Licensing dramas filled with twists and turns have been a staple item for the U.S. commercial casino gaming industry for decades, but the saga of Illinois’ tenth license will always stand out in any summary on the topic.

The license became available in 1999 when the Riverboat Gambling Act was amended to allow a failed  riverboat casino in East Dubuque to relocate, which led to one of the more lengthy and memorable scrums in industry history, replete with false starts and bruised feelings. It took 14 years for the license to finally start paying off in the form of the Rivers Casino in Des Plaines, and when it did, the tenth license gave the state of Illinois something it sorely needed: Not just money, but clarity.

Rivers Casino has shown itself to be the right project in the right place with the right operator. You can’t say it was the right time, as the project opened in the middle of an economic crisis. But, then again, with $416 million in annual revenue, Rivers was the highest grossing casino in the state last year, nearly doubling its closest competitor.  As lawmakers in Springfield contemplate legislation that would add casino gaming supply, the success of Rivers in difficult times adds complexity to the expansion debate.

“We’ve clearly grown the market,” said David Patent, president and chief operating officer for Rush Street Gaming, the operator of Rivers Des Plaines. “Not every dollar has been growth; you can see that in some of the declines of the current Illinois casinos. But if you look at 2012 versus 2010, which is the last year before we were open, and 2012 was our first full year, the Illinois market grew $277 million. Close to two-thirds of our revenue was growing the market in Illinois.”

Rivers Des Plaines has 1,044 slots and 48 tables, and has managed to outperform the much bigger Horseshoe Hammond Casino across the border in Indiana both in table game drop and high-denom slot play. When Rush Street Gaming went to finance the $445 million project, it was questioned very carefully on its projections, given that Illinois’ casinos had posted declines for three straight years. The numbers, as it turns out, have been in excess of expectations.

“The table game business was a bit of a gamble for us,” said Patent. “Other Chicagoland properties typically have between 20 and 30 tables; we went for 48. Our research told us that we were going to have a stronger table game business because we are closer to the city, and that turned out be correct. We actually do about 20 to 25 percent more table game drop than Horseshoe Hammond and they have three times more tables, and we do more drop than the other Chicagoland casinos combined. That’s been a huge home run. The high-end slot play has been terrific as well. If you look at us compared to Hammond, we do more coin-in on our dollar games than they do, and they’ve got 3,000 slots while we have barely over 1,000.” 

FOCUSING ON THE CUSTOMER

The success story in Des Plaines is more than location-based. In its relatively short history, Rush Street Gaming, which was formed in 2009, has proven adept at designing and operating casinos in densely populated areas that depend on high-frequency repeat visitors. Lessons learned at the company’s two other casinos, Rivers Pittsburgh and SugarHouse Casino in Philadelphia, have been successfully applied in Des Plaines.

But there is no cookie cutter. Des Plaines, like any project, has its own unique set of characteristics. “In Pittsburgh, we inherited a design that others had done, and, over time, we’ve moved things around to make the gaming spaces a lot more concentrated, such as with the table game pits,” said Patent. “We just learned from watching people play that they don’t want to walk long distances. At Sugar House, we’ve done the same thing. The land that we have in Des Plaines made things a lot easier; we were able to lay everything out in a nice, square box.”

The result is an easy-to-navigate gaming space, with four table game pits that surround a gaming-free center bar that serves as a sort of sanctuary and slot machines in between and on the outside, with tall machines placed against the walls to optimize sight lines. “It’s very easy once you walk in to figure out where you want to go,” said Patent. “In a locals market, where people are visiting very frequently, you don’t want to make them twist and turn and go through dark passageways. We wanted to put things out in front of people so they could find where they wanted to go very easily.”

" In a locals market, where people are visiting very frequently, you don’t want to make them twist and turn and go through dark passageways. We wanted to put things out in front of people so they could find where they wanted to go very easily. "

— David Patent, president and COO, Rush Street Gaming

Ease was vital for more than just the usual reasons: Many gamblers in Des Plaines were and are new to casino gaming. “If you talk to our employees, they will tell you there are a ton of people who showed up Day 1 and who have continued to visit who were not going to casinos before,” said Patent. “They had questions such as, ‘Where do I put my quarters?’ They did not know how to insert their players card into the reader. We had a lot of unrated play because people didn’t understand about loyalty programs at first. We had to work really hard to educate customers on the rules of the game, how to conduct themselves in a casino and how free play worked; the kinds of things that you take for granted in a mature market.” 

Other key property features include a generous allocation of surface parking (750 spaces, to go along with a 1,500-space garage) and a food and beverage mix that has proven highly popular, including a Hugo’s Frog Bar & Chop House, managed by Gibsons Restaurant Group; the only premier independent brand in the local casino market, and which does more than twice the business of a typical casino steakhouse.

 “Instead of just doing the typical self-branded steak house, we really wanted to work with somebody that had a name locally and a built-in clientele,” said Patent. “There are thousands of people who are coming to the casino who I know would not be coming otherwise. They’re not all gamers, but some of them do decide to go and game who would not ordinarily do so. Gibsons’ approach is very similar to ours in that they are very focused on service and driving repeat business. They’ll operate at lower margins than some of the other steak house groups because they just want to take great care of their customers. The people who work for them love working for them as well, which something we also strive to do. We do probably 70 percent cash business versus comp, which is not at all typical for a casino steak house. People who run their own steak house typically do 20-30 percent cash.”

