Monday, August 19, 2002

New hotel big gamble for casino

300 new rooms could boost attendance or put Belterra in red

By Randy Tucker
The Cincinnati Enquirer

        Belterra Casino & Resort in Vevay, Ind., has been forced to roll the dice on a new $30 million hotel tower that it agreed to build as part of a settlement agreement with the Indiana Gaming Commission.

        If the new hotel tower draws guests at the same pace as Belterra's existing 14-story, 308-room hotel, which maintains a near 100 percent weekly occupancy rate and is sold out most weekends, the odds of winning favor the house.

        But if attendance declines at the casino resort about 40 miles west of Cincinnati, one of the state's biggest attractions and revenue generators could lose big money on the proposed 300-room tower.

        “On one hand, a successful casino can always use more guest rooms,” said Jacques Cornet, a New York-based equity analyst who follows Belterra's parent, California-based Pinnacle Entertainment Inc.

        “But they (Pinnacle) have already invested $225 million in the area, and while they're doing very well, they haven't seen a return on that investment yet,” Mr. Cornet said. “So having them build a new hotel there certainly creates some uncertainty for the company.”

        The gaming commission asked for the new hotel tower as part of a settlement agreement reached June 29 following complaints that the casino arranged for prostitutes to entertain wealthy gamblers.

        Pinnacle also agreed to pay a $2.3 million fine; suspend gaming operations at Belterra for three days (from 6 p.m. Oct. 6 to 12:01 p.m. Oct. 9), and pay wages, tips, taxes and community development fees that would have been generated during that time.

        The company reported a net loss of $6.4 million, or 25 cents a share, for the three months ending June 30, due largely to a one-time charge of $6.5 million to cover settlement expenses.

        The fines and suspended business operations were clearly punitive measures against the casino resort, which has 38,000 square feet of gaming space and an 18-hole championship golf course.

        But the condition that Belterra build a new hotel tower was included in the agreement basically as a sign of good faith after Pinnacle officials told the gaming commission they were already considering building a new hotel tower, said Jennifer Arnold, a gaming commission spokeswoman.

        Pinnacle already has placed $5 million in an escrow account to ensure completion of the new hotel by July 2004. Failure to build the hotel on time will result in Pinnacle forfeiting the escrowed funds to the gaming commission.

        But Pinnacle officials are confident that the new hotel will be up and running on deadline, catering to capacity crowds.

        “For a property this size and based in this location, adding the 300 rooms (at Belterra) makes good business sense,” said Todd George, director of finance for Pinnacle. “It'll increase gaming revenues and allow us to make even more of a capital investment in the state of Indiana.”

        Mr. George said the elimination of cruising restrictions and the Aug. 1 start of dockside operations in Indiana - which allows operators to permanently moor riverboat casinos, giving more gamblers access to the boats - already has led to increased attendance, which should benefit the casino and new hotel in the long run.

        According to Pinnacle, Belterra's gaming revenues for the first 10 days of August corresponding with the beginning of dockside operations were up 30 percent over the same period last year.

        “I just spoke with Argosy and Grand Victoria (two other large riverboat operations in Indiana), and everybody's attendance is up across the board.” Mr. George said late last week.

        If the trend continues, a new hotel tower will soon be needed to handle excess capacity, he said.

        That would only enhance Belterra's standing as the brightest star in Pinnacle's constellation of seven riverboat operations in Indiana.

        While Pinnacle lost money in the second quarter, Belterra alone posted stellar results, including revenues that rose 24 percent to $31.3 million - the biggest increase among Pinnacle's riverboat operations - and operating income of $846,000, compared to a loss of $5.7 million in the second quarter last year.

        Pinnacle officials say such financial results are the reason they remain committed to Belterra and the surrounding community in Switzerland County, which has benefited greatly from the economic impact of the casino.

        Belterra paid $1.7 million in sales, use and property taxes in 2001, and $39 million in salary and wages for 1,336 employees.

        A new hotel at Belterra could mean even more jobs and revenue for the county, and Pinnacle officials may have good reason to be optimistic.

        Casino patronage at riverboat operations shows no sign of slowing, according to a recently released poll from the American Gaming Association in Washington, D.C.

        In 2001, casino patronage ranked second to lotteries as the gambling form of choice among Americans, based on the poll of both random adults and casino patrons conducted for the gaming association by Peter D. Hart Research Associates Inc. and the Luntz Research Companies.

        The poll found that in 2001, 48 percent of Americans played a lottery, while 28 percent gambled at a casino. Twenty percent participated in a sports betting pool, eight percent bet on horse or dog races and three percent wagered over the Internet.


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