The Casinos of Southern Indiana: Part III

I should mention that part of the motivation for this trip is to check out as many of the pot-limit Omaha games as I can. As I noted in Part I, pot-limit Omaha is the biggest game in every casino where it's played, and it's most widely played in the Midwest and the South. While I spend most of the year in St. Louis, I still call Ft. Lauderdale home. And since this could end up being the last of my seven years in the Midwest, one of the things I wanted to do before I left was play in every pot-limit Omaha game played on the riverboats in one last road trip.

I only spent about an hour at Pinnacle Entertainment's (Nasdaq: PNK  ) Belterra Casino Resort before I decided to move on to the next casino on the schedule, Penn National's (Nasdaq: PENN  ) Argosy Lawrenceburg. The directions I got from Yahoo! (Nasdaq: YHOO  ) Maps were a little iffy, so I asked the guy at the Switzerland County info desk what the easiest way to get to Lawrenceburg was. It turns out that IN-156 -- right out the front door of the casino -- hugs the Ohio River and runs into IN-56, which goes through Rising Sun and up to Lawrenceburg.

Grand Victoria
The Sunday drive to Rising Sun took maybe half an hour. The Grand Victoria is a relatively nice property owned by privately held H. Group Holding, and the casino is run by Hyatt Gaming Management.

Like the Belterra, the Grand Victoria suffers from a suboptimal location from a competitive standpoint. If you're coming from either Cincinnati or Louisville, then you'll have to drive past Argosy Lawrenceburg or Belterra in order to reach Rising Sun. As a result, the casino's reach is limited mostly to the Indiana side of the river, and it shows in the results. Compared to its two closest competitors by geography -- Belterra and Argosy -- the Grand Victoria has shown by far the slowest growth rate, from $138 million in gaming revenue in Indiana's FY 2003 to $148.8 million in FY 2005, or a total of 8% over two years. In contrast, Belterra grew revenues 24% to $156.2 million over the same period, while Argosy improved 13.4% to a whopping $444.5 million.

Going back a little further, this trend is more pronounced. The Grand Victoria's Eight-Year License Renewal report from the Indiana Gaming Commission website offers the following, comparing Grand Victoria to Aztar's (NYSE: AZR  ) Casino Aztar Evansville and Argosy Lawrenceburg:

Gaming Revenues

Casino

2001

2002

2003

Grand Victoria

$136.8M

$135.9M

$135.9M

Aztar Evansville

$106.1M

$116.3M

$126.1M

Argosy Lawrenceburg (PENN)

$354.2M

$380.1M

$415.2M



EBITDA Margins

Casino

2001

2002

2003

Grand Victoria

25.1%

28.5%

22.3%

Aztar Evansville

26.3%

26%

28.4%

Argosy Lawrenceburg

37%

34.2%

30.2%



The property features a 200-room hotel, while the riverboat casino holds 1,406 slots and 47 table games on 40,000 square feet of gaming space on three floors. On the plus side, the riverboat is a paddle boat (or at least, as far as I can tell), and the riverfront view is magnificent. The casino also has an eight-table poker room, though no pot-limit Omaha at the moment.

The casino does have escalators, but they criss-cross smack into the middle of the boat and mostly serve to get in the way. As a result, the riverboat feels smaller than the numbers should indicate. I have no opinion on the restrooms.

Argosy Lawrenceburg
I left the Grand Victoria at around 4 p.m. and headed back up the IN-56 to Lawrenceburg, where I arrived at the Argosy Lawrenceburg around 4:30 pm.

Argosy Lawrenceburg's location alone is responsible for the property's stellar results and industry leadership, with $445 million in gaming revenues during Indiana's fiscal year ended June 2005. In a nutshell, the property is located about 25 miles from Cincinnati -- the biggest of the three primary markets along this stretch (Cincinnati, Louisville, and Evansville). It's easily accessible form the highway, I-275, which is virtually right outside the front door. There's no competition between Lawrenceburg and Cincinnati, and there is no gaming in Ohio. Also, Argosy's two closest competitors -- the Grand Victoria and Belterra -- are competing for Argosy's business from clearly inferior positions.

The land-based facility itself is top notch, but the riverboat casino currently in place is somewhere just above second-class, though that will be even more irrelevant when the gaming vessel is replaced in two years.

What's in place right now is a three-level riverboat with 74,300 squarefeet of gaming space, 2,432 slots, and 86 table games. There are no escalators, access to the outside decks is limited for patrons, and there is no poker room. In other words, the boat fails all of my tests, proving the power of location (in poker, this is where positional advantage trumps hand quality).

But that will soon change. Penn National has planned $266 million in capital expenditures that will introduce a new, massive 250,000 square-foot gaming barge featuring 4,000 gaming positions, with a projected opening date during the second quarter of 2008. Included in that expense is an additional 1,500-space parking garage due for a Q2 '07 delivery.

Conclusion: Location is everything
I said earlier that 50% of the casinos I visit I would never play in. The truth is that, excluding my regular visits to the Motley Fool Hidden Gems pick Ameristar (Nasdaq: ASCA  ) and Harrah's (NYSE: HET  ) casinos in St. Louis, where the main purpose of the visit is to play cards, I probably don't play about 90% of the time I walk into a casino. Of course, this is easier to do when you're in Tunica -- where there are nine casinos within a few miles of each other -- or the Las Vegas Strip, where MGM Mirage (NYSE: MGM  ) alone owns that many casinos within a couple of blocks of each other.

But you see and learn a few things just visiting. The first is the power of prime location, which is best illustrated by Argosy Lawrenceburg, and next by Caesars Indiana. A prime location offers a competitive advantage and can support a larger facility and economies of scale, all of which lead to higher returns on invested capital. Location is the biggest reason why, every quarter, we talk about Ameristar and the growth in its leading market share in every market in which it competes (though I should qualify that by saying that the competition has gotten tougher in Council Bluffs and in St. Louis). That's also why Ameristar, Pinnacle, Colony Capital, and Columbia Sussex were all desperate for Aztar's Tropicana Las Vegas, representing just about the last 34 acres of prime land left on the Strip (see Pinnacle Gambles on Aztar and Gauging Aztar's Value).

The other thing I learned is that that stretch between Belterra and Lawrenceburg along the Ohio River makes for a wonderful Sunday drive (even on Thursday).

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Fool contributor Jeff Hwang owns shares of Ameristar Casinos. The Motley Fool has an ironclad disclosure policy.


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