2011, and it regained its No. 2 market share, nosing ahead of Harrah’s. It’s the closest to Hollywood Casino: 16 miles away, an 18-minute drive. But it also has the same parent company, Penn National Gaming. So it’s a sister casino, in a sense sharing business with Hollywood rather than losing business to it.As a result, though their staffs and internal operations will be separate, the Argosy and Hollywood will have the same Marquee Rewards program and, in effect, promote each other.“New competition is healthy. Naturally, Hollywood will grow the market,” Caszar said. “I wouldn’t expect anyone to go out of business” among the Missouri casinos. Like the other area casino officials, Caszar said he couldn’t talk specific numbers on what the Argosy expected, “but we expect some effect. People will try the Hollywood, and some will stay with it.” The Argosy, after five years without layoffs, has shed some staff, with its workforce going roughly from 1,000 to 900 employees. But Caszar said in this case that was a good thing because about 120 Argosy employees went to work at Hollywood Casino, often to jobs that were promotions for them. Harrah’sHarrah’s North Kansas City moved up to No. 2 in market share in 2010, when it was the only area casino to increase revenue. But its revenue dipped 2.8 percent in 2011 and it slipped back to No. 3. Harrah’s, just slightly larger than the Argosy Riverside, is 21.5 miles from the Hollywood Casino, about a 28-minute drive.Cook said the Hollywood is “certainly a game changer,” and “we all hope new competition will grow the market.”“I’m sure some of our customers will check it out,” he said. “Who wouldn’t?”But Cook also said he expects customers to return to Harrah’s. “It’s not that easy to pull people away,” he said. “Our members come to feel about Harrah’s the way they feel about a country club. “We think our value proposition … and being the best service provider in the city will do much to mitigate our loss. I’m confident Harrah’s will lose less than its share of business.”Cook also said the casino had been scrutinizing its operations and reducing staff through attrition when it could figure out how to do something better with fewer people. Harrah’s still has more than 1,000 employees, he said, not a lot fewer than a year ago.Isle of CapriIsle of Capri is perennially fourth in market share. It doesn’t have its own hotel, and it is the second closest to the Hollywood Casino — about 17 miles and a 21-minute drive.But it’s also the casino closest to downtown Kansas City, and its market share isn’t necessarily a sign of weakness given that it’s also the market’s smallest casino. It has kept consistently above 11 percent of the market’s revenue in recent years and reached almost 12 percent in 2011. Isle also has a new vice president and general manager, Todd Steffen, who hit the ground running just a week ago. He inherited an operation that increased its revenue nearly 3 percent in 2011. Debra Jenkins, Isle’s marketing manager, said the casino attributed that increase in part to its “cash is king” philosophy — shifting its slot payouts so more customers win something, instead of emphasizing really big jackpots.Jenkins said that the Isle staff’s customer service also continue to rate high in its surveys of its patrons and that the casino has been able to maintain its staffing level around 425.Jenkins also said the casino’s new Lone Wolf lounge had a good year, expanding its Friday and Saturday live music to include Thursday nights. Isle of Capri plans to build on 2011’s success, she said, “by staying with our motto of providing value and a friendly, fun place.”The other area casinos also say they’re ready to compete. As Barnard of the Ameristar put it: “The Hollywood Casino is a great property, brand new. I’m sure they’re ready to grab all the business they can to the west. But we’re ready to grab all we can to the east.”
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