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Midwest casino market draws from more limited pool of gamblers

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Cary Spivak/Milwaukee Journal Sentinel
October 7, 2013

In the casino business, the days of "build it and they will come" are over.

With 36 casinos in Wisconsin and Illinois, 9,000 slot machines in Illinois taverns, truck stops and similar venues, and untold illegal slots in Wisconsin bars, the Midwest gambling market has changed dramatically over the past couple of decades.

No longer does the number of gamblers automatically expand when new venues open, experts say.

Casinos "certainly do reach that point where they just start essentially cannibalizing each other," said Mark Nichols, of the University of Nevada-Reno's Institute for the Study of Gambling and Commercial Gaming. "You're seeing signs of that now."

Such concerns are cited by the Potawatomi tribe as it spends millions to block the Menominee tribe from opening an $808 million casino complex in Kenosha.

The Potawatomi fear a casino located between Chicago and Milwaukee would siphon many of its Illinois customers. Potawatomi Bingo Casino in Milwaukee draws about 35% of its customers from the Chicago area, according to a market report by Scarborough Research.

"A slot machine is a commodity, and if you could travel 20 miles, as opposed to driving 55 miles, to get to a slot machine, you're going to do that," said John Repa, a national casino consultant who is working for the Potawatomi. A Kenosha casino would be "devastating" to the Potawatomi casino, Repa said.

Those Illinois customers now coming to Milwaukee are the type that any casino would want to keep — their average household income was $72,951 — or about $22,695 more than the Milwaukee area customers, according to Scarborough.

COMPETITIVE MARKET

The Menominee face an uphill fight to open a Kenosha casino.

Federal law requires that the plan win approval from Gov. Scott Walker. The governor has said the Menominee must convince all 11 Wisconsin tribes — including the Potawatomi — to support the casino before he would approve it. In addition, Walker has said the Menominee must show that a new off-reservation casino would result in "no new net gaming," although administration officials have declined to define the term.

Regional casino markets around the country, including those in Reno, Atlantic City, Illinois and Indiana, have seen gaming revenue drop after new competitors enter the market. The same effect is being seen in the Chicago area since the $445 million Rivers Casino opened in Des Plaines, Ill., in 2011.

"Our feeling is expansion hurts everybody," said Suzanne Phillips, marketing director at the Grand Victoria Casino in Elgin, Ill., which saw gaming revenue fall by nearly one-third after the Rivers Casino opened about a half hour away. "There is a finite number of gamers."

The recession has made many of those gamblers more cautious with their dollars, said Michael Paladino, a gaming analyst at Fitch Ratings.

"Many markets are seeing a point of saturation," Paladino said. "New casinos ... are just cannibalizing the existing market."

Even Las Vegas and Reno are not immune from competition, Nichols said.

Many of the millionaire gamblers whom casinos lust after are staying closer to home and not flying to Vegas as frequently as they used to. And gaming revenue in Macau — an eastern Asian locale known for attracting high rollers — last year was nearly four times that of Las Vegas, he said.

Reno saw its gaming revenue fall about 30% during the past decade because of the economy and the opening of Indian casinos between the gambling town and populous Sacramento, Calif.

"The big thing ultimately is convenience," Nichols said.

HIGH-STAKES BATTLE

Many battles for gambler dollars occur near borders as cash-strapped governments try to attract new revenue. Such a battle could be shaping up between Kenosha and nearby Waukegan, Ill.

Millions are at stake for both casino owners and government. Wisconsin last year collected $52 million from the 11 tribes that operate 18 casinos and seven ancillary casinos — sites that offer slot machines only.

The operators of existing casinos want to protect their hefty profit margins. Most casinos post margins in the 20% range, while Indian casinos in monopoly areas can reap profits of 40% to 50%, Paladino said.

Potawatomi Bingo Casino won nearly $400 million from gamblers last year — a figure that includes more than $20 million paid to the state as a casino fee. Those winnings allow each tribal member to collect about $70,000 a year in casino dividends.

