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Kansas casino gains in 2013; Missouri boats’ revenue slips

Updated: 2014-01-28T14:44:17Z

By GREG HACK

The Kansas City Star

The slowdown at Missouri casinos continued in the second half of 2013, year-end numbers released this month by the state show. And that means Missouri state government, Kansas City and the casinos’ other host cities are adjusting to the pinch of declining gambling revenue.

In contrast, Wyandotte County and the state of Kansas are enjoying the increased revenue that usually comes with being new to the gaming industry. Hollywood Casino at Kansas Speedway, which opened in February 2012, increased its share of the area market from 15 percent in 2012 to 17.7 percent in 2013. And Kansas Star Casino near Wichita also increased its business — and tax contribution to Topeka — in its second full year in operation.

Except for a few states like Kansas, regional gambling markets across the country had a sluggish 2013, as the economic recovery still left unemployment high and middle- and lower-class incomes stagnant.

Sean Barnard, the general manager for Ameristar Casino Hotel in Kansas City, said his patrons were telling him they often had less money for entertainment and other discretionary spending “because of higher gas prices, grocery costs and the higher FICA tax” for Social Security, which went back up at the start of 2013.

“Our guests who like to come frequently but have a small budget were hit in the pocketbook,” Barnard said.

And John Chaszar, the general manager of Argosy Casino Hotel & Spa in Riverside, said: “The market was not really bad but not really good. I truly believe once the consumer feels the economy is in a good place, business will improve.”

Against the national backdrop, the Kansas City market’s five big casinos did relatively well, bringing in $739.3 million in adjusted revenue, down just 2.6 percent from their record $759.1 million the year before.

That 2012 record came with the area’s fifth big player, Hollywood, which boosted the overall market but also hurt Ameristar, Argosy and the other Missouri casinos — Isle of Capri in Kansas City and Harrah’s in North Kansas City.

Hollywood was the one area casino to increase its revenue in 2013 — to nearly $131.2 million from $114 million in 2012 — taking a further bite out of its Missouri rivals. Most of that 15.1 percent gain came from being open all of 2013 and 11 months in 2012, but its revenue for February through December last year also was up 6.2 percent over those months in 2012.

That meant the four Missouri casinos saw their adjusted gross revenue drop 5.7 percent, to $608 million in 2013. That followed a 9.2 percent drop in Hollywood’s first year, from $710.4 million in 2011 to $645 million in 2012.

Before Hollywood’s opening, the Kansas City market had been remarkably stable through the recession and recovery, with 2011’s revenue down scarcely 1.5 percent from its peak of $720.7 million in 2007.

“The good news is, Kansas City’s not a one-horse town,” Chaszar said. “Our ups and downs have been mild compared with many markets — hills, not mountains.”

The drop in casino taxes also was anticipated by many governments. It has required careful budgeting in small cities, such as Riverside and North Kansas City, where a casino can provide 30 percent to 40 percent of revenue. And even for Missouri state government, it’s still a shift from the recession years, when casino tax revenue was a tiny bright spot, holding steady or even increasing while sales and income taxes slumped.

But now that has reversed, and state gaming taxes from Missouri’s 13 casinos were down $10 million in the previous fiscal year, to $366.4 million.

That’s not huge in a state budget around $23 billion, especially when much larger revenue sources such as income and sales taxes are rebounding. But last week Missouri budget director Linda Luebbering noted that revenues from casinos, cigarette sales and the lottery all are coming in lower than expected this budget year, which started last July 1.

In Missouri, those revenues all are earmarked for education, so Gov. Jay Nixon is proposing to transfer $44 million from general revenue to make up for the lost education funding.

Missouri is hardly alone. Thirteen of the 23 states with gambling revenue expected to take in less last year than in 2012.

And neither is Kansas. Of the 10 states expecting more from 2013, nearly all were either relatively new to the game or had added significant properties in the past two years. The state’s biggest money-maker, Kansas Star Casino in Mulvane, opened in December 2011, and Hollywood followed two months later, joining the much smaller Boot Hill Casino & Resort in Dodge City.

In the Kansas fiscal year that ended June 30, 2013, the state’s 22 percent tax on casino revenues brought the state $79.3 million, almost double the previous fiscal year’s take, and nearly all new revenue from a couple of budget years ago.

Again, the gambling revenue is dwarfed by other sources in Kansas’ roughly $14.4 billion budget, but every bit helps in a state trying to make ends meet after reducing its income tax.

