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The official publication of the Association of
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OCTOBER 2002

Rivers of Revenue?

Operators are hoping the recent expansion of Ameristar St. Charles will help grow the St. Louis market, now hampered by restrictions and a tax increase

By Andy Holtmann

It’s only 10 hours until Ameristar St. Charles’ new $360 million facility is set to open to the public, and General Manager Tony Raymon is both buzzing with excitement and fidgeting with nervousness.

“I have a lot of adrenaline right now,” he confesses while eating lunch in the facility’s new 47 Port Street Grill. “I’m excited for our team members and for the city of St. Charles. But I’m constantly double-checking things to make sure we get it right. I don’t want to do anything wrong.”

That’s because Raymon knows that gaming customers in the St. Louis area have been demanding a more complete gaming experience—more than the standard grouping of noisy, clunky slots packed into a cramped riverboat far off the beaten path of St. Louis’ daily life. It’s an experience Ameristar officials were convinced they could offer from the day the St. Charles boat became theirs.

They acquired the riverboat two years ago as part of a deal with Station Casinos, where Ameristar gave Station $475 million and its struggling Reserve Hotel & Casino in Las Vegas in exchange for Station’s Kansas City and St. Louis boats.

Station had begun its own elaborate expansion of the St. Charles facility, which stopped shortly before it sold the boat. After what Raymon calls a “quick reevaluation” of the St. Louis market, Ameristar decided to continue with the project, adding its own flair.

It has now moved out of its old boat and into a new vessel that includes a 130,000-square-foot casino with 3,300 slots and 95 table games. A land-based addition adds a streetscape with several amenities to the property, including six eateries, a nightclub, gift shop and entertainment venues.

“We expect to be recognized as the premier casino and entertainment facility in the St. Louis market,” Ameristar Chairman Craig Nielson told attendees at the expansion’s opening ceremonies. “At the time we announced the project, we indicated we’d be completed with the facility by mid-2002. We are very proud of the fact we have met that goal, even though we have doubled the size and scope of the original project.”

Raymon says the company decided to double the project’s size based on customer demands for more amenities, more variety and more of a Las Vegas-style, yet local gambler, experience.

“They really like to come for the full experience. It’s not just about gambling anymore,” he says.

It’s that way of thinking that Raymon and his peers claim is responsible for the evolution of the St. Louis gaming market.

“Our average gambler will be in their late 40s to late 50s, and they’ll likely consider casino entertainment as one of their primary forms of entertainment,” says Vern Jennings, general manager of Harrah’s Maryland Heights across the Missouri River from Ameristar. “They are customers that would likely go to Las Vegas, or Tunica, or some of the other markets, but now that there are nice facilities here that offer the same amenities closer to home, they’ll come here instead.”

And while gaming in the St. Louis area received a chilly reception when it was first introduced in 1991, operators say many of the area’s 2 million-plus residents have warmed up to it in recent years. Gaming revenues have steadily increased each year, from $10.7 million in 1991 when the Alton Belle opened on the Illinois side of the Mississippi River, to the $719 million generated by the market’s five riverboat casinos in 2001.

“We’re seeing for the first time now, however, relatively flat growth,” Jennings says. “Last month [July], the entire market grew about 2 percent. In prior years more properties were enjoying double-digit growth. That’s in spite of a significant marketing spin by Ameristar to promote the opening of its new property.”

Regulatory and taxation issues have also served as a dam to a potential gaming boom. Operators say a $500 loss limit for gamblers and strict boarding rules have dissuaded some potential customers from visiting Missouri casinos, while increased taxation and a limit on gaming positions in Illinois have lessened riverboat casinos’ incentive to someday expand facilities there.

“It’s very difficult to operate here [on the Illinois side of the Mississippi River],” says Casino Queen General Manager Craig Travers. “You have to make a decision every day as to what kind of games you’ll have because you’re limited. The onerous tax situation [which Illinois legislators increased to 50 percent of gross gaming revenues for casinos making over $200 million a year] makes it even harder. There can come a time, with operational expenses and taxation, that you can generate a lot of revenue and make no money. You’re paying more taxes to get it and you’re paying more expenses to create it than it’s worth doing.”

Illinois

The Alton Belle Casino, roughly 20 miles north of downtown St. Louis on the Illinois side of the Mississippi River, was the first casino in Illinois.

