While operators in many mature markets around the country worry about developments across the state border, Louisiana’s casinos are getting ready for new competition within.
In the next two years, some of the biggest names and most popular brands in the industry will be planting their flags on new casino resorts in Baton Rouge, Bossier City and Lake Charles, with price tags of up to $400 million. These include Pinnacle Entertainment, Creative Casinos with its new strategic partner MGM Resorts, and, assuming the successful results of a referendum on November 19 are verified, Margaritaville.
They will either be ratcheting up existing intra-state battles or joining the fray with other established powerhouses such as Caesars Entertainment, Boyd Gaming, Isle of Capri and Penn National, leveraging the full force of leading-edge loyalty programs such as mychoice, Total Rewards, B Connected and M Life. With U.S. gaming’s domestic capital Las Vegas fully built out for years to come and investment dollars flowing mostly to regional markets, Louisiana will merit more than a few pages in the next chapter of casino industry growth, and the impact will be felt from Oklahoma to Mississippi.
“A lot of these operators are looking at more effective regional marketing concepts; they’ve seen Las Vegas isn’t recession-proof,” said Wade Duty, executive director, Louisiana Casino Association.
The impacts will be considerable both within the state and regionally. Just this year, the top two casinos in Biloxi were brought into the marketing fray, with MGM’s alliance with ex-Pinnacle CEO Dan Lee’s Creative Casinos in Lake Charles making Beau Rivage into a regional cross-marketing asset and Boyd’s acquisition of IP Biloxi linking that property to B Connected’s three Louisiana operations. Margaritaville, for its part, was effectively sold to local officials and voters in Shreveport and Bossier City as a hook for Oklahoma-bound gamblers in the Dallas market.
In some ways, the state of Louisiana and the players who gamble there are already winning. Operators on the ground are gearing up with new investments across the board, new carpeting on the floors, better bars and restaurants, new slot machines for players, spiffed-up hotel rooms and, one could logically conclude, improved service. There hasn’t been a better time to be a rated player, and better quality properties aren’t doing anything to hurt tax revenues, which may have been part of the state’s thinking all along.
A STATE FULL OF GAMINGLouisiana’s sprawling gaming industry presently includes riverboat casinos and racinos which control over 20,000 machines. Three large tribal facilities-Coushatta, Paragon and Cypress Bayou-operate over 6,000 machines combined. There’s also an enormous tavern-and-truckstop video gaming market with close to 15,000 machines and over 1,300 electronic bingo machines across the state. That’s a fair amount of gaming for a state with around 4.5 million people.
The supply of gaming is so broadly distributed that local markets tend to have a fairly tight circle drawn around them, as competitive offerings are never very far away, and the western part of the state is very Texas-dependent, living off of the Dallas area in Shreveport/Bossier City and the greater Houston market in Lake Charles.
The state is statutorily limited to 15 riverboats, four racinos (Delta Downs, Louisiana Downs, Evangeline Downs and Fair Grounds) and one land-based casino (Harrah’s New Orleans). When Isle of Capri sold one of its two riverboat licenses in Lake Charles to Paradise earlier this year, it effectively brought the number of functioning licensed operations down to 12. The three remaining licenses are being used for the following new projects:
• Baton Rouge: Pinnacle’s L’Auberge Baton Rouge, a single-level, 74,000-square-foot casino with nearly 1,500 slot machines; 50 table games, including a poker room; a 12-story hotel with 206 guest rooms and a rooftop pool; three dining outlets; a casino bar with sweeping views of the Mississippi River; and a multi-purpose event center with concert seating for up to 1,600 people. The project is expected to cost $357 million, excluding land and capitalized interest. Projected opening date is summer 2012.
• Bossier City: Pending successful verification of last month’s referendum, Bossier City’s sixth riverboat casino could be a $170 million Margaritaville-themed resort with a major entertainment component. The project, which would be operated by Paradise Casino, includes an 18- to 20-floor hotel tower with 400 rooms, a 1,000-seat entertainment center and restaurants overlooking the Back Bay. On the gaming side, Margaritaville Bossier City will operate a 20,000-square-foot casino composed of 1,275 slot machines and 38 table games. Projected opening date is May of 2013.
• Lake Charles: Mojito Pointe is a luxury casino resort to be located on a 242-acre site in Lake Charles. MGM will manage the new resort under an MGM brand to be announced and the resort will be fully integrated into MGM’s M life loyalty program. Creative Casinos, which originated the project and steered it to a successful referendum vote last year, will develop and own the resort. The casino will have approximately 1,500 slot machines and 50 table games and there will be two hotels with a total of 400 hotel rooms, including 30 VIP suites. Construction on the resort is expected to begin before year-end in anticipation of an opening in mid-2013.
