Kansas City casino market revenue shrinks again

Kansas City’s casino market — resilient through the Great Recession and boosted for two years by the addition of a fifth big player — is shrinking again.

In the first half of 2014, the area’s four Missouri casinos plus Hollywood at Kansas Speedway took in $361.7 million dollars in revenue. That was down 4.3 percent from a year ago and, more ominously, less than what the Missouri casinos alone rang up in the first half of 2009, and barely more than their first-half totals in 2010 and 2011.

In other words, whatever growth the Kansas casino brought to the market when it opened in February 2012 has disappeared, eclipsed by the sluggish economy and competition from other forms of entertainment.

Tom Teesdale, vice president of marketing for the Argosy in Riverside, said casino customers in the region and across the country faced “significant economic headwinds” including stagnant wages, underemployment and “less discretionary income for entertainment as they have to spend more at the grocery store and gas station.”

The bright side is that the area casinos all seem to have adjusted to their “new normal,” watching costs closely, avoiding layoffs and keeping employee morale high — important in a business that combines service and entertainment.

“Our staff is in good spirits,” Teesdale said, and the Argosy keeps “reinvesting in the latest products” to keep its customer and be ready to add more if and when household incomes really pick up again.

Casino executives and analysts described the area’s competition as tough but not cut-throat, and the market as a bit winded but far from in danger.

“There’s no glut of casinos in the market, the way there is in Atlantic City and the southern Indiana-Ohio market now,” said analyst Robert Shore of Union Gaming Research, who covers all the companies that own casinos in the area. “The Kansas City casinos are profitable and generating positive cash flow. There’s no real risk” of a casino closing in this market.

A tough year so far

Around the country, casinos have seen their share of misery in 2014. Though Las Vegas is doing well, Atlantic City, N.J., and Tunica, Miss., have seen bankruptcies and closings.

And where newer casinos are doing all right, such as in Ohio and Kansas, revenues are dropping in nearby states, such as Indiana and Missouri.

The slump has caused problems for Missouri government, where gambling revenue is earmarked for education. Gov. Jay Nixon asked to shift $44 million in general fund revenue to education in the just concluded budget year to cover the shortfall in anticipated gambling revenue. But only $22 million of his request was shifted, and gambling revenue continued to come up short, necessitating cuts in state aid for school districts and universities.

And although Kansas has gotten a nice little revenue bump the past two years from the Hollywood and its two other casinos, gambling has shown once again that it’s no budget savior. In its fiscal 2014 — from July 2013 through this June — Kansas state government got $77.6 million in casino revenue, a small dent in a $14 billion state budget. What’s more, the total was down more than $1.5 million from fiscal 2013, so the state can’t count on its casino revenue growing going forward.

And Missouri and especially the Kansas City market, despite seeing revenues shrink, have avoided the bruising competition and even calamity that have hit some other states.

For example, since January in Atlantic City, New Jersey’s one gambling market, four of 11 casinos have gone bankrupt, closed or plan to close. Gambling revenue, for years a $4 billion-plus annual bonanza, was $2.8 billion last year.

Monster storms in 2011 and 2012 — Irene and Sandy — took a toll, and the town that inspired the board game Monopoly has suffered greatly from the loss of its East Coast monopoly on gambling. Since New Jersey joined Nevada as the country’s second casino gambling state in 1976, it has seen casinos or racetracks with other gambling come to nearby states Delaware, New York, Maryland and Pennsylvania. Pennsylvania even passed New Jersey as the No. 2 commercial casino revenue state in 2012.

Atlantic City’s boom-and-bust Southern sister is the Tunica market in northern Mississippi. Business there struggled when the recession hit, followed by a shutdown for flooding in 2011 that let nearby competitors such as Southland Park Gaming and Racing in West Memphis, Ark., lure away its patrons.

In June, Caesars Entertainment closed its Harrah’s Tunica Hotel & Casino, billed as the largest gaming floor between Atlantic City and Las Vegas. Caesars had tried to sell the casino for three years, and of Tunica’s remaining eight casinos, three have been seized by lenders and are for sale.

Another indicator of Mississippi’s troubles: Its other, relatively healthy casino area, along the Gulf Coast, will lose a casino in September when Margaritaville Biloxi plans to close.