“It has been a tremendous success since it opened in September of 1991,” says General Manager Rich Lauden. “The customers have kept steadily coming, and as Argosy Gaming’s first boat, it allowed the company to grow to where it is now, with six riverboat properties throughout the Midwest.”

Though it’s out-of-the-way location and lack of hotel rooms might seem like detriments, Lauden says the casino has developed a significant niche among St. Louis gamblers. In the 11 years it has been open, the property has continually expanded and renovated. The addition of a second gaming barge, eateries and an entertainment venue have all been significant drivers of traffic, he says.

“It’s allowed growth of the casino square footage, more spacious surroundings, bigger aisles, more gaming product available for customers,” Lauden says. “It’s an overall more positive gaming experience for our customers.”

The Alton Belle now operates about 1,050 slots and table games. It generated revenues of $121 million last year.

In June 1993, the Casino Queen, also in Illinois, opened across the Mississippi River from downtown St. Louis. The market’s only privately held and operated casino, Casino Queen was a collaboration of five partners—St. Louis developer William Coleman Sr.; Chicago businessmen Charles Bidwell III, Patrick Kenny and Tim Rand; and Las Vegas casino operator Michael Gaughan.

Travers says the partners’ philosophy of running a locals market-style casino and the boat’s location have worked well.

“We have a great location, and if there ever was a truly locals casino, it is us,” he says. “We’re a locals-market casino, being patronized by people who live around this area and we see every day. They remember things, and make decisions based on that. We were the first to have no admission charge, we were the first to have reasonable food and drink prices, to create a points club where players could receive premiums for their play.”

Casino Queen also bills itself as having the loosest slots in the St. Louis area, a distinction Travers says is backed up by gaming control board figures in both Missouri and Illinois. And although he says he likes to think of his property as gaming specific, he admits that the addition of amenities such as eateries, a 150-room hotel and events like concerts and boxing matches have helped generate entertainment value, which has led to customer retention.

“In the Midwest, it’s not about winning or losing, it’s about being entertained, and if I can make my $20 last two hours here, versus an hour there, I’m going to go here,” Travers says. “The question gamblers here ask is, ‘Where did I get entertained the best?’ I think we have done that.”

Casino Queen operates 1,200 slots and last year had revenues of just over $155 million.

Missouri

Though Missouri legalized gambling in 1992, policy debates and legal wrangling delayed the opening of the state’s first riverboats until May 1994, when both Station Casino St. Charles and The President Casino on the Admiral opened.

Station Casinos’ boat thrived in its location 22 miles west of downtown St. Louis. But after a series of management conflicts and legal problems, the company sold its Missouri properties to Las Vegas-based Ameristar Casinos.

Ameristar elected to continue with Station’s plan to expand the St. Charles boat after studying the demographics of the St. Louis market.

“This is a market where we found that there are still growth opportunities,” GM Raymon says. “You just have to provide what the customers are demanding—a much broader, more complete gaming experience.”

Though the expansion did not include hotel rooms, Raymon isn’t worried, noting that the $360 million project made Ameristar the largest casino in the market. He says the expansion is just one phase of a larger, overall plan for the property.

“I think this project will be an excellent start, and that we’ll look at all additions as we go further,” he says. “We believe [with the] quality and the choice of entertainment that the guests will have with the restaurants, the casino, the entertainment six nights a week, we’ll be able to really take care of our guests.”

Raymon adds that one of the key reasons for expansion was an increasing amount of customers and a corresponding increase in gaming revenue, showing there was room to grow. Ameristar St. Charles’ gaming revenues increased to approximately $56.5 million during the period from January 1, 2001, through May 31, 2001, from approximately $48.1 million during the corresponding period in 2000, an increase of approximately 17.5 percent.

The President, meanwhile, after a strong start in the mid-’90s, has not enjoyed the same results as Ameristar. The property’s parent company, President Casinos, recently filed for Chapter 11 bankruptcy protection.

The June 20 filing staved off a seizure of the property by federal marshals after President defaulted on a $25 million bond issue from the Bank of New York.

The casino, on Laclede’s Landing near St. Louis’ famous arch, had also come under fire from St. Louis Mayor Francis Slay for its appearance and recent performance. For its year ending Feb. 28, President reported a loss of $20.7 million, compared with a loss of $200,000 the previous year. Though revenues have been on the rise at the property, high waters on the Mississippi River have forced the closure of the President on several occasions, and company losses have affected its ability to reinvest capital in the St. Louis property.

