BusinessReport.com

The Pinnacle referendum is over, and the commercials and fliers are gone, but the predictions of doom for the downtown casinos still hang in the air. It’ll be more than two years before the new guys open on River Road and, for now, it’s business as usual at Hollywood Casino.

General Manager Jon Zimmerman says Pinnacle was discussed in a team manager meeting after the referendum, but only briefly. And if he’s got any special plans to deal with his future competition, he’s not telling.

“We don’t worry too much [about Pinnacle],” he says. “We’ll worry about it when the time comes. We’re focused on growing our business, like we would be regardless.”

Ultimately, Hollywood’s fate, and that of its neighbor, the Belle of Baton Rouge, rests with their corporate parents: Penn National Gaming and Columbia Sussex/Tropicana Casinos & Resorts, respectively. It’s a tricky business decision for both companies. If they truly believe, as their supporters argued during the Pinnacle campaign, that Baton Rouge is at best a two-boat town, is it worth the risk to invest heavily here over the next two years?

“They’ve got to do something if they want to be the surviving boat,” says economist Loren Scott, who believes the city can’t support three casinos. In a study commissioned by Penn National, Scott compared costs and expected revenue for both existing boats and concluded the Belle had the best chance of survival.

That would be a surprise to many, since Penn National is widely considered the stronger company. Scott says if Hollywood closed first, then the Belle could hang around; if the Belle left first, however, Hollywood might still have such a low profit margin that it would follow the Belle out of town anyway.

Both companies have floated the idea of replacing their Baton Rouge boats with newer, roomier boats currently docked elsewhere. Columbia Sussex plans to swap the Amelia Belle in St. Mary Parish with the Belle of Baton Rouge, pending approval of the Louisiana Gaming Control Board, according to a spokesman. St. Mary Parish President Paul Naquin says the company believes the Amelia Belle is capable of doing $100 million in yearly business in Baton Rouge, while it would likely top out at $60 million or $70 million at its current location near Morgan City, where it has been positioned since May 2007. Naquin says the company expects to be able to employ another 300 or so slots in the newer boat once it is moved to Baton Rouge.

Meanwhile, Penn National has talked about bringing in what’s now known as the Argosy Lawrenceburg to Baton Rouge. Penn National is building a new casino in Lawrenceburg, Ind., which should be finished sometime in the first half of 2009, spokesman Eric Shippers says. That means they’ll have an extra boat at that point, and Baton Rouge is certainly in the running for it. But Shippers couldn’t say whether Pinnacle’s entrance into the market makes it more or less likely that Hollywood will be replaced.

Both the Argosy Lawrenceburg and the Amelia Belle, which was Bally’s in New Orleans before being moved after Hurricane Katrina, are newer and roomier than the outdated boats they would replace, and that alone might help draw more customers.

“Newness is something that people like,” says Alan Silver, director of casino resort studies at Tulane University’s Biloxi campus. A new boat could create some excitement and get some people who haven’t been to the boats in a while. Zimmerman says the Argosy Lawrenceburg is a three-deck boat more than twice as big as Hollywood; the first two levels would be reserved for gaming, while they have yet to decide what to do with the third deck.

The real economic engine for a casino is the slot machines, which Silver says account for about 60% to 65% of a casino’s revenue. Slots provide a consistent revenue stream, since each machine has a certain minimum and maximum payout governed by state regulations. Table games are unpredictable; a high roller on a hot streak can make a table game a money loser for the casino on any given night.

The Amelia Belle and the Belle of Baton Rouge have between 800 and 900 slots. The Argosy Lawrenceburg has about 2,400 slots, Zimmerman says, about double what Hollywood has now. But the catch is that Louisiana limits gaming space to 30,000 square feet, so there’s no way to have anywhere near that many slots here.

There’s an art to how a casino is arranged. Rick Sorensen, a spokesman for IGT, a major slot machine distributor, says a company can employ more machines in a larger boat by using the right layout, even with the gaming space limitations.

Nicholas Danna, senior gaming analyst with Sterne, Agee & Leach in New Orleans, says parts of the casino floor that don’t have gaming devices on them have traditionally been counted as part of the gaming space, but more recently that’s been open for debate. Still, he says it’s unlikely we’ll see a meaningful expansion of gambling on one of the three-deck boats slated to come here.

Charles Breard

Hollywood Casino could replace its boat with the Argosy Lawrenceburg, a three-deck boat that is almost twice as big.

By contrast, Pinnacle plans to build a state-of-the-art single-deck boat, where they can fit 1,500 slots because there’s less space wasted on things like stairwells. The main advantage of a bigger boat is the ability to provide more bars, restaurants and lounges, and put the amenities on the boat itself rather than dockside.

Penn National is considered one of the best regional companies operating in the gambling industry, known for mid-tier properties that perform rather well, Danna says. Columbia Sussex, however, is a fairly new player; the company’s roots are in the hotel business, and it has struggled. Danna says the company has shown a tendency to overpay for properties, making it harder to reinvest in what they have. The company even had its license renewal denied for the Tropicana Casino and Resort in Atlantic City amid accusations of poor service and lax regulatory compliance.

That’s not to say the Belle of Baton Rouge is doomed here, because Danna believes Baton Rouge can support three casinos. New Orleans does more than double the gambling business Baton Rouge does with what is now a pretty similar population base, which he says shows that the gambling market here has room to grow.

Pinnacle caters to a different sort of customer than the downtown boats, and Danna expects they’ll capture a lot of Baton Rouge-area gamblers who normally frequent the destination resorts on the Mississippi Gulf Coast. The downtown casinos will certainly lose some business, but relative to what they spend, they should still do fairly well, he says.