Indiana, the No. 4 casino state, also has been hit hard. Ohio has taken a quarter-billion-dollar bite out of Indiana’s gambling revenue in the year since the Horseshoe Casino opened in downtown Cincinnati in March 2013. In May, a Cincinnati Enquirer analysis indicated, for the first time since Indiana riverboat casinos opened near Cincinnati in 1996, more gambling dollars in that metro area were spent in Ohio than in Indiana.

Stealing fire

The Kansas City market grew steadily till 2008, when it slipped back negligibly given the start of the recession. It ticked back up in 2009 after Missouri removed its rule that kept gamblers from losing more than $500 in any two-hour playing period. It slipped a little more in 2010 and 2011, not surprising given the sluggish economic recovery.

Then the Hollywood opened in Kansas early in 2012, cutting substantially into the revenue of all four Missouri casinos — the Argosy in Riverside, Harrah’s in North Kansas City, and the Ameristar and Isle of Capri in Kansas City. But the Kansas casino did push the total market to its revenue record of $759.1 million in 2012. That slipped 2.6 percent in 2013, with the Hollywood the only casino to add revenue.

That was the case again in the first half of 2014, as the Hollywood’s revenue rose 2 percent from a year ago, to $66.5 million, but the Missouri casinos’ revenue dropped 5.4 percent. That added up to the overall market’s 4.3 percent drop in revenue.

The Hollywood came along when, besides the slow recovery holding down spending, casino gambling was reaching saturation in many markets. As a result, rather than mostly generating new revenue, additional casinos were mainly cannibalizing other nearby properties.

A recent report on that trend by RubinBrown Partners, in fact, gave the Kansas City market as its prime example for 2013. The report, assuming flat revenue for the Missouri casinos, estimated that Hollywood “effectively generated 71.8 percent of its revenue through cannibalization of Missouri gaming revenues.”

Daniel Holmes and Brandon Loeschner, certified public accountants with the firm’s Hospitality and Gaming Industry Services Group, said there was little true growth in gambling occurring. In the first quarter of this year, they said, commercial casino revenue was down 3.2 percent nationally and 4.1 percent in Midwest casino states, which their firm defines as Missouri, Kansas, Illinois, Iowa, Indiana, Ohio, Michigan and South Dakota.

As a result, Holmes said, new casinos were mostly cannibalizing older ones, and “states without expansion, without new casinos, are seeing revenue down again this year.”

Game on

The Hollywood, developed by a partnership between the International Speedway Corp. and Penn National Gaming, has been a model of consistency in 2014, its revenue up 2 percent, year over year, for each of the first six months. And with the Missouri casinos declining, Hollywood raised its market share 1 point, to 18.4 percent.

“Though the market is down, we’re holding pretty steady,” said Bob Sheldon, the Hollywood’s general manager. “We’re still enjoying our newness” in the market, and being in an area with consistent growth and many other attractions, such as Kansas Speedway, soccer champ Sporting Kansas City’s stadium, Cerner office towers, Nebraska Furniture Mart, Cabela’s, and restaurants in and around an upscale outlet mall.

Sheldon acknowledged, as is clear from the numbers, the RubinBrown conclusion that most of Hollywood’s revenue had come at the expense of Missouri casinos. But he said that didn’t appear to be true for all of Hollywood’s continued growth this year.

“We’re drawing more from the Topeka area and to the west,” he said, and those could be customers less likely to go to a Missouri casino.

Another sign of the Hollywood’s health Sheldon mentioned is that it has decided to go forward with building a 250-room hotel. That was always part of its plan, but last year it asked for, and got, extra time from the Unified Government of Wyandotte County to meet that commitment, avoiding a $1.3 million fine.

“Preliminary designs are done,” Sheldon said. “We’re trying to finalize design now and set when construction will begin.”

He agreed with Teesdale that it’s “tough to identify” where substantial growth in the Kansas City market might come from now, given that “the middle class squeeze has left people with less to spend” on entertainment.

But he said at least the market was down some because of the economy, rather than “because they’re going elsewhere,” as is the case for Atlantic City and Indiana.

On the Missouri side

The Argosy’s revenue was off 6.5 percent in the first half of 2014, and its market share slipped half a point, to 20 percent. Of the Missouri casinos, the Argosy has seen its revenue shrink the most as a result of the Hollywood, not surprising given that it’s the closest geographically. That blow has been softened, at least corporately, because Penn National also owns the Argosy.