THE CASE FOR NEW SUPPLYThere is broad agreement on the quality of this new supply, if not its impact. Some observers, mostly existing operators, see excessive cannibalization, others who tend to be less invested in the present, see the bright side. What’s clear is each market is a little different, and at least a decent case can be made for the new supply in each one.
Take Shreveport/Bossier City, which has been drastically impacted by the growth of tribal casinos in Oklahoma. “Without question, they are the 800-pound gorilla,” said Duty, who said the northwest Louisiana market is down 17 percent since the high-water mark of 2002-03. “The decline coincides exactly with the explosion of Native American gaming in 2004-05. Oklahoma has over 130 Native American gaming options and there is a barricade of properties on the Texas/Oklahoma border. Because of gas prices, a lot of people prefer driving 45 minutes north instead of two-and-a-half hours east.”
For the past two years, things appear to have stabilized. “The new reality is 2009 to the present and Shreveport/Bossier City is pretty stable,” said Steve Rittvo, chairman, The Innovation Group. He noted that total revenues are down between 1 to 2 percent. Win per player is slightly up, but the number of positions in the market has dropped slightly from 8,770 in 2009 to 8,451 in number of positions, a 4 percent reduction overall, implying a better use of space and capital.
“I think Margaritaville adds something to the market,” said Rittvo. “It’s giving somebody from Dallas another reason to come. It creates a bit of excitement and grows the market a little bit, but will probably make most of its money from the existing operators. It’s reminiscent of Vicksburg when Riverwalk came in. There were a number of operators with not strong brands. Riverwalk came in, the market did not grow tremendously, but it’s now the second best operator in the market; Margaritaville could have similar impact. We’ve done a lot of research on gaming brands and Margaritaville consistently places in the top two or three in terms of acceptance. This was better than putting in something else because Margaritaville will be incremental.”
Baton Rouge is a little trickier, according to Rittvo. From 2009 to the present, win-per-position has declined along with the number of positions, from 2,476 in 2009 to 2,367 this year. Win per patron was $95.90 in 2009 was $92.98 though this September 30.
“L’Auberge Baton Rouge will take market share from the existing operations, but it will also grow the market,” said Rittvo. “The quality of that facility will induce players to come, and it will shift some of the revenue that’s in the video poker market right now. Baton Rouge is still a reasonable contributor to Biloxi and I think it will recapture that because it will be offering a resort alternative. But a very significant portion will be displacement from the existing operators. It should draw some from Avoyelles, but if you look at the population and economics of Baton Rouge, supporting three full facilities with that base population is sort of stretching it.”
By way of example, Rittvo said Detroit, for instance, has about 12,000 positions or three times Baton Rouge fully built out with seven or eight times the population.
Mojito Pointe in Lake Charles appears to represent the strongest case for growth, offering the strongest combination of strength of product and market of the three new projects.
“For some time now, we have been operating under the assumption that you can’t just add capacity. It’s got to be good capacity, otherwise you’re just splitting your market with your competition,” said Daniel Davila, partner, Poydras Street Capital. “By all indications, Mojito Pointe is special capacity. It’s at least comparable to L’Auberge du Lac. And the greater Houston market is so diverse demographically and geographically, it’s so big. If you’re buying media in that market I would guess you’re getting pretty big pop for your buck. How many population centers are there like that in the country?”
The win-per-player out of Houston is higher than elsewhere, adds Rittvo. “Lake Charles has a win-per-player edge: $78 per person vs. $66 in Shreveport/Bossier City. You are getting a better demographic coming out of Houston.”
GEARING UP ON THE GROUNDSite visits to a number of Louisiana properties in late October made clear that operators in the state are taking aggressive steps to solidify their hold on customers and make them better prepared to compete once the new facilities open. Here are some thumbnail sketches:
• Belle of Baton Rouge: One of the original riverboats in the Louisiana market, the Belle has been opened since 1994 and captures about 40 percent of current Baton Rouge casino revenue, with Penn National’s Hollywood boat getting the rest. Unlike Hollywood, the property does have a hotel. After being sold by Argosy to Columbia Sussex in 2005, the property went into bankruptcy and was re-sold to Carl Icahn’s Tropicana Entertainment Inc. in early 2010.
The property has since done well, said Jeff Michie, general manager. “This year, Baton Rouge is up about 3 percent. We lag the state a little because we are so dependent on the government and there is so much uncertainty. There haven’t been layoffs, but people aren’t being replaced. Government employees have declined from 94,000 to 89,000 here.”
