Blue Chip prospect
Blue Chip prospect
Expansion of successful Chicagoland casino follows industry trends and highlights Boyd Gaming's growth strategy
Las Vegas-based Boyd Gaming is planning to replace its existing Michigan City, Indiana casino to better compete in the increasingly competitive region that borders Northwest Indiana, Southwest Michigan and Chicago.
The move comes as four Native American tribes, led by the Pokagon Tribe, overcome the last legislative hurdles that have blocked their plans to build a casino just across the border in Michigan. But as Boyd Gaming celebrates its 30th year in the casino industry, its officials insisted their $150 million expansion of the Blue Chip Hotel & Casino in Michigan City is also a part of a broader, strategic vision to keep their properties competitive in an constantly changing industry driven by mega-mergers.
"While we recognize the competitive nature of the northern Indiana market, our project really addresses the fact that our business is at capacity during peak periods. It's not as much about competition as it is about growing the business," said Rob Stillwell, Boyd Gaming spokesman and vice president for corporate communications.
The plans are not finalized. But Boyd Gaming is considering using the existing multi-level Blue Chip riverboat casino, located on the Indiana side of the border with Michigan, for expanded convention and event services.
Stillwell said the new casino built in its place will be larger and offer more gaming positions. More importantly, the multi-level vessel with gaming on one floor will provide a more spacious environment offering a "Las Vegas feel."
"The plans have been on the drawing board in anticipation that our success in the northern Indiana and Michigan area marketplace would draw competition, including from the Pokagon Band of Potawatomi Indians," Stillwell said.
Stillwell acknowledges that a lot is at stake.
The Blue Chip is a significant part of Boyd Gaming's riverboat and racino division, which together accounts for about 45 percent of the company's total cash flow. Boyd Gaming owns 18 casinos in six states, including 11 in Nevada, where they recently broke ground on the South Coast Hotel & Casino, located on the extreme south end of the Las Vegas Strip.
Earlier this year, Boyd Gaming announced a $1.3 billion merger that made Las Vegas-based Coast Casinos a wholly-owned subsidiary of Boyd Gaming effective July 1. The buyout reportedly involved a $495 million cash payment and $460 in debt assumption adding four additional properties to the Boyd Gaming portfolio.
"That move significantly increased our profile in the Las Vegas locals market, and provided us with a second Strip property in the Barbary Coast," Stillwell said.
The mergers and acquisitions, Stillwell explained, allow Boyd Gaming to expand aggressively in other markets, including in Northern Indiana.
"It also puts us in a position where we are not as dependent on any one state. Now, we generate half of our revenues and cash flow from Nevada and half outside of Nevada and that adds stability to our company," he said.
Cornerstone of success
Boyd Gaming acquired the Blue Chip two years after it opened in November 1999 for $274 million. The property's gross revenues have increased from $160 million in 1999 to $218 million in 2003.
The Lake Michigan dockside operation features a 184-room hotel and approximately 43,000 square feet of gaming space on three levels with 1,700 slots and 50 table games. The adjacent Pavilion offers 8,000 square feet of meeting and convention space including three large meeting rooms, a 5,400 square foot grand ballroom, and three restaurants including a 240-seat buffet and an 80-seat gourmet restaurant.
"It's been wildly successful from the very beginning. Several months after buying it, we opened the hotel to strengthen the operation and our ability to better market the property to expand its reach," Stillwell said. "Before, it was a day trip market. Now, we're looking at the overnight aspect of the entertainment. During the week, we're able to accommodate special events too. The changes in the industry demand it."
Boyd's reinvestment strategy in Blue Chip has been aggressive. After the hotel, they invested $3 million to add 5,500 square feet of gaming, new slots and gaming tables on the third deck, plus a VIP lounge. Last year, Blue Chip invested another $3 million to expand the surface parking, and recently upgraded its rooms and remodeled its suites.
"We've spent about $25 million since we acquired it. We make a practice of reinvesting in our properties and growing those businesses," Stillwell said.
The expansion at Michigan City is just a continuation of that strategy, not a reaction to the Pokagons, Stillwell said.
"It just provides for a more spacious environment and will make it easier to get around. You want to provide more gaming positions but you also want to allow people to move around. It's all in the concept stages at this point," Stillwell said, adding that the project is expected to be completed in 2006.
A changing marketBlue Chip draws its customers from the "four corners" of northern Indiana, southern Michigan, southeast Chicago and northeast Illinois.