That means a gambler can use the same player rewards card at Hollywood and Argosy. Sheldon and Teesdale said both casinos had done a good job with cross promotions and making sure that if customers had “a second home” for gambling, it was the other Penn National property.

After the Argosy, the Ameristar has lost the most revenue since the Hollywood opened. But as the market’s revenue leader, it also had the most to lose. Its first-half revenue was down 6.8 percent this year, its market share slipped eight-tenths of a point in the first half, to 27.1 percent. Still it remains No. 1 in revenue, by an average of $1 million a month.

Marc DeLeo, the Ameristar’s new director of marketing, said the casino was having success with a new round of promotions, including giving away two Mercedes-Benz on consecutive Fridays. The Ameristar chain was purchased last year by Pinnacle Gaming, and the enhanced promotions are part of switching Ameristar customers to the combined company’s rewards program.

Top players under the program also are eligible for trip options including Royal Caribbean cruises and are referred to as owners because they also get shares of Pinnacle stock.

Ameristar also has ramped up its attractions at its Great Star Pavilion, DeLeo said, with everything from Mixed Martial Arts competitions, the Chippendales and the touring group from the “Last Comic Standing” TV show to country stars such as Trace Adkins and Travis Tritt.

Ameristar also is keeping its public service profile up, sponsoring such events as the annual Kansas City Bacon-Fest, benefiting the Rehabilitation Institute of Kansas City, and Giggle With Gilda, which benefits the Gilda’s Club Kansas City, which helps people with cancer and their families and friends. Both events will be Aug. 23 this year.

“Ameristar was very slot-focused” before the merger, DeLeo said, emphasizing that it continually refreshed its slot machine offerings. “Besides promotions, Pinnacle is focusing more on our amenities — reintroducing people to our great hotel, restaurants and movies.”

At the Isle of Capri, first-half revenue was down 5.5 percent compared with 2013. But the casino’s market share barely changed at 10.6 percent, normal for the market’s smallest casino.

Isle “continues to focus on delivering the best entertainment experience for our guests,” said Jill Alexander, the senior director of corporate communications for Isle’s 15 casinos. That includes bonus-winning promotions, she said, and live entertainment on Fridays and Saturdays, including top area bands such as the Nace Brothers.

Isle also raised the possibility last year of adding a hotel but hasn’t made any further announcements other than to say, “We continue to work with the (Kansas City) Port Authority to evaluate any potential project.”

And despite its declining revenue, the company said in its earnings report for the quarter ending April 27 that the Kansas City casino’s operating margins, net revenues and adjusted earnings before interest, taxes, dividends and amortization grew “as a result of marketing improvements and cost savings initiatives.”

Finally, there’s Harrah’s, which has fared better than the other big Missouri casinos at holding onto its revenue. Its first-half results did slip 2.9 percent from 2013 to 2014, but given the steeper declines for the Argosy and Ameristar, its market share ticked up three-tenths of a point, to 23.8 percent.

Harrah’s general manager, Tom Cook, always credits his staff’s customer service for the casino’s good results, and being able to give customers “top, luxury treatment. We’re their country club.”

This year he also mentioned a change in Missouri law that could increase business, especially among high rollers. A law taking effect at the end of August will allow gamblers, after a credit check, to play on up to $10,000 credit.

That might not make a big difference — the huge majority of Missouri gaming is slots — but Cook said it could help Harrah’s business of bringing in players from other markets served by its parent company, Caesars Entertainment.

“We often package trips to see the Chiefs or Royals,” Cook said, so not having to carry around “a huge amount of cash, especially when traveling,” will be good for customers.

Cook also said Harrah’s had new restaurant and bar offerings, and capital improvements coming. The former Mike & Charlie’s Italian Restaurant has closed, and 37 Steak (Harrah’s was founded in 1937) has opened recently. Besides steak and seafood, Cook said, Harrah’s offers craft cocktails, in an effort to provide an experience that’s special but also fun and relaxed.

“We have terrific bartenders now,” he said, “who can make something just right, on the fly.”

In addition, Cook said, Harrah’s will have a full renovation of one hotel tower, remodeling 200 rooms by year-end.

“It’s been a while since we’ve been able to have so many new things,” he said. “I hope the whole market rebounds.”

But regardless of whether or when it does, Cook added, “I like our ability to compete.”

This story was originally published August 4, 2014 at 10:23 PM with the headline "Kansas City casino market revenue shrinks again."