Vegas company envisions a new Riviera in Missouri

By Liz Benston

Friday, Aug. 23, 2002 | 11:11 a.m.

With several states blocking initiatives to build casinos and maintaining caps on gaming licenses, few casino companies would overlook the chance to expand in a state amenable to allowing more gambling.

That opportunity is now at hand in Missouri, one of the country's smallest gaming jurisdictions with only 11 riverboat casinos. The state's competitive landscape is a world away from the market forces that a company like Riviera Holdings Corp., which operates the Riviera Hotel & Casino at the north end of the Las Vegas Strip, faces in the nation's gambling capital, observers say.

That's part of the reason why Riviera Holdings is applying for a casino license hundreds of miles away in the "Show Me State." Over the next couple of months, regulators will consider a proposal by Riviera to build a $150 million casino near Barnhart, about 20 miles south of St. Louis in Jefferson County.

Riviera is the only company that has recently received local approval to launch a casino. Regulators say there's no guarantee the company will get the next casino license, however. Five other applications, from Isle of Capri Casinos Inc., Ameristar Casinos Inc. and three smaller business entities, have been on file with the Missouri Gaming Commission for more than a year.

About two years ago commissioners approved a plan for a casino project in Jefferson County that later fell through. But the other applications -- which call for casinos near downtown St. Louis, just south of St. Louis and in nearby St. Genevieve County -- also will be considered along with Riviera's plan.

"There are no front-runners at this point," said Patricia Churchill, the Missouri Gaming Commission's deputy director for legal and legislative affairs.

Jefferson County presents a rare chance to launch a casino far from competitors, experts say.

"It's kind of a monopoly situation," said Larry Klatzkin, a gaming analyst with Jefferies & Co. "People drive an hour to go to St. Louis (to gamble) now. There's a lot of demand for something that's local."

Riviera in June received an endorsement from Jefferson County commissioners to build the casino. The endorsement isn't a requirement for regulatory approval but will become a significant factor in the Missouri Gaming Commission's decision to approve the plan.

"The commission is looking for a project that has the support of the local community," Churchill said.

If approved, Riviera officials have said the casino could begin construction next year and be complete by late 2004 or early 2005.

Similar to other states that have authorized gambling in the past decade, however, Missouri's regulatory and tax environment is in flux. That presents uncertainties for casino operators, experts say.

Missouri is now the only state in the nation that limits how much gamblers can lose in casinos. The loss limit, at $500 per simulated boat cruise, is a contributing factor in a revenue gap per customer between Missouri casinos and their counterparts across the Mississippi River in Illinois.

The average amount won from gamblers "per admission" in Illinois casinos from January to July was $97, according to the Illinois Gaming Board. For St. Louis-area casinos in Illinois, that figure was about $70.

In Missouri, the average won per admission through July was far lower, ranging from about $19 to $25. Win per patron, which includes multiple visits, is still lower than Illinois, at $52.46 through July. For the three casinos on the Missouri side of St. Louis, that amount was $53.42.

The casino industry's lobbying efforts to get rid of the limit may pay off next year, when operators will count on lawmakers to remove the limit in return for an expected increase in gambling taxes.

Year-over-year revenues are strong in Missouri, however, and this month's launch of the Ameristar Casino St. Charles could help boost revenues statewide.

Missouri gambling revenues increased 7 percent in 2001 from the prior fiscal year, to about $1 million, despite a 9 percent drop in patron volume, according to the Missouri Gaming Commission's most recent annual report. An 18 percent increase in wagers lost by gamblers to casinos, boosted by the introduction of "cashless" slot machines that accept and dispense paper vouchers, helped increase revenues. The drop in patrons was due to a maturing of the market and a lack of expansions, the report said.

On average, casinos won $46.20 per patron in 2001, compared to $39.20 a year earlier, state figures show.

Slot pay per patron, defined as the amount of money gamblers feed into slot machines per visit, rose from $573 for the six months prior to the legalization of cashless slots two years ago to $679 in the last six months of fiscal 2001.

About 60 percent of the state's gambling revenues are generated by slot machines.

Recent figures also show growth in Missouri, though increases fell short of last year's double digit gains. Gambling revenues in July totaled $108 million, an 10.8 percent increase from a year ago. That compares to Nevada's gaming win of $714 million for June, the latest figures available.

The St. Louis market grew by 3.6 percent, compared to the region's Illinois side, which rose by less than 1 percent.

Las Vegas-based Ameristar Casino's two properties, Ameristar Casino St. Charles near St. Louis and Ameristar Casino Hotel in Kansas City, each topped competitors with double-digit revenue gains. The Casino St. Charles' plush, new 130,000-square-foot casino dwarfs the region's other riverboats but is northwest of St.Louis, far from Riviera's proposed casino.

Riviera has offered few specifics about why it chose Missouri.

The area fits the company's business strategy and is the result of efforts to examine other states as potential expansion markets, Chief Financial Officer Duane Krohn said.

The company has looked outside Las Vegas since 1997, he said. It also spent three years reviewing the Colorado market before acquiring its only other casino, in Black Hawk. The company also is pursuing a partnership with a racetrack operator to run a slot machine and racetrack attraction in New Mexico.

"We analyze all of the markets where we might be able to operate," Krohn said. "We continue to look at various places."

At a meeting last month, the Missouri Gaming Commission said it needed more time to analyze the effect of a local casino bankruptcy before it would decide whether to issue another license.

St. Louis-based President Casinos Inc. filed for Chapter 11 bankruptcy protection in June. The company has said it expects to emerge from bankruptcy next year and would not need additional financing in the interim.

Missouri regulators have not yet set a deadline for the decision to grant a casino license, though it will likely take another couple of months to study the market, Churchill said. Commissioners will then decide whether to add a license in Jefferson County or a license in the St. Louis region -- areas the state had previously indicated could support additional casinos. They may also decide to award both licenses or none at all.

Two years ago critics claimed the commission gave preferential treatment to Isle of Capri Casinos when it approved the company's plan to build a $100 million casino in Jefferson County. The commission said it turned down three other proposals because it feared the nearby competition would put President Casinos' struggling riverboat in downtown St. Louis out of business.

Jefferson County, on the other hand, was further away, commissioners argued. An investigation by the state Attorney General determined that the commission wasn't improperly influenced. The issue has since been put to rest and is unlikely to effect any new proposals there, Churchill said.

Jefferson County has a rapidly growing economy, while the region just south of St. Louis' city limits -- the site of a rejected casino proposal by Ameristar Casinos -- needs more commercial development, critics said. The law to legalize gambling was aimed at boosting the fortunes of financially distressed areas, they said.