Cannibals, poker faces and silver linings

Casino market studies deal blows to Cedar Crossing, but they also contain some good news for backers

Todd Dorman
Published: March 9 2014 | 5:05 am - Updated: 1 April 2014 | 9:20 am in

It’s been a busy week. We had Fat Tuesday and Ash Wednesday. Then came Cannibal Thursday.

Thursday was the day the Iowa Racing and Gaming Commission met in Altoona to hear the oral version of two independent statewide gambling market studies. Those are the reports, first released late last month, that insist a new casino in Cedar Rapids would grab, or “cannibalize,” much of its future revenues from existing casinos.

Marquette Advisors Vice President Brent Wittenberg told the commission that of the $81 million a new Cedar Crossing casino would take in, $59 million would come from other casinos. Union Gaming’s Richard Baldwin says Cedar Rapids would cannibalize $66.8 million of its $82.3 million in revenue.

The roasted beast in both feasts would be Riverside Casino & Golf Resort, which would lose $25 million, according to Marquette, and $37.3 million, according to Union. The union estimate is 42 percent of Riverside’s 2013 revenue.

Both studies say Iowa has no room for new casinos, unless the commission has a taste for flesh.

“In our opinion, there are no underserved markets at this time,” Wittenberg said. Instead, the commission should seek to improve or “freshen” its existing casinos. Not sure how much a giant can of casino-strength Axe body spray costs, but I bet the state can use its purchasing power to get a good deal.

COMMISSIONERS QUIET

The commission’s response to all of this speakable carnage was underwhelming. They didn’t blink, or even wince. Anyone hoping for tough, probing questions offering a glimpse into commissioners’ true souls came away disappointed. They said very little, and asked only a smattering of fairly cryptic questions. Clues were few. Tea leaves were scarce.

Bored, perhaps? Nah. It turns out they were just playing it cool.

Each of the four commissioners I spoke with said they’re still studying the studies, which are only one factor in the final call. No deals are done, no minds are made up.

“I’m keeping my poker face until I have to lay down my cards,’ said commissioner Carl Heinrich of Council Bluffs. “But we want to be fair. We want to be fair to the industry.”

“That’s not the only criteria we use,” said former state Rep. Delores Mertz of Spirit Lake of the studies. “We have to look at all the factors.”

Cedar Rapids casino backers, on the ropes since taking the studies’ one-two punch, took a few swings of their own. They sent out Des Moines attorney and former Republican gubernatorial nominee Doug Gross, who used public comment time to trash-talk the studies as “astounding and confounding,” while assailing what backers consider shoddy methodology. Cannibalization, they insist, has been greatly exaggerated.

CHANGING MARKET

Perhaps, but there also is some good news for Cedar Rapids in those studies. It’s not as obvious or eye-catching as the threat of cannibals. I didn’t catch it until I heard Thursday’s presentations.

But both Marquette and Union described a gradually but steadily evolving casino market in Iowa. Participation rates and admissions at casinos overall are down in recent years. Casinos’ magnetic pull has weakened, and their market areas are becoming more compact and localized. Casino trips are down and the number of promotional free plays offered by casinos competing hard to entice gamblers are up. Out-of-state competition, the recession and slow population growth all are factors, but the market is changing.

In such a market, Marquette’s Wittenberg says resort amenities such as hotels, golf courses, etc., are “less relevant.” Union’s Baldwin said the idea of a destination casino is “oversold.”

So it seems like the perfect casino for such a changing market would be one that sits in the middle of a large local customer base, one that’s not anchored to its own hotel, costly golf course or other less relevant resort amenities. It wouldn’t be a facility built in the countryside as a destination dependent on road trippers. It would be in a population center full of gamblers.

So basically, it would be Cedar Crossing. Which, according to Marquette, “would become the dominant local casino,” increasing gaming participation among Cedar Rapids residents by 30 percent. Even with cannibalization, it increases state gaming revenue by anywhere from $25 million to $32 million annually.

If the commission takes these market forces seriously, is it really better off approving a project tailor-made for a changing market or rejecting it to shield an existing resort casino at Riverside? In the long run, which decision is better for the industry as a whole and for the state government that depends on its steady revenues? And with no new competition, where’s the incentive to “freshen?”

Sure, Cedar Crossing would cannibalize. It also would be a very successful casino well-equipped to weather market changes. And that’s not insignificant.

HISTORY INFLUENCES

But history also is significant. And based on it, I still have a very hard time believing that the commission will be willing to make a vote that takes such a big bite out of Riverside’s hide. It simply hasn’t been done. The commission’s traditions dictate that it protect past investments from undue competition. In 2010, for instance, after a Marquette study showed that a Fort Dodge casino would get 50 percent of its revenue from cannibalization, the commission said no dice. These sorts of studies, flawed methodology or not, have carried considerable weight.

Riverside reports that its non-profit license-holder handed out more than $5 million in charitable grants last year. That includes $38,000 for a new gym floor in Keota, where the boys qualified for the state tournament for the first time in years. Other grants went for science classroom refrigerators, golfing for injured vets, stained-glass windows and fire trucks. Is the commission really going to let the cannibals take the stained-glass windows?

But this is a different year and different commission, which could still mean a different outcome. Members arrive in Cedar Rapids for a site visit and public hearing on April 3. Another critical moment.

“The studies give us more information. They don’t necessarily make the decision any easier,” said Chairman Jeff Lamberti of Ankeny.

 

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