Yesterday, Brian Gorman noted that riverboat casino operator Isle of Capri (NASDAQ:ISLE) looked like a big winner after obtaining Illinois' 10th and "final" gaming license. But something about that $518 million bid caught my eye.
It wasn't so much the price. It wasn't even that the Illinois Gaming Board found the proposal more attractive than Harrah's (NYSE:HET), which came in $2 million lower. What grabbed my attention was the part where Isle promised $2.6 billion in revenue over the first five years. Basically, Isle of Capri is already claiming No. 1 market share in Chicagoland and then some.
That's bold.
Consider this: In the 12 months ending Jan. 2004, the two revenue leaders by far in the nine-boat market were Mandalay Resort Group's (NYSE:MBG) jointly owned Grand Victoria in Illinois with $381 million in gaming revenues and Horseshoe Hammond, which Harrah's agreed to acquire this past fall -- on the Indiana side with $356 million. Now take Isle of Capri's $2.6 billion projection and divide it by five -- heck, even six or seven, and you'll see what I mean. (Or just take my word for it. It's a lot.)
Now, as Brian pointed out yesterday, one of the attractions to Isle's bid was a promising location near O'Hare International Airport and Rosemont's convention center. According to Reuters, one board member even tabbed the site a "destination location." I don't doubt it, but there are some other interesting factors to consider.
First, the casino at this destination location will be a miniature 40,000-sq. ft. affair with the same 1,200-gaming position limit imposed on all casino riverboats in Illinois. Second, while Isle is a quality operator, it has clearly been a niche player that has thrived by putting riverboats in places where no competition exists. Finally, in markets where it faces competition -- including Vicksburg, Shreveport/Bossier City, and Kansas City -- Isle plays second, third, and fourth fiddle to the likes of Ameristar (NASDAQ:ASCA), Argosy (NYSE:AGY), Harrah's, and Horseshoe.
Isle of Capri will likely succeed at this location with virtually unlimited opportunity for growth and limited potential for additional competition. I'd also tend to believe that Isle has some other factors baked into its $2.6 billion promise, including a potential increase in the gaming position limit, as well as a rollback in the top tax rate somewhere below the investment-prohibitive 50% figure.
But no matter how you slice it, Isle of Capri's $2.6 billion prediction is a bold one, especially for a company not known as a lead player.
Disagree? Take it outside -- or better yet, to our Gamblin' Fools discussion board.
Fool contributor Jeff Hwang owns shares of Ameristar Casinos.
