The last time I was at the Dania Jai Alai, I was playing 7-Card Stud in a card room for maybe the third time in my life at the exact moment that Florida gaming officials simultaneously shut down the poker tournaments that were running somewhat illegally at all of the pari-mutuel gaming facilities around the state. The poker tournaments were a neat way around the state's $2 betting limit for poker and were the only way that this particular Jai Alai facility could compete with the massive Seminole Hard Rock Hotel & Casino resort nearby.
This was just a few months ago this past winter and, of course, would only be a short-term problem for a property that had already gained state approval to be among the first four pari-mutuel facilities in the state to operate 1,500 Class III -- Las Vegas-style -- slot machines. The four facilities still await final approval of gaming regulations before they can legally operate slots, but the Dania Jai Alai cashed in early on its opportunity last week.
Enter Boyd Gaming
Last week, Boyd Gaming
The Dania Jai Alai will be Boyd's second "racino"-type facility among a diverse set of casino properties that includes many of the top locals casinos in Las Vegas and a collection of second-tier riverboat casinos in the Midwest and South, as well as 50% ownership along with MGM Mirage
That property will make Boyd the only casino operator in South Florida with a presence on the Las Vegas Strip.
The Dania Jai Alai currently offers live jai alai performances and wagering, off-track betting, and poker. In addition, Boyd has already begun plans to capitalize on the slot opportunity with an expansive slot floor, a new poker room, and several new restaurants and other non-gaming amenities. Considering that Boyd spent $60 million adding a 1,500 slot facility and 203-room hotel to its Delta Downs racino in Louisiana, and Isle of Capri
The good and the bad
The Dania Jai Alai has a good location just south of Fort Lauderdale, a few miles east of I-95. Moreover, the South Florida gaming market will prove dynamic, particularly given the highly favorable population demographics (read: a mature population) for a slot house. Indeed, the Seminole Hard Rock Hotel & Casino Hollywood located just a few miles west of the same I-95 exit has been nothing short of a smashing success since its May 2004 opening.
The downside is that, of the four pari-mutuel facilities granted approval for slot machines, the Dania Jai Alai is also the property that most directly competes with that same Seminole Hard Rock Hotel & Casino. The Hard Rock casino currently features 2,100 Class II slot machines and 50 poker tables over 130,000 square feet of gaming space. And because Class III games will soon be legal in the state of Florida, the Seminole Indians will eventually be able to offer Class III slots and perhaps table games such as blackjack and craps as well, and it may also be exempt from the statewide $2 betting limit on poker games. In addition, the Hard Rock property has become one of the hottest spots in town for nightlife with an incomparable selection of restaurants, bars, and clubs, as well as a 5,500-seat arena for fights and concerts. That, of course, is on top of the pool, spa, and a magnificent 500-room hotel.
In other words, Boyd will be competing at a severe disadvantage. Plus, to a lesser extent will be the other competition: Isle of Capri owns the Pompano Park Racetrack in Pompano well to the north, while Hallandale Beach to the south is home to the other two slot joints, Magna Entertainment's
On top of that, Boyd will also have to overcome the state's high gaming tax rate. The Broward County casinos will be taxed at a combined state and local rate in excess of 53% of gross gaming revenues. High tax rates are what kept other prominent casino operators such as Station Casinos
Extending Boyd's footprint
Despite the obstacles, I think the Dania Jai Alai represents a good opportunity for Boyd to expand its national footprint. If you've seen the Seminole Hard Rock Hollywood on the weekends, it's clear that there's room for a significant increase in gaming supply in the market, particularly with what will be a quieter, more locals-oriented operation in Dania.
Given the competition, the high tax rate, and the relatively small size of the upcoming slot operation compared to the rest of the company, I don't necessarily view the acquisition of the Dania Jai Alai as a home run for Boyd. But if the ultimate price tag including capital investment amounts to around $250 million-$275 million, I have a hard time constructing a scenario where Boyd doesn't get decent value here. It can't be a bad thing to be the only Las Vegas Strip player with direct access to the South Florida market, either.
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Fool contributor Jeff Hwang owns shares of Ameristar Casinos. The Fool has an ironclad disclosure policy.