THE RUSH STREET WAY

Chicago-based Rush Street Gaming was formed in 2009 by two industry veterans, Neil Bluhm and Greg Carlin, who formed the Falls Management Company in 1996, the firm that eventually built and opened Niagara Fallsview Casino Resort in 2004. Bluhm and Carlin’s pursuit of the tenth casino license in Illinois culminated in success in 2008, two years after it won one of the two licenses in Philadelphia and the same year it acquired the only casino in Pittsburgh while it was in development.

“All of our casinos are new builds and we tend to focus on urban areas,” said Patent. “There are three key things we try to do: Encourage people to be very entrepreneurial while focusing on customer service and team member satisfaction. You can’t market your way to success. You can’t dazzle them with buildings in high-tax frequency markets. You really have to rely on the service you give your customers to bring them back.”

With fewer than ten people at headquarters, Rush Street has a very small corporate staff relative to similarly sized gaming companies. General managers and department heads are “given a lot of latitude to operate,” Patent said. Team members are “equally as important as our customers, so we strive to make our casinos great places to work. If you look at our track record, that’s borne out.” SugarHouse has won four “Great Place to Work” awards; their casino in Des Plaines has won similar awards. “Typically businesses have to be up and running 10 or 15 years before they win these types of awards,” said Patent. “We’re very proud of the fact that our team members have said they love working for us and we try to make sure that we have great benefits and a lot of extras like tuition reimbursement, health care, and a 401k program with matching contributions at a very high level compared to some of our competitors. We just think it’s very important. You want to hire the best and then be able to retain them. “

As a quasi-independent operator competing against some of the biggest corporate names in the casino business, Rush Street goes up against increasingly muscular marketers, who are able to cross-sell the full range of their property assets to high-value players. Rush Street has competed along those lines by forming partnerships with operators on the Strip who are also trying to keep pace nationally: The Tropicana, The Venetian and Cosmopolitan. Royal Caribbean Cruises is another strategic marketing partner.

“One of the things we’ve also done recently to become more competitive is to allow our customers to redeem their points for free play,” said Patent. “That’s actually been a big hit; customers are doing that a lot now. It’s something they told us they wanted, other players in the market were doing that and we’ve been able to accomplish that. In terms of the national piece, we’ll send our players to Las Vegas as well. We’ve got partnership agreements with three diverse casinos on the Strip that cater to different demographics, all with very nice hotels and amenities that our customers get offers from. They can go to Las Vegas, be treated very well, and get free play, food and other comps. I don’t think we’re at a disadvantage at all.” 

LOOKING FORWARD

Illinois’ legislative session ended late last month so it was impossible to know as of this writing whether Rivers Des Plaines will be facing more competition in the near future. What’s certain is that the issue of expanded casino gaming in Illinois will stay alive (as it has been for the last 20 years) even if a bill isn’t signed into law this year. With that, Rush Street has a wish list that is certainly shared with existing operators in Illinois.

“What’s being discussed now is potentially more than doubling the current supply in the state, which is a real game changer,” said Patent. “It’s important to keep in mind that companies that invested under a certain thesis are still able to make a reasonable return. That means that the tax rates need to be calibrated for increased competition.”

Patent added that the ability to expand is important, reasonable and good for the state as well, “as long as there’s a reasonable approach from the tax standpoint. If you look at our current occupancy, there is room for us to expand. There is more demand than we are able to meet right now. We think it’s good business for us and also for the state if we were allowed to add some gaming positions.”

Rush Street would also like to see the rules on free play amended. Taxing free play, “is not necessarily additive for the state,” said Patent. “The more you tax free play, the less we are able to offer and that suppresses demand. States that don’t tax free play, like Pennsylvania, where free play is a fairly significant part of your marketing budget, find it is actually additive to total revenue, so we believe the state is better off if it’s not taxed. This becomes even more compelling with Indiana exempting a percentage of their casino’s free play from taxes.”

Beyond Illinois, Rush Street has two important growth initiatives in place:  In Worcester, Massachusetts, the company has proposed a $240 million project, competing for the state’s sole slots-only license. And, in Philadelphia, the company is investing $155 million in an expansion of SugarHouse.

“We’re very excited about Worcester,” said Patent. “We’re in the early stages and still need to negotiate a host agreement with the city. We’ve shared some renderings with them and have been working hard on the basic design of the facility. We think Worcester is a terrific location to be in and a potentially good gaming town. We’re talking about what a casino can do for them based on what we’ve seen in Philadelphia, Pittsburgh and Des Plaines. If we can get to the final round, we’re very confident we can compete well against the other proposals that will be out there.”

These include potential projects at Plainridge Racecourse, Taunton and one from the Cordish Companies whose announced location was recently rejected by the town. Patent expects a final decision will come late 2013, early 2014. In the meantime, Rush Street is working to get a referendum vote sometime this summer or early fall.

At SugarHouse, the expansion will effectively double the size of the casino and add some additional space that can be built out later. Dining outlets, entertainment space, meeting space, 400 to 550 slots, 30 table games, a 35-table poker room and a parking garage will also be added. “It’s a 14-month build out,” said Patent. “We hope to have this completed by first or second quarter of 2015.”