"Northern Indiana is very competitive and we are the furthest east giving us proximity to that market," Stillwell noted. "But this isn't just about the Michigan City marketplace. It's about the industry as a whole. We're no longer just in the casino business. We're in the entertainment business. Certainly, when the Pokagon band's casino opens, it will have an impact on our marketing strategies, but not on our overall vision. We expect competition in a very competitive industry."
Since 1998, tribes across the border in nearby Michigan have been stymied in their efforts to build a casino by Michigan legislation prohibiting gaming. But a recent court ruling concluded Michigan can have casinos, opening the way to the Pokagon casino, which reportedly would be managed by Lakes Entertainment, and about 15 miles from Blue Chip. The Pokagons expect final clearance once federal environmental and social impact studies are completed.
Industry analysts, including Harry Curtis of J. P. Morgan, predicted the Pokagon casino could reduce Boyd Gaming's EBITDA from $85-$90 million to $60 million. Joe Greff of Fulcrum Global Partners reported the Pokagons would have "a materially adverse effect" on Blue Chip, which provides 15 percent of Boyd Gaming's EBITDA.
"The fact is Blue Chip is one of our more successful riverboat operations. The property typically is at capacity on weekends and holidays so it is a natural to look at enhancing our entertainment during those peak periods as well as growing the business," Stillwell said.
"If we were worried about them, we wouldn't have acquired the operation. But we know that increased competition can help strengthen and grow a market. And depending on what they do, this could happen. We're ready for it and always have been."
Stillwell said the changes are a natural evolutionary process" similar in all of the casino markets. Expanding the casino and adding a hotel and event planning is the cornerstone of that strategy, he said.
For example, Boyd Gaming invested $50 million to expand its Delta Downs racetrack and casino, their lone racino operation.
"We are positioning ourselves to better compete in the Lake Charles Market where Harrah's and Isle of Capri have riverboats and adjoining hotels. It also allows us to expand our marketing programs and include many of the things especially in the midweek that we weren't previously able to offer," he said.
The bigger picture
Boyd Gaming's planned expansion of Blue Chip is only one facet of the company's myriad growth strategy
Thanks to numerous expansions and mergers, Las Vegas-based Boyd Gaming has entered the ranks of the nation's top five gaming companies.
"It's probably aggressive, but it speaks to the longevity of our company and why we have been successful over the years," said Rob Stillwell, Boyd Gaming spokesman and vice president for corporate communications. "We are in a capital-intensive business that requires a lot of reinvestment. Las Vegas has a habit of reinventing itself and that is a major reason for its success and a major reason for the success of the nation's top gaming companies."
But Stillwell is quick to point out that Boyd is not the only gaming company turning to mergers and acquisitions for continued growth, and all this activity has had an impact on the way casinos now do business.
"These mergers are changing the industry to the extent that there seems to be fewer players going forward," Stillwell said. "Generally speaking, casino entertainment offerings are becoming more widely accepted and understood. Casino entertainment is about all of the things that go along with it, and not just about the blackjack tables.
"In the old days, it was about blackjack and the gambling and the room used to be just a place where you can relax," he added. "Now, it's beyond that. The hotel room is where you also expect to go to relax in comfort, to think about dining, shopping and shows. It's multi-dimensional. Many people go there just to meet people, for dinners and for the shows."
Blue Chip is one of five single property acquisitions that Boyd Gaming completed in the last seven years. Also acquired: the Par-A-Dice Hotel Casino in East Peoria, Ill. (1996); the 85 percent it did not previously own of Treasure Chest Casino in Kenner, La. (1997); the Delta Downs Racetrack and Casino in Vinton, La. (2001); and Sam's Town Hotel & Gambling Hall in Shreveport, La., (formerly Harrah's, and one of their divestitures as a result of the Horseshoe acquisition) in May 2004.
"It is just one of the ways we have grown as a company. The merger is another way and we are a 50-50 joint venture partner with MGM Mirage at the Borgata Resort Casino and Spa in Atlantic City, N.J., a $1.1 billion next-generation mega-casino resort." Stillwell said.
"In designing the Borgata entry to Atlantic City, we could have just put up four walls and a casino and done well. But Borgata is helping to grow the Atlantic City market. It has reintroduced the market to people who previously have not considered it, giving people many options to consider, from the name restaurants (they offer 11), top-name entertainment and a great room product," Stillwell said.
When Borgata broke ground in the fall of 2000, approximately $800 million in projects were in the works or introduced in Atlantic City alone, signifying what Stillwell noted is an indication the market is evolving.