About 85 percent of the Belle’s revenue comes from within a 20-mile radius. As you get out further, say 40 to 50 miles, you start butting into New Orleans territory and the Mississippi Coast, Michie said. The population of the Great Baton Rouge area is 865,000, so “there may be some under-penetration. A lot of the people who live in the Baton Rouge area may go to the Mississippi Coast, down to New Orleans or to Vegas. It’s certainly not a destination market at present. Our hotel is filled up less than half by gamers.”
To help steel itself for the arrival of L’Auberge, Belle is spending about $7 million this year. About $2 million of that is being spent to enclose and weather-proof the lengthy promenade from the levee to the casino, which is presently too hot in the summer and freezing in the winter. Another $1 million is being put into the casino, with new carpeting bathrooms and a new bar being ready for New Year’s Eve. Belle is also putting in about 200 new slot machines; which comprise over 20 percent of its 900-machine floor.
“We’re not phoning it in; we know what we have to do,” said Michie. He sees L’Auberge’s location in East Baton Rouge as access-challenged and an advantage for the Belle, but he also knows the first few months will be a challenge, but not without opportunities. “They have a good advantage with properties in Bossier City, New Orleans and Lake Charles. We think if they’re going to entice Houston and New Orleans players to this market we’ll get a shot at those guys especially table game players. Because when they gamble like to go to multiple places. If it’s new blood in the market, we’ll pick up a piece.
Still, the first month or two is going to be rough. “You could see an impact of as much as 30-40 percent of gaming revenue,” Michie said. “But we’re going to fight for it. The cost of business is going to go up because our best customers are going to get more. It’s a matter of 17 years of relationships over here. There are people that love us, but that doesn’t mean some won’t defect. Nobody’s going to roll over. Penn’s smart, they know what they’re doing. We’ll fight for every dollar. If we lose 5 percent of our business, I’m going to be mad.”
• Eldorado Shreveport: While many in the Shreveport/Bossier City market wonder about the impact of Margaritaville (or, in the case of Horseshoe, a vocal opponent, openly state their opposition), the mood is confident at the Eldorado.
With a firm grip on the number-two spot in the market behind Horseshoe, Eldorado has weathered the economic downturn well, according to Leslie Peck, manager of advertising and public relations. “We haven’t had a down year and I think the reason why is we’re family-owned and have been putting a lot of capital back into the property,” she said. “We have been promoting ourselves more as a resort. The way we have developed our marketing plan has helped us diversify.”
During the recession, Eldorado’s Reno-based owners, who have controlled the property for six years, have, “stayed above the fray,” said Peck. “We can make decisions and stay close to our players. We have completely avoided layoffs, given our employees raises and continues to match their 401k. We’ve done well; we’re proud of where we are.”
Among the recent developments at the property is a new bar called the Allure Ultra Lounge, which has a bit of a Vegas feel and a balcony that overlooks the property’s showroom. Eldorado has re-done all of its hotel rooms in the last three years. The property also benefits from a coffer system that gives it the appearance of a substantial, unified, land-based structure, as opposed to the other riverboats on the state, all of which have some form of tunnel leading from the non-gaming side of the property to the casino.
About 60 percent of the property’s business is local, with most of the balance coming from east Texas. Carded play is aggressively promoted with, among other things, a Fortune 250 monthly promotion-throughout the month, people can qualify for a $250,000 drawing. There are 330 contestants selected on the first weekend and by the final night it’s down to 11. Of those 11, one wins $250,000 and the other 10 win $5,000. The promo is open to all carded players.
Regarding Margaritaville, “It’s going to be a wait-and-see thing,” said Peck, who suggested the project could have some positives for everyone. “It might pull some business from Dallas that we don’t normally get because there are a lot of Parrot Heads [Jimmy Buffet followers] there.”
“Marketing is a very critical, but once you get folks here, your service levels and offerings are, I would argue, even more important,” said Centers. “My goal is to build on the strong service expectation that’s already here at Boomtown and take it to the next level. Cleanliness, the feeling of safety in the parking lot and in the casino, hotel check-in, room quality, wait times in our restaurants… our customers tell us time and time again that those things are absolutely critical.”
Centers said he will be putting capital into his establishment next year. The property’s hotel rooms were recently redone and it will renovate its suite offerings for high-end guests. “We’re also looking at our slot offerings, and ways to make our food and beverage offering better and more attractive to our guests,” he said.