In Kansas, local governments get 3 percent of their casinos’ gambling revenue, which meant nearly $2 million total in the state’s previous fiscal year for the Unified Government of Wyandotte County and for municipal funds for Kansas City, Kan., Bonner Springs and Edwardsville.

Lew Levin, the Unified Government’s chief financial officer, said gaming revenue from the casino plus its property taxes amounted to about 1.5 percent of the county’s total.

“The funds haven’t been allocated specifically,” Levin said, so it’s not possible to say they had made any specific function stronger or any building project possible. But he added that property taxes apart from the tax on casino revenue also benefited school districts, a community college and other taxing entities in the county.

The casino “has been a significant boost,” Levin said, adding that Hollywood had increased its share of the area casino market in 2013.

Indeed, the government of Kansas City, Mo., which gets revenue from Harrah’s and Isle of Capri, is lamenting its dip in casino taxes. Kansas City’s budget year runs from May 1 to April 30, and the city projects its gambling revenues will drop from nearly $16 million this fiscal year to $14.5 million in fiscal 2015, an 8.4 percent decline.

Those revenues were around $17.5 million in the city’s fiscal years 2010 and 2011, and still were $16.9 million in fiscal 2012.

City budget officer Scott Huizenga said the city considered casino revenues of “critical value” — not a major source in a budget with a $480 million general fund and $1.4 billion total, but large enough to make a difference.

And with the city’s earnings tax revenue projected to increase 3.4 percent, and convention and tourism tax revenues expected to be up 1.9 percent, the loss of casino revenue isn’t crippling.

But Huizenga said the city had to watch its finances in a tight economy and, for example, was budgeting for 110 fewer positions next year.

Kansas City puts the gambling money into the city’s general fund. As a result, Huizenga said, “it’s tough to tie that revenue to any one thing,” but its loss “does reduce the city’s overall revenues.”

Because of the way gambling money is allocated to the home cities for Missouri casinos, their revenue has dropped faster than the casinos’ business. Each home city gets 2 percent of a casino’s adjusted gross revenue — revenue minus the jackpots and other winnings paid out. The state gets 19 percent.

But much of the home cities’ revenue comes from a $2 admission fee for each two-hour gambling session, a fee that the home city splits with the state. And casino admissions generally have been declining for years, even when casinos were keeping revenue steady or increasing because each gambler, on average, was spending and losing more.

For example, among the area’s Missouri casinos, Harrah’s has done the best job of minimizing revenue losses since Hollywood opened. So its 2013 take was down just 3.5 percent — but its admissions dropped 13 percent.

By the state formula, those declines reduced the North Kansas City’s casino revenue more than $560,000 in the calendar year — and nearly $433,000 of the drop came from lower admissions.

If there’s a place that shows the blessings and the pitfalls of casino revenue, it’s North Kansas City. By mid-2013, the end of the state’s previous budget year, the city of about 4,200 residents had received more than $184 million since Harrah’s opened.

The city used the money for several big projects, including a $14 million, 96,000-square-foot community center, a $13.5 million fiber-optic network, a library and a new stormwater system, in addition to revamping police headquarters.

“It’s been a great resource for us when we’ve needed to do big planning and consulting work, too,” Mike Smith, assistant city administrator, said last week.

But when the recession hit, the city faced budget problems. Some criticized the city for spending too much over the years on projects that left lingering operating expenses and for letting a “holiday” on personal property taxes stretch on for a decade and a half.

In 2012 the city offered employee buyouts, took other steps to rein in costs and considered selling North Kansas City Hospital, a move that eventually was shelved after much controversy.

And across three budget years, $5.9 million was shifted from the casino fund to the city’s general operating fund. That stopped, however, in the budget approved for the current year.

Now, Smith said, North Kansas City is back to using casino revenue for large, long-term projects. The city also expected the further decline in it casino revenue, he said, especially when plans for Hollywood Casino were taking shape.

So even though the city gets millions of dollars less each year than it did in Harrah’s best years, Smith said, he didn’t think the city had “consciously chosen not to do something” recently because of dropping casino revenue.

And by restricting its use to capital projects, he said, the city can adjust if needed “by putting a longer time frame on construction or spreading out an equipment purchase.”

Riverside, with a population around 3,000, is another small city that’s gotten a big boost from its casino, in this case the Argosy. And it has faced the biggest revenue decline, because Hollywood took its biggest bite from Argosy.

That was expected, because Hollywood is closest geographically to Argosy, and because they have the same parent company, Penn National Gaming. As a result, they share a rewards program and encourage their patrons to visit both properties.

