When Steve Calabro, president and general manager of Gulfstream Park, wants to size up the competition in the increasingly competitive South Florida gaming market, all he has to do is gaze out his office window.
Practically under the famed racetrack’s nose is Mardi Gras Casino, which sits just a mile down the road. Calder Casino & Race Course lies about seven miles to the west.
And that’s not counting the very real possibility of more competition - including the Seminole Tribe’s growing gaming empire - just over the horizon.
“There is a lot of inventory in South Florida,” Calabro observes.
Welcome to the Sunshine State, which is fast earning the distinction as one of the most heavily fought over gaming markets in the country.
Since voters first gave the green light to slots in Broward County five years ago (Miami-Dade County voters approved them in 2008) a bevy of long-time racetracks have been rolling out slot machines and poker rooms and planning big expansions. The lure is one of the largest and, until recently, untapped metro markets in the country: Florida’s densely developed Gold Coast, stretching from Miami to Fort Lauderdale. The racetracks turned racinos face stiff competition, both from each other and from the region’s 800-pound gorilla, the Seminoles’ Hard Rock casino franchise, which stretches across the state.
So far, despite the competition, these newly minted slot venues are holding their own, managing to boost revenues this year after a down year in 2009 and cultivate customer loyalty amid one of the worst economic downturns in decades. It helps, operators say, that Florida recently slashed its tax rate on slot revenue, potentially freeing up tens of millions of dollars for marketing and expansion.
Yet, over the long-term, some industry observers fear that what is now at times a no-holds-barred battle for market share could morph into cannibalization. In fact, South Florida may be an example of too much of the wrong type of competition, with an array of contenders too far away from each other to benefit from the synergies of critical mass but just close enough to be deadly serious rivals.
“You have a lot of competition within a fairly compact area,” says Bennett Liebman, coordinator of the Racing and Gaming Law Program at Albany (N.Y.) Law School.
Counting the casinos of the Seminole and Miccosukee tribes (and you can factor in cruise ships, too) South Florida is by some estimates already the third-largest gambling market in the country, behind only Las Vegas and Atlantic City. It includes the state’s two most populous counties, Broward and Miami-Dade, in one of the most densely urbanized regions in the country. It is home to a vibrant mix of gambling-happy snowbirds and new immigrants eager for distraction. The region is on track to see gambling revenues potentially double or even triple over the next decade, from about $2.5 billion now to as much as $6 billion, observers say. And the market’s immense profit potential, in turn, has sparked a gold rush for gambling dollars among an increasing number of operators.
âTHE TRAFFIC IS UNGODLY'With the opening of the casino at Calder Race Course in January, there are now about 5,600 slot machines spread across five South Florida racinos. Not surprisingly, the jostling for market share has sparked an arms race. Gulfstream teamed up with a private developer to roll out a $245 million expansion earlier this year. It features 50 retail shops and 20 restaurants and a refurbished 500-seat entertainment venue.
The track also has found a way to make money on horseracing.
“We have the best racetrack in the country,” Calabro boasts. “We are a mile from the beach, we have million-dollar horses running around every morning, and there are some very new buildings. Most racetracks were built in the 1950s and 1960s.’’
Gulfstream, after a sluggish debut in late 2006, has seen net slot revenue (calculated as gross win minus promotional credits) rise steadily. The racino is now weighing plans to add hundreds of more machines to its current contingent of about 840.
“It’s a gigantic expansion, but we are going to wait through the end of the racing season,” Calabro says.
Just a mile down the road, Mardi Gras Racetrack and Gaming is looking to keep pace. The track, which features some 1,200 machines, is eyeing its own $300 million addition, one that would include a 300-room hotel, meeting and convention space, a large restaurant, shopping and a parking garage.
Meanwhile, Miami’s Magic City Casino at Flagler Dog Track has been steadily expanding the slot floor it first rolled out in October 2009. It has introduced electronic blackjack and added another 100 slot machines for a total of just under 800. There is now a high-limit room as well. The racino is studying a further expansion, says COO Scott Savin, one that could see it fill out another 40,000 square feet of unfinished space with more games and amenities.
Having just rolled out its own slot machines this year, Calder Casino & Race Course, which competes with both nearby Gulfstream and Mardi Gras, is not ready yet to be talking expansion. But the recently opened racino, which features 1,200 slots and 29 poker tables, is off to a fast start and is on target to meet its first-year revenue projections of $80 million to $100 million, says General Manger Austin Miller.
But as impressive as the expansion plans of the tracks may be, they are dwarfed by the ambitions of the powerful and ever-expanding Seminole casino empire. The tribe is weighing its own $3 billion plan that could see it add thousands of hotel rooms and slot machines and more of the table games it won last year after a drawn-out compact battle with the state. It is an empire that reaches right into the hyper-competitive South Florida market.
