Will opening of seventh local casino lead to 'cannibalization' in gaming market?
St. Louis Business Journal
February 26, 2010
by Lisa R. Brown
With the opening of the $380 million River City Casino in Lemay, 2,100 new slot machines' electronic bells will be clanging with activity on a plot of South County land that has sat idle for three decades.
Las Vegas-based Pinnacle Entertainment is confident there's enough business in the St. Louis market to fill the casino when it opens March 4.
But some analysts are raising concerns about whether St. Louis, with its flat population growth, can support a seventh casino.
"We are cautious about cannibalization within the St. Louis market as well as on Lumiere Place," Macquarie Equities Research noted in a Feb. 5 research report.
Pinnacle opened the $500 million Lumiere Place downtown in December 2007 and acquired the President riverboat casino, also downtown, for $45.7 million in 2006. Pinnacle is fighting efforts by the Missouri Gaming Commission to pull the President's gaming license over lackluster revenue.
Macquarie's report characterizes St. Louis' gaming market as "fairly mature and full of competitive assets." In addition to Pinnacle's two downtown locations, the other four area casinos are Harrah's in Maryland Heights, Ameristar in St. Charles, Argosy in Alton, Ill., and the Casino Queen in East St. Louis, Ill.
"In hindsight, we would have been more comfortable if Pinnacle spent more on River City and less on Lumiere Place, rather than vice versa, as the county appears to be the more attractive site in the long term," the Macquarie report opined.
Lumiere Place has produced solid results for Pinnacle, and it now is the company's second-best revenue performer of eight casinos nationwide. Last month, Lumiere Place saw a 1 percent revenue decline compared with January 2009, but that was the first time the casino saw a revenue drop since opening.
Coming off a 19 percent increase in revenue in December, Pinnacle stated in a SEC filing this month that it was "particularly pleased to see Lumiere Place in St. Louis perform so well."
Lumiere Place's market share climbed from 17.1 percent in the fourth quarter of 2008 to 20.5 percent in the fourth quarter of 2009. "This heightens our confidence that the scheduled opening of River City in south St. Louis County will be successful," the company wrote in the filing.
Eugene Christiansen, chairman of the New Gloucester, Maine-based gaming consulting firm Christiansen Capital Advisors, said the key to Pinnacle's opening a new casino without drawing customers away from its existing facilities is differentiation. "It depends on if it's a different kind of casino, and does the new property satisfy appetites that the existing casinos do not satisfy," Christianson said. "It all goes back to supply and demand. Casinos are no different than widgets."
Standing apart
Todd George, Pinnacle's top official in St. Louis, has overseen the construction of a combined $880 million at Lumiere Place and River City. After leading Lumiere Place as general manager for the past two years, George has been tapped to lead River City in the same role. During the last 12 months, he has overseen the construction of River City, one of the few major projects to get the otherwise moribund construction market.
George said River City will create a new customer base. "This will really expand the market and take it south," George said. "There's no place right now that's convenient for them to go to."
George said Lumiere Place draws a lot of customers from Illinois and vacationers who are visiting St. Louis' downtown attractions. In contrast, River City will be targeted toward the South County population. There is a hotel planned for a later phase at River City, but moving forward with the hotel will be based on demand after the casino opens.
River City and Lumiere Place also look starkly different. The contemporary Lumiere Place, which stands out with its illuminated exterior just north of the Arch, has two hotels and a parking structure. River City's "Gilded Age" theme borrows from the 1904 World's Fair, with white marble floors, a cabaret and custom glass chandeliers.
The layout feels roomier than Lumiere Place, with wider walkways due to having more real estate to work with -- a 250,000-square-foot facility on 56 acres, compared with Lumiere Place's 1.2 million square feet on seven acres. "We're building out instead of up," said Project Manager Bob Herr.
Pinnacle partnered with Anheuser-Busch InBev to create a new beer just for River City. It will be among the 32 beers on tap at the 1904 Beer House, one of seven bars and restaurants.
The River City site has sat vacant since National Lead Industries shuttered its plant in 1977. Las Vegas-based Ameristar Casinos Inc. made an unsuccessful bid in the mid-1990s to build a casino there but ultimately built in St. Charles.
Barbara Hehmeyer, executive director of the Lemay Chamber of Commerce, said the clean-up costs made the Brownfield property unattractive to developers. Pinnacle spent $12 million on environmental remediation after the Missouri Gaming Commission awarded the River City license in 2003.
"We felt for a long time that the only thing that would work there (because of the clean-up costs) would be a casino," Hehmeyer said.