Meredith Hauck, Riverside’s public information officer, said her city’s casino revenue dropped 19 percent in the fiscal year that ended June 30, 2013, and was down 9 percent the second half of 2013 — the first half of Riverside’s current fiscal year.

“But we have a close relationship with Argosy, so we’ve been planning for this,” she said. “And we budget conservatively,” especially important when casino revenue makes up about 30 percent of the city’s revenue.

The city also has worked to diversify its revenue sources, she said, and economic development made possible by casino money is paying off.

Riverside has used its casino money — more than $131 million total over the years — to spruce up an area once known mainly as the home of the big Red X bargain store. And it has invested in a 260-acre Horizons business and industrial park to attract new companies, such as an auto parts plant that was announced last April and is expected to bring 240 jobs.

“It has been 100 percent our goal to invest gaming revenues in ways that will help us keep growing,” Hauck said, even when casino revenues decline.

Like the governments, the casinos are adapting — but also hanging onto what has worked for them in the past.

Harrah’s, as mentioned, had the smallest percentage revenue decline in 2013 among the Missouri-side casinos. General manager Tom Cook said last year that, while “everyone would like to see a bit more robust market,” Harrah’s was focused on keeping its best customers. Those efforts appeared to pay off, as Harrah’s continued to lead the market in how much revenue it averaged for each admission.

Isle of Capri is the smallest casino in the area, but it has kept its market share well above 10 percent with its reputation for a fun atmosphere and good value. Isle consistently boasts the area’s “loosest slots,” meaning its machines pay out a slightly higher percentage in winnings.

“We are focusing on making our promotions as interactive and fun and energetic as we can,” said Jill Alexander, the senior director of corporate communications for Isle’s 16 casinos around the country.

The casino is even “looking at options for bringing a hotel to the area,” something Isle’s CEO mentioned in a recent conference call and Alexander confirmed. But no details have been released, or any timetable given for when a decision might be made.

On the other end of the scale is Ameristar, which lost a little more market share to Hollywood than other Missouri casinos did, but still remained the market’s revenue leader.

Ameristar and its sister casinos around the country changed ownership in 2013 when Pinnacle Entertainment bought them. But Barnard said the transition had been “almost seamless,” because Ameristar and Pinnacle had similar philosophies and corporate cultures.

Barnard also said his casino continued to freshen up its slot machine offerings every 90 days and to emphasize customer service, something he thought had helped it win recognition from the Convention & Visitors Association and Ingram’s magazine.

Ameristar also will play host to the Heartland Poker Tour in April, drawing hundreds of serious players. And Barnard said details soon would be announced about a slot tournament with a $1 million grand prize “that someone will be able to win right here.”

That was an allusion to Penn National Gaming’s Marquee Millionaire slot tournament now underway, which will have regional winners who go to Las Vegas for a shot at a $1 million prize. Five people from Riverside’s Argosy and five others from Hollywood will be chosen for the trip and competition, said Chaszar and Bob Sheldon, the general manager at Hollywood at Kansas Speedway.

Argosy, for all the business Hollywood may have taken from it, still took in more revenue in 2013 than its sister casino did. Chaszar also noted that Argosy hadn’t had to lay off any employees and that “our combination with Hollywood is stabilizing.”

Sheldon said Hollywood had executed its strategy “to come in and build a great product” and then “ramp up how we captured our share of the market over the course of 2013. We’ve hit our expectations.”

Hollywood is in a metropolitan area hot spot, as part of Kansas Speedway and its NASCAR races, and near Legends Outlets Kansas City, Nebraska Furniture Mart, Cerner Corp.’s new officer towers, and the Sporting Kansas City soccer and T-Bones baseball stadiums.

Sheldon said Hollywood also had done a good job of letting its regular patrons know that they could get in and out of the casino easily even on a big racing day.

“We had a pretty darned good October,” Sheldon said. “It was our best performance so far for getting more of our regulars to come out during a race.”

But even at the area’s rising casino, everything isn’t full speed ahead.

A new hotel was part of the plan for Hollywood eventually, but the casino recently requested and won an extension from the Unified Government for its deadline on starting to build a hotel.

“We’re spending dollars now working on plans to build a hotel,” Sheldon said. “We’re evaluating its true costs and making sure it makes financial sense.”

He added, “We still think there’s a challenge from the economy, but we think it’s getting better.”

To reach Greg Hack, call 816-234-4439 or send email to ghack@kcstar.com.

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