Slay wants to see a “first-class” casino with a hotel, fine dining and other amenities open in Laclede’s Landing, and has been after President to “clean up” its Missouri property.

Though calls to President Casinos were not returned by press time, company president John Aylsworth issued a statement during the company’s bankruptcy filing indicating that the reorganization would include money to revamp the St. Louis boat.

In 1997, both the Player’s Island casino and Harrah’s opened in Maryland Heights, on the east bank of the Missouri River across from what is now Ameristar’s casino. In 2000, Harrah’s acquired Player’s International, the parent company of Player’s Island. Harrah’s grouped its casino with Player’s, creating two connected barges. Harrah’s also built a 291-room hotel and added several eateries, meeting space, a parking garage and an entertainment venue.

“While it’s maybe not the magnitude of some of the large casinos in the Las Vegas market, it has most of the same components of a destination-style facility,” GM Jennings says. “Until Ameristar opened its new property, we were the only ones in this market to offer those kind of amenities.”

Jennings says Harrah’s has a good relationship with its neighbor across the river. The size and scope of the West St. Louis casinos have been the catalysts for a bigger, better gaming market, he says.

“There are still large numbers of people who don’t go to casinos, and every time a facility opens up that offers other venues and other attractions, it will get new customers to come and visit. Maybe they’ll go in and spend a few dollars gambling, and it will become a new form of entertainment for them. It helps grow the market,” Jennings says. “I also think it’s beneficial for us to have the only two comprehensive gaming facilities, both located close to each other in the western suburbs. There is a lot of synergy that can be achieved, and it can help both of us.”

Harrah’s, which operates around 4,000 gaming devices, has enjoyed continued growth in its suburban location. In its first year, a partial one, Harrah’s generated $54 million in revenues. In 1998, that figure jumped to $96 million. In 1999, Harrah’s generated $127 million. In 2000, revenue was $214 million, partially due to its acquisition of Player’s. Last year, revenues topped out at $269 million.

Nuisances and deterrents

Despite the growth of the market, operators on both the Illinois and Missouri sides say the St. Louis market is a tough one to operate in.

In Missouri, operators say the state’s $500 loss limit is a nuisance for current gamblers and a deterrent for potential ones. But, as Jennings explains, the loss limit isn’t the only problem.

“In order to come gamble in Missouri, you first have to have a state-issued ID, or you can’t even gamble,” Jennings says. “Most people would think, ‘Sure, that means I need a driver’s license.’ But think of the 60-year-old grandmother who doesn’t drive anymore. I personally have had to go and speak to 30 seniors on a bus and explain to them why I can’t let them into the casino because a couple of them don’t have driver’s licenses and so they don’t want to go in. So they get back on the bus and go somewhere like Alton Belle in Illinois, where you don’t have to have a driver’s license.

“Two, if you have an ID, you have to go get a card. When you get a card, we record information about you in our computer. Now, not everyone wants to have information of theirs recorded. So some customers say, ‘I don’t want your card.’ But without it, you can’t be in the casino. If you get past that, you get the card, you’re in the casino, that card is now your $500 buy-in limit. If you lose your card, you no longer can buy in; you have to exit, get a new card and re-enter.”

Jennings says that while proposals to increase the loss limit make it easier for select gamblers who would like to bet more, they wouldn’t prevent the overall hassle of the system.

But the Casino Queen’s Travers claims Missouri’s loss limit isn’t as bad as it sounds. He notes that the $500 limit is per each two-hour session, not per day. While it may be a slight inconvenience to the gambler to have to wait for a short time, it certainly has not dissuaded gamblers from coming to Missouri boats, he says.

“So their crutch about their loss limit is a lot more of a crutch than it is an excuse or an issue, but they still argue for its removal,” Travers says. “There’s not a whole lot of people who would gamble more than $500 anyway, whether it’s two hours or 10 hours. People here have a budget and they hold to that budget.”

What really limits Illinois boats, Travers says, is the 1,200-unit limit on the number of gaming devices each boat can operate. The limit has allowed for much larger gaming floors—and in turn, properties—to spring up on the Missouri side of the Mississippi River.

