Recession forces casinos to go all in with pricey expansion projects

To understand the health of Indiana’s casino gambling industry, consider the two riverboats just outside

Argosy Casino late last month debuted a $335 million expansion at Lawrenceburg with nearly four times
its previous capacity and ceilings vaulting to 40 feet. The casino, renamed Hollywood, teems with more
slot machines and table games, and features a new video lounge along with a poker lounge that will play
a role in the world tournament.

Down the road at Rising Sun, the Grand Victoria Casino is
little changed from 1996, when its owners towed it up the Mississippi River from Louisiana.

Grand Victoria relied on overflow from the old Argosy; now, even some of that revenue is likely to slip
away to the refurbished Hollywood.

Hollywood General Manager Tony Rodio likens his casino to a Las Vegas must-see.

“I think the world is going to change dramatically for us with the opening of this new facility,” Rodio
said. “We’ll deliver a totally new experience, which will differentiate us.”

That, in a nutshell,
is the dilemma facing all Indiana casinos. In a saturated gambling market, they increasingly rely on expanded entertainment
options to attract patrons from competitors.

The upshot is that an industry once considered “recession-proof”
is asking the General Assembly for lower taxes and hopes to eliminate expensive regulatory requirements like maintaining engines
and crews.

Casinos’ pleas fell on deaf ears in the Legislature this year, which chose to grant no major gambling
concessions in either its regular or special sessions. Instead, lawmakers formed a “Gaming Summer Study Committee.”
Its eight voting members and two fiscal analysts will attempt to comprehensively review Indiana’s casino industry for
the first time in 15 years.

The committee will have plenty to analyze. Competition
increased dramatically last year with the debut of two “racinos,” or horse track casinos,
in Anderson and Shelbyville. Many gambling industry observers expect Ohio and Kentucky to follow with
their own casinos in the next few years.

A gambling arms race would force riverboats on Indiana’s
borders to expand to remain viable.

They’ve all seen how the 2007 debut of the Native
American Four Winds Casino Resort in New Buffalo, Mich., encroached on the Blue Chip Casino in nearby Michigan
City, Ind. Blue Chip’s owner, Las Vegas-based Boyd Gaming Corp., had to invest $130 million in a hotel and spa expansion
to keep up with the competition.

At the same time, Indiana’s casinos are enduring the same stiff recession
that’s dragging down other businesses. With declining disposable income, Hoosiers are wagering less. In May, for example,
Argosy had $5 million less gambling revenue than the $40 million it generated a year earlier.

Standard & Poor’s
says the gambling industry across the nation is reeling from the recession. Casino visits are down, particularly
in Las Vegas and Atlantic City, S&P noted in a May 11 industry credit outlook report.

minimum, many operators will see revenue declines approaching 10 percent, the agency said. However, S&P added, regional
gambling markets will fare better than destination markets.

That’s good news for Indiana’s more lavish
casinos, like Hollywood. S&P rated its owner, Pennsylvania-based Penn National Gaming Inc., “BB minus” with
a stable outlook.

Hollywood is certainly outfitted to lure gamblers. Consider these post-renovation numbers: 270,000
square feet; 900 more slot machines, bringing the total to 3,200 and with space to add 4,500 more; 28 table games for a total
to 88.

Hollywood also hired 250 employees to keep the expected influx of patrons happy. Many double as celebrity
impersonators between serving drinks or dealing cards.

Moreover, the casino can simultaneously project eight football
games onto the dome of its new video lounge.

That investment is likely to spell trouble for Grand Victoria, which
pulled in only about a third of Argosy’s revenue in May.

“Argosy will no longer be capacity-limited,
so the Grand Vic will no longer benefit on weekends, and will have to find a way to compensate,” said Indiana Gaming
Publisher Ed Feigenbaum.

Contrast S&P’s outlook for Hollywood casino with prospects for
Anderson-based Hoosier Park, one of Indiana’s two new racinos. S&P rates Hoosier Park’s
owner, Indianapolis-based Centaur LLC, “CCC” with a negative outlook. Its biggest worry is

Hoosier Park General Manager Jim Brown has the same concern. Debt left over
from the racino’s $250 million license fee makes turning a profit a huge challenge.

was a time when the gaming industry was looked at as ‘recession proof.’ Then, during another
economic downturn, the word was the industry was ‘recession resistant,’” Brown said. “What
we’ve seen on a national basis through this current economic downturn is the gaming industry has proved as susceptible
to economic downturn as any other type of business.”

Outsiders assume a casino permit is the equivalent of
a license to print money.

But in good times or bad, Brown said, for every dollar in revenue, Hoosier Park pays
about 50 cents in state and local gambling taxes and fees. Another 36 cents goes to salaries, marketing and other operating
expenses. After income taxes, Hoosier Park has less than 10 cents to service its debt.

That leaves little wiggle

“If you get into too much belt-tightening, you chase business away, and that becomes a slippery slope,”
Brown said. “We’re offering an outstanding entertainment experience to our customers. We can’t sacrifice
the levels of product and service we provide.”

Instead, casino owners want to go in the other direction.
They’re increasingly lobbying the Legislature for two major concessions: lower taxes, and tax abatements and incentives
granted on their non-gambling facilities.

Racinos want the Legislature to reconsider its license fee. In addition,
eliminating the requirement for engines and crews would cut an otherwise irrelevantt expense, because the boats never leave
their docks.

There’s no shortage of further ideas on their tax-cut wish list.

If they can’t
get gambling tax breaks, casinos want abatements and incentives on hotels, parking garages, golf courses and concert stages,
much like most other large businesses are granted routinely.

The casino industry has operated in Indiana for 15
years. Along with the Hoosier Lottery, it’s become the state’s fourth-largest source of income, after sales tax,
personal income tax and corporate tax.

Unless the state is prepared to let its gambling income shrink, it may have
to allow some of the concessions.

“We should take what we have and try to let it flourish,” said Mike
Smith, president of the Casino Association of Indiana. “The state should be looking at ways to be sure this industry
can be viable.”

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