The full force of Pinnacle’s Louisiana resorts and its revamped mychoice loyalty program should come in handy as well. “If you think about our offering in Lake Charles, to be able to offer a guest who lives here a weekend trip there gives us a huge advantage,” said Centers. “Partnering with Boomtown New Orleans for specific promotions next year also creates unique opportunities. I think we can get creative with some of the things we do partnering with our other Louisiana properties. Add a $357 million investment in Baton Rouge, that’s another great option…attending a Saturday LSU game, that’s pretty attractive.”
As for Margaritaville, “Gaming has been great for Louisiana for the past 20 years. Now, we need to make sure the decisions made now insure the next 20 years. I’m very confident in our ability from a service and strategic marketing standpoint, including utilizing and leveraging mychoice, to take advantage of that opportunity.”
“We’re playing a lot of catch-up,” said Conrad Granito, general manager, who has been at the property three years. In that time, he has placed about 60 to 65 percent of new games on the property’s slot floor. “We’ve spent some money. Right now, I would put it up against anybody, even going all the way to Biloxi.”
Coushatta’s clientele and that of L’Auberge is a little different. “I can’t offer the amenities they have; they have a beautiful property. They have 33,000 square feet of gaming space by statute; I have 110,000 square feet of gaming space; 2,835 slots, 68 tables and a 20-plus table poker room. Plus we have much wider aisles. Service is getting better here; it’s something we’re known for. Our floor also has a bigger payback percentage. I can say that; nobody might believe me.”
Just in case they need reassurance, a billboard advertising Coushatta’s 98 percent payback percentage stands not far from L’Auberge on the I-210 loop.
Tribal facilities have the luxury of trying some things that the riverboats can’t, namely bingo and off-track betting. “We’re going to put bingo in instead of take it out,” said Granito. “This place has never played bingo. We’ll have a 430-seat hall and will be Vegas-style, 90-minute sessions with 90-minute breaks and push them out to the machines.” Bingo will open in December. Also, a sports bar will be expanded to have an OTB parlor, develop with the help of Autotote. “It will be the same system as Paragon in Marksville.”
More important, 401 rooms are being added to the resort with a target completion date of May 2012. “We’re a casino resort and so is L’Auberge and they have 1,000 rooms,” said Granito. “We’ll have over 900 rooms when this is completed. That 1,000 rooms sitting over the casino is a huge marketing advantage for L’Auberge. They can give that $25 to $100 bettor a room. I’m presently running at 75 to 80 percent capacity all the time. They can offer that player a two-night stay mid-week and right now I can’t.”
As for Mojito, Granito will be looking to see if they can grow the market beyond Houston. “L’Auberge already has pretty good reach into Austin and San Antonio,” he said. “The question is whether Mojito can go there and grow things as well.”
The consolidated operation will have between 1,250 and 1,260 machines, 45 tables and 1,200 employees. Compared with Coushatta, Isle Lake Charles isn’t replenishing its floor as fast, but it is reinvesting steadily in its slot product. “We are probably not quite at a 20 percent re-fresh; we’re a little lower,” said Hutchens. “We’re trying to be thoughtful in terms of any capital investment including slot purchases. We’ve had 1,800 slot machines between the two casinos, and it was a challenge keeping that size floor fresh. When we consolidate down to the Grand Palais, it will make us a better operator.”
After four-and-a-half-years down the road as an executive at L’Auberge du Lac, Hutchens signed on as GM here ten months ago, and he sees the near-term as a period of preparation for substantial new competition. “Mojito is saying they’ll open in mid-2013, so I’ve got a year or two to build stronger relationships with our team members and our guests in anticipation of the additional competition.”
He takes a nuanced view of loyalty in the Lake Charles market, which can be difficult to pin down: “Shortly after I got here we spoke to some focus groups in the golden triangle of the area from Beaumont to Port Arthur to Orange, Texas. It was approximately 120 people and they knew something about all of us,” said Hutchens. “What motivates them for a trip? Well if I’m just looking for something quick I might stop at Delta Downs because they’re a little closer. If I have my grandkids with me I might go to Coushatta with their Kids Quest. If I have a great offer with entertainment from Isle, they’ll come here. There are a number of different reasons why they might visit any of us.”
Of MGM’s alliance with Mojito, Hutchens said the M Life Club has considerable value. “Whether it’s an individual from Houston who has gone to Las Vegas for years, tapping into the Beau Rivage data base or other individuals who they know from this area, it’s value-added for that property,” he said. “It hasn’t really changed our way of thinking, I’ve assumed we’d have a viable competitor in this market, whether it’s Creative Casinos as a stand-alone or MGM. Mojito is going to be a very formidable competitor, but our primary job will remain the same; to deliver a product that is clean, safe, friendly and fun.”