“Hard Rock has been extraordinarily successful, and it has been hard for the racinos to compete,” Liebman notes.
Still, some industry experts - not to mention some Florida gaming executives as well - are wondering whether all this competition may be too much of a good thing.
Calabro, an industry veteran who spent two decades in the intensely competitive Atlantic City market, contends that South Florida, at least when it comes to competition, may have the worst of both worlds.
There are synergies that come with the clustering of casinos close together, a classic model used with great success by Atlantic City, Las Vegas and even Connecticut’s two giant Indian casinos. But while South Florida’s racinos may seem close together, distances are deceptive in the densely built, traffic-clogged Miami-Fort Lauderdale metropolis. If two racetracks are just a few miles apart they might as well be in different states, as Calabro sees it, because most customers are not likely to fight through traffic to visit both. By way of illustration, he notes that he lives just seven or eight miles from Gulfstream, but it takes him 40 minutes to commute to work in the morning.
“They are just far enough apart where there is no synergy,” he says. “In South Florida, the traffic is ungodly.”
The state would have been better off if it hadn’t clustered its racinos in the Miami metro market, suggests William Thompson, a professor and gaming industry expert at the University of Nevada, Las Vegas. “They are postured in a bad way,” he says. “They should be spread across Florida.”
In fact, all the jockeying for position can get downright ungentlemanly at times.
‘NUTS’ FOR COACH BAGS
Restored to its original elegance, the 1920s-era Hialeah Park reopened for racing last year after being forced out of business nearly a decade ago. But owner John Brunetti’s drive to add slot machines is being blocked by his prospective competitors, including nearby Calder, which is just 11 miles to the north.
In a lawsuit filed in state court, Calder and other racinos contend that the 2004 amendment to the Florida Constitution that legalized slot machines at racetracks in South Florida applies only to those venues that held live racing the previous two years. Since Hialeah had closed back in 2001 it is not eligible now for slots, they argue. Calder’s Miller says the suit has nothing to do with competition, it’s about following state law. Randy Soth, Hialeah’s general manager, begs to differ, noting pointedly that the suit was filed by the racetrack’s “competitors”.
If it can fend off the court challenge, Hialeah plans to install 800 to 1,000 slots, a cautious expansion that would be far below the 2,000 machines the track could theoretically roll out.
“The key thing is trying to build for what you expect to be your market,” Soth says.
Accompanying the slots will be an expansion that will feature a two-story glass atrium and a design reminiscent of pre-Castro Havana.
But competition can have its benefits, as any casino customer wooed by rival operators can tell you. With no cushy monopoly market to fall back on, South Florida’s racinos are scrambling to ensure repeat business once they get gamblers through the door.
Calder, for one, is aggressive about keeping the slot product fresh and exciting, says Miller, quickly purging the gaming floor of machines that don’t get enough action. That can mean weeding out games that have high volatility or lack the bonus rounds that are popular among players. “We examine the performance of each game and monitor how much play they are getting,” he says. “Customers obviously vote with their wallets.” Calder intensively mines its data base of 100,000 customers and is generous with offers to its more faithful players. “We try to hunt with a rifle as opposed to a sawed-off shotgun,” Miller says. “We get much more strategic.”
Calabro says his casino is constantly getting creative with its promotions, launching events like a $1 million giveaway and “Coach and Cash,” in which coach bags filled with money are given out to random slot players every 15 to 20 minutes.
“People go nuts for it,” he says, adding, “There are not that many women in the world who don’t like coach bags.”
Bottom line, despite the tough economy and the ongoing battle for market share, the racinos are headed for their best year ever, thanks to the addition of Calder and Magic City. Through August, the latest figures available at press time, they’d booked $222.4 million in combined net slot revenue and are on a pace to exceed $250 million for the year. They’re winning an aggregate of about $18.5 million a month on average, about 3 percent better than last year.
In a significant boost, Florida recently dropped its tax rate on racinos from 50 percent, one of the highest in the country, to 35 percent.
Some, like Gulfstream’s Calabro, say the additional cash will help bolster the economics behind future expansion plans and provide more money for marketing efforts. “It’s already starting to help,” he says. “It allows us to market a little more to our customers and make a little more so we can justify an expansion.”
But others caution that the tax drop, while welcome, is hardly a game changer. They note that while it’s certainly lower, 35 percent is still a fairly high rate, three times what casinos in Atlantic City pay.
“Think about running a business that is paying three times that tax rate in today’s economy,” says Miller. “It is still extremely challenging.”