“When you compare operations, it’s like apples and oranges. We’ve got 1,200 positions, and now Ameristar and Harrah’s have 4,000. President has 3,000. The two operations on the Illinois side have 2,400 gaming spots combined. That compares to over 10,000 on the Missouri side.”

Taxation has also bitten into profits on both sides. In Missouri, 18 percent of casino revenues go to the state and 2 percent goes to the city the casino operates in. There are also $2 admission fees per patron calculated every two hours.

“Overall, the composite tax structure is about a 30, 31 percent tax rate when you figure everything in,” Jennings says. “Earlier this year, there was a pretty significant threat of that tax being increased pretty significantly. Initially, they talked about coupling that with a removal of the $500 loss limit, which makes more sense. But the removal of the loss limit was dropped from language pretty early on and what was left in the Legislature when it came down to the wire was a pretty substantial increase in the taxes.

“Now, if the tax structure changes, like they had been proposing, which would have changed the rate from 30 percent to 36, 37 percent; then it becomes minimally profitable. Companies like ours would likely not put in any more significant capital here. Ameristar would likely have not done their project had that passed either.”

Travers says Illinois casinos too have been hit hard by that state’s recent increase on gaming taxes to 50 percent of gross gaming revenues for casinos that generate over $200 million per year. While neither the Casino Queen nor Alton Belle generate that much revenue, both have been hit with a 2 1/2 percent adjusted tax increase on their properties.

For the Casino Queen, that amounts to an additional $6 million per year.

“That’s the $6 million we were going to [use to] service our debt so that we could build a new facility,” Travers says, agreeing that the tax increases on both sides dissuade capital reinvestment into the St. Louis casinos.

Raymon says Ameristar was well aware of the challenges of operating in the St. Louis gaming market before it continued with the expansion. The company has been following and supporting legislative moves to repeal the loss limit.

“We don’t have any issues to operating here,” he says. “We have a good relationship with the Missouri Gaming Commission, and we believe there’s still a lot of business out there we can capture, despite the operating difficulties.”

Room for More?

Though mired by some tough restrictions and the market’s revenue growth chilling to just 2 percent, operators remain bullish on St. Louis as a viable gaming market.

“It’s a market where the customers have come to appreciate what we offer, and the fact they’re demanding more tells us there’s reason to try and grow the market,” Raymon says.

Ameristar’s expansion has made it the largest employer in St. Charles.

 State legislators and Jefferson County officials, noting the prosperity that casinos like Ameristar and Harrah’s have brought to their respective communities, have agreed to add a sixth casino to the St. Louis market.

Argosy Gaming and Las Vegas-based Riviera Holdings Corp. competed for the right to build a casino 22 miles south of downtown St. Louis. Jefferson County officials decided to back Riviera’s plan.

The Riviera project calls for a $150 million casino with a 200-room hotel and 52,000-square-foot gaming floor with 1,500 slots and 40 table games. The Argosy bid did not include a hotel.

All of the market’s current operators agree that the market is already close to saturation with five casinos. But they believe gaming could boom if certain conditions change.

Jennings says if restrictions like the loss limit can be loosened and more investments made by the casinos to generate business, gaming will become a significant business in the St. Louis area.

He says Harrah’s is in the process of developing a plan to add more hotel rooms and other amenities to its property in order to further its scope as a complete gaming experience and create a destination-style casino.

“Many people in the Midwest, and I guess all around the country, still don’t fully understand the casino business. If they come into facilities like ours, they see much more than just a casino floating on the river, they see restaurants and other amenities,” he says. “That certainly helps with the image and reputation of the gaming industry when high-quality products like that are built. I also think it’s good for this marketplace.”

Though the Illinois boats are limited in their ability to expand, both are concentrating on marketing campaigns to increase revenues.

“We’re learning more and more about our customers and we’re managing that information,” the Alton Belle’s Lauden says. “We have a very ambitious project that is going to be hugely successful with customer relations management, which enables us through analysis to be able to try different direct mail offers with our customers. That’s how we envision growing our customer base. If we can do that, then we’ll be in a good position.”

Travers, meanwhile, hopes the buzz created by Ameristar’s expansion will spill over to the other St. Louis casinos.

“We’re hoping that the new Ameristar property will help further grow the market and not just redistribute the customers who are already here,” he says. “But there are only a certain number of people in the Metro East area that gamble, and we have to do what we can to keep those people happy first. That’s what keeps these boats afloat. That’s what helps us grow.”

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