It has been another grindingly difficult year in the U.S., with jurisdiction after jurisdiction reporting flat-to-down (mostly down) monthly revenues and casino operators moving sideways in low single-digit fashion.
So I thought listening in to the first quarter earnings call last month of that most regional of casino operators, Isle of Capri, with its smart and articulate CEO Virginia McDowell, would be a good way to understand what all American gaming executives are up against and how they are managing through challenging times. It was, and here’s a summary:
• Discretionary spending woes: In her opening remarks, McDowell said as retailers and restaurants have reported weak results but the housing market has continued to improve, there has been much discussion why rising economic indicators in some sectors have not resulted in increased discretionary spending across the board. “While it appears that many customers have an appetite for big-ticket items such as autos, there’s still pressure on leisure spending, on retail and restaurants among others,” she said. “While consumer spending has increased, customers are still being cautious, many under pressure from high unemployment levels and the effects of payroll tax increases. Regional gaming is no exception as has been evidenced by the quarterly results and monthly revenue figures.”
• Becoming more efficient: Isle has responded to tough times with a combination of top- and bottom-line strategies, as it waits for consumer confidence to flow through to gaming. “With continued pressure on our top line, Isle is working hard to both operate and market more efficiently,” said McDowell. “Over the last couple of years, we did see a correlation between the way our customers reacted and the stock market. On the other hand, if they’re sitting there watching CNN and MSNBC and they’re getting scared, it impacts them negatively. One of the things we’ve learned through this is that we need to be as cost-efficient as possible, both at the properties and at the corporate office.”
• But not cutting too deep: On the cost-cutting side, Isle has been careful to avoid steps that it feels would compromise the guest experience. The corporate jet has been sold, but rooms, restaurants and gaming floors continue to be updated. “We have focused on mid-management, marketing, and corporate, but you have to continue to put a great product out there for your customers,” said McDowell. “We have quietly renovated restaurants, rooms, updated casino floors and done the kinds of things you need to do to create a fun and welcoming environment for customers without sacrificing service. It’s a delicate balance.”
• New supply isn’t always a good thing: With a property in nearby Waterloo, Iowa, Isle is not a fan of adding a new casino in Cedar Rapids, where plans for a new $150 million property were unveiled last month. The state is expected to decide on the project next spring. “There is not enough demand for that market and we have been very vocal in saying that,” said McDowell. “I think Iowa has shown great discipline over the years and been a great model. To the extent that they are looking at new licenses they have asked for economic impact statements from other casinos and other markets that could be impacted and made their decision accordingly. When you look at the market around Cedar Rapids at this point it’s a mature market. There are a number of properties, including a tribal property, that are going to be impacted. We don’t believe there’s any incremental benefit for the state. The impact on the Waterloo property would not be as significant as on some of the properties that are a little bit closer but we believe that any addition of gaming to the state would not be a good thing.”
• Sometimes the price isn’t right: Isle looked into purchasing Lumiere Place in downtown St. Louis along with its additional land parcels, which Pinnacle was compelled to divest by the Federal Trade Commission in order to complete its acquisition of Ameristar. The property sold to Tropicana Entertainment for $260 million. Isle CFO Dale Black’s comment when asked: “We didn’t place the same value on it as the buyer.”
• Internet gaming: Like every other operator in the states, Isle has followed very closely how this online gaming is rolling out. “We have felt that a federal solution would be best,” said McDowell. “Nevada quickly saw that they had a liquidity problem, so it looks like Nevada and New Jersey are going to pair up. While we’re licensed in Nevada, our license doesn’t allow us to pursue an Internet gaming license. So we don’t really have any skin in the game at this point but as it rolls out across the U.S., we’ll look at our opportunities.”