Studies by the Menominee predict a Kenosha casino could eventually net more than $500 million a year from gamblers. Potawatomi officials say the figure is inflated.

In addition to fighting a Kenosha casino, the Potawatomi are keeping a close watch on Illinois, where legislation to expand casino licenses is introduced almost every year.

Repa, the industry consultant, said a casino in either Kenosha or in nearby Waukegan would likely cost the Potawatomi about a third of its business.

Keeping Illinois money in that state is a driving force for legislation to allow a Waukegan casino, said Illinois State Sen. Terry Link, who has brought in numerous bills to expand the state's gambling industry.

"We want to stop the flow of people to Indiana and Wisconsin," said Link, a Democrat who represents the Waukegan area.

Link's latest bill passed both Illinois houses but was vetoed by Gov. Pat Quinn this year. In addition to authorizing casinos in Waukegan and Chicago, Link's bill also would give a green light to three other casinos, including one in Rockford, located just south of Beloit, where the Ho-Chunk tribe hopes to open an off-reservation casino.

THE RACE TO BE FIRST

A Kenosha casino could scuttle plans for a Waukegan facility.

"That would have a major impact on the potential for a Waukegan casino to be profitable," said Tom Swoik, executive director of the Illinois Casino Gaming Association.

Link goes a step further. "Whoever builds first will end up not having the other one build at all," he said.

The Menominee argue a Kenosha casino will keep Illinois gamblers coming north.

"Those moneys ... that all stays in Illinois" if Walker vetoes the Kenosha casino, said Gary Besaw chairman of the Menominee Kenosha Gaming Authority.

Ken Walsh, a lobbyist for the Potawatomi, points out there is no guarantee a casino will ever open in Waukegan.

Experts say a Kenosha casino would have key advantages over a Waukegan spot.

Gamblers are allowed to smoke in Wisconsin Indian casinos, and Wisconsin casinos can have an unlimited number of slot machines and table games. Illinois limits casinos to 1,200 gaming positions — though Link's bill would increase it to 1,600 spots. A Kenosha casino hopes to house more than 3,000 slot machines, or about the same number as Potawatomi Bingo Casino.

The long-term impact that a Kenosha casino would have on the Potawatomi is up for debate. In approving the Menominee plan, the U.S. Department of Interior downplayed the impact, predicting that much of the business initially lost by the Potawatomi would return.

Repa, the consultant, said much of the damage would be long term.

Besaw said the Menominee tribe hopes to attract much of its business from tourists — a claim many analysts doubt since regional casinos generally draw business from the local market.

ADDING TOURIST ATTRACTIONS

To attract tourists, a Kenosha casino would have to compete with the Rivers Casino, located next to O'Hare International Airport.

Rivers offers more than 1,000 slot machines and 50 table games — including baccarat that accepts bets of up to $100,000. The modest-sized casino has more of a Vegas feel to it than many of the Wisconsin tribal casinos, with a high-end restaurant, ubiquitous cocktail waitresses and slot machines fitted with mini-TV screens.

Last year, Rivers won more than $400 million from gamblers, making it Illinois' largest casino. Many of those customers used to play at eight nearby Illinois and Indiana casinos, according to analysts and customers.

While new competition can hurt a casino's bottom line, it does not necessarily force a gambling hall out of business, experts say.

Several casinos in Illinois and Indiana have boosted their marketing efforts to combat competition, said Ed Feigenbaum, editor of Indiana Gaming Insight. The Grand Victoria is upgrading its food offerings, adding concerts and boosting rewards programs for frequent players, Phillips said.

In Milwaukee, the Potawatomi are building a 400-room hotel in an effort to lure more gamblers for longer stays.

Still, owning a casino is a good business.

Illinois' Link said that when casino owners complain about new competitors he asks them one question:

"I ask 'Is anybody selling your place?'" Link said. "Nobody has ever raised their hand."



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