Cedar Rapids casino would "cannibalize" other casinos, studies find

Studies paid for by Iowa Racing and Gaming Commission for licensing decision

Rick Smith
Published: February 25 2014 | 6:31 pm - Updated: 29 March 2014 | 4:09 am in

CEDAR RAPIDS ó Two national consulting firms that specialize in the analysis of gambling markets conclude that the proposed Cedar Rapids casino will significantly "cannibalize" business from existing casinos, especially from its would-be nearest competitor, Riverside Casino and Golf Resort.

One firm projected that the Riverside venue south of Iowa City would lose $25 million or 27 percent of its revenue by 2017, while the second said it would lose $37.3 million or 42 percent of its revenue in 2016.

It was chilling news for the proposed Cedar Crossing casino in its pursuit of a state gaming license.

The firms conducted market studies independent of one another on contract with the Iowa Racing and Gaming Commission to help the commission decide if it will grant the proposed Cedar Crossing casino in Cedar Rapids a state gaming license.

The five-member commission has said it is interested in two key questions: Will a Cedar Rapids increase gaming revenue in the state? And will it do it without cannibalize too much business from existing casinos?

Both Steve Gray, lead investor in the Cedar Rapids casino project, and Dan Kehl, chief executive officer of the Riverside casino, hired their own gaming analysts in the past year, and the Kehl consultantís projections mirrored those of the commissionís consultants made public on Tuesday.

Grayís consultant had projected that the proposed Cedar Crossing casino across the Cedar River from downtown Cedar Rapids would take just 9 percent of the Riverside casinoís business.

Last night, Gray said he and his investor group are sticking by their consultantís study and continue to believe that a Cedar Rapids casino will bring in more gaming revenue to the state without threatening the viability of existing casinos.

Any estimates of the amount of business a Cedar Rapids casino might take from existing casinos, he said, is not the only factor that state commission will consider to make its decision in April to grant or deny the proposed Cedar Crossing casino the 19th state gaming license.

"I think when you look at the investment the community has made since the flood of 2008 in the hotel, the convention center, the amphitheater and the blighted area on the west side and cityís need for flood protection ... those are all things we hope the commission will consider in its decision," Gray said. "Weíre not throwing in the towel."

Riversideís Kehl said the two commission studies make the same case for keeping the number of state-licensed casinos in Iowa as is at 18.

"The commission studies confirm our internal assessments that a new casino in Cedar Rapids would be devastating to Riverside and would cannibalize revenue and jobs from surrounding casinos," Kehl said. "The market is saturated and there is no room for growth without significant damage to existing license holders. We are sure that the commission will review these studies carefully and hope they will reject the Cedar Rapids application."

Jeff Lamberti, commission chairman, on Tuesday said both market studies commissioned by the state panel reach similar conclusions, both about the saturation of casino gambling in Iowa and the damage that will be done to existing casinos with the opening of a Cedar Rapids casino.

"As you look at them on the face of it, it does appear that both studies conclude that thereís not a lot of extra market out there, and there is a pretty significant cannibalization," Lamberti said.

Even so, he did not say it was time for the Cedar Rapids project to give up.

"As Iíve told people, the challenging thing for the commission is there is no magic guideline in the (Iowa) Code or in rules about how much cannibalization is too much," he said. "It becomes one of the elements we consider, certainly an important element. But each commissioner has to decide for themselves what the impact of that factor is."

At its meeting next Thursday at the Prairie Meadows Racetrack and Casino in Altoona, the commission will hear formal presentations from the two firms that conducted the market analyses for the commission.

The commission then will come to Cedar Rapids on April 3 to tour the proposed Cedar Crossing casino site and to conduct a public hearing. On April 17, the commission is expected to vote on the Cedar Rapids casino proposal at its meeting in Council Bluffs.

In its study for the commission, Marquette Advisors, with offices in Minneapolis, Seattle and Washington, D.C., concluded that a Cedar Rapids casino would generate approximately $81 million in adjusted gross revenue by 2017, $59 million of which will come from the "cannibalization" of revenue from existing casinos. Of that, $25 million would come from the Riverside casino, or 27 percent of the projected revenue for the Riverside venue in 2017. Another $10 million of the revenue would come from the Isle Waterloo Casino Hotel and $10 million would come from the non-state-licensed casino on the Meskwaki Indian Settlement, the Marquette study said.

In the second study, Union Gaming Group of Las Vegas, Nev., concluded that the proposed Cedar Rapids casino would bring in $82 million in revenue in 2016, but $66.8 million would be cannibalized from existing Iowa casinos. Of that, $37.3 million would come from the Riverside casino, $11 million from the Meskwaki casino and $9.3 million from the Waterloo casino. The amounts represent 42.1 percent of Riversideís revenue in 2013 and about 11 percent of the revenue from both Waterloo and Meskwaki casinos, the study said.

The commissionís two consultants also concluded that the proposed casino in Jefferson in Greene County west of Ames and Boone also would get most of its business from existing casinos.

The commissionís Lamberti said the state-regulated casino industry in Iowa is not designed as a wide-open, free-market world where any casino investor can get a license to open a casino. Rather, the Iowa industry allows casinos that have received a license "a certain market share" in trade for the investments they have made.

The Riverside casino opened in August 2006 south of Cedar Rapids and the one in Waterloo in June 2007 north of Cedar Rapids after voters in Linn County rejected casino gaming decisively in November 2003. Cedar Rapidians provided some of the customer base for those two casinos since it didnít appear that there would ever be a Cedar Rapids casino.

In the fall of 2012, the Steve Gray-led casino investor group in Cedar Rapids announced that they wanted to open a casino in Cedar Rapids, an idea which Linn County voters then approved in March 2013.

The Gray-led group has spent the last year, applying to the state commission for a state gaming license and designing and preparing to build the $150-million-plus casino with parking ramp along the Cedar River across from downtown Cedar Rapids.

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