Sunday, December 05, 1999
New Indiana riverboat casino starts early
Revenues below projections, profits elusive
BY GRACE SCHNEIDER
Louisville Courier-Journal
NEW ALBANY, Ind. — The Caesars Indiana riverboat casino marked its first anniversary last month, having endured costly problems and delays and generating revenues less than expected.
But already, the Glory of Rome — the world's largest floating casino, with 3,600 gambling positions — has changed the way thousands of people spend their free nights and weekends.
“I've never seen anything like it,” gushed James Baynes, a shipping clerk from Shelbyville, Ky., after a first visit to the casino on the Ohio River. “It's an experience.”
Officials at Caesars World predicted three years ago that the project would generate $210 million in revenue during its first year of operation.
Instead, the casino will likely show revenues of $170 million — still an impressive number.
Michael Walsh, Caesars Indiana's chief operating officer, said he's upbeat and that the boat is past its maiden-year glitches. But he acknowledged that the start-up has been far more difficult than anyone anticipated.
The boat hasn't turned a significant profit — yet. “We're making enough to pay our bills and fund our construction,” he said. “After debt payments, there's not a lot left.”
A list of the problems during Caesars' rocky first year would include:
• Archaeological excavations, which unearthed a treasure trove of artifacts. The dig continues, postponing construction on the complex's hotel. The excavation's cost may reach $13 million before it's completed in the next few months.
• A two-week shutdown in June, caused by a silt buildup at the boat's dock. The vessel nearly ran aground, forcing Caesars to pay $1 million for emergency dredging. The shutdown cost $7.9 million in lost gambling revenues. While idled, the riverboat was rammed by a passing barge and required costly emergency repairs.
• The cancellation of a construction permit by state environmental regulators, who had discovered that a Caesars subcontractor had placed water wells in unapproved locations. The state accused Caesars of knowingly violating other permit conditions, and this fall the company was fined $80,000.
• A recent lashing from the Indiana Gaming Commission over the company's failure to even come close to state goals for hiring female and minority contractors.
When early forecasts on Caesars were made, they assumed that the casino would open with a fully-built pavilion and hotel.
But the pavilion won't be completed until early next year, and the hotel isn't expected to open until late 2001. A hotel at a casino complex is generally viewed as a key element.
“You go from being a day trip to an excursion,” said Ed Feigenbaum, editor of Indiana Gaming Insight, a newsletter that tracks the Hoosier gambling industry.
At other Indiana casinos, gambling revenues surged when their hotels opened.
Gambling analysts believe Caesars has performed adequately so far. But despite its size, it's not a star among the Midwest riverboats.
The most successful Indiana boat — and one of the national leaders — is the Argosy Casino at Lawrenceburg, about 20 minutes from downtown Cincinnati. Its revenue through the first nine months of this year was more than $230 million, compared with more than $132 million for the Glory of Rome.
Despite Caesars' relatively slow start, analysts believe the region's gambling market is deep — and far from tapped out. At Caesars, “it's been a slow ramp-up,” said Joe Coccimigilo, a gambling analyst with Prudential Securities in New York. “It's one of the weaker projects in Indiana” through the first two quarters of 1999.
Caesars, he said, is spending twice as much as Argosy to build its complex. But its revenues are far less than Argosy's, he said.
Mr. Walsh bristled when asked about comments that Caesars isn't doing as well as expected. “I don't know if analysts understand the dynamics of our market,” he said. “I have yet to see an analyst down here. Not one.”
Mr. Coccimigilo said the picture should brighten as the other parts of the casino complex are built.
“The only real risk to the whole thing is if Kentucky and Ohio should legalize” casino gambling, he said. Given what Indiana “is putting into their (riverboat) projects, all the boats should do well.”
Caesars' closest competitors — Grand Victoria at Rising Sun and Casino Aztar at Evansville — have held their own. But their admissions and revenues have declined noticeably since Caesars opened.
Aztar's admissions declined 7.5 percent and Grand Victoria's fell 14.6 percent through September, compared with the same period in 1998, according to gaming commission records.
Revenue also declined — by more than 14 percent at both casinos.
Jack Thar, the gaming commission's executive director, acknowledged that Caesars has had more problems than most other Indiana riverboats.
Starwood Hotels & Resorts Worldwide Inc., which now owns Caesars World's gambling properties, pushed Caesars Indiana to open before its pavilion and other amenities were ready to help pay construction costs, Mr. Thar said. Starwood's supervision also has slowed some parts of the construction, he said. (Starwood is selling its casino properties to Park Place Entertainment Corp.)
But when completed, “I think it will be an outstanding performer,” he said.
Harrison County provides the best early glimpse of the pluses and minuses of playing host to a massive new gambling business.
The community of 34,000 has received a shower of $14.5 million in tax revenue so far — unheard-of riches for a county that has struggled with its 1990s transformation from a rural farming area to a bedroom community for Louisville.
Casino revenues have paid for 141 miles of road paving and resurfacing, the start of Harrison's first countywide library, more police officers, new firetrucks and expanded ambulance service.
The downside is disturbing evidence — still tentative — of social problems: a spate of arrests for disorderly conduct, public intoxication and other minor crimes at the riverboat and an increase in problem gambling.
Main Street in New Albany, the main route to the riverboat, is experiencing the benefits of added traffic. Two gas and food marts have begun 24-hour operations in the city, and a pawnshop, Casino Cash, also sprang up during the summer.
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