By Jeff Hwang

April 15, 2008

 

“Despite the closure and loss of business, Strobbe called the situation a ‘win-win’ because President Casino patrons were able to experience the newly opened Lumiere Place. He said he expects those patrons to return to President Casino when it reopens.”

 

                                                                                 -- St. Louis Business Journal, April 14, 2008

 

I find myself amused at the wide variety of ways that people can come up to spin things, no matter how inconsequential the event.

 

Case in point. Pinnacle Entertainment’s (NYSE: PNK) President Casino in St. Louis had been closed from this past Saturday to Tuesday morning due to rising flood waters on the Mississippi River, on which the riverboat casino is situated. Now this is basically a non-event as far as investors and casino patrons in general are concerned: In addition to its location on the Mississippi River, the rundown and dilapidated President Casino also happens to be located directly adjacent to Pinnacle’s newly built $500-milion, land-based Lumiere Place, which just opened this past December.

 

And so at this point, there is really no fundamental reason for the President Casino to even exist; its primary value to Pinnacle at this point lies in its potential as one of the last gaming licenses in Missouri should the state move to place a cap on gaming licenses, at which point the company would seek to relocate the casino to another market.

 

Hence the irony when Chris Strobbe, general manager of the President Casino, calls the situation a “win-win.”

 

I mean, if I am Pinnacle Entertainment and I can get more people visit my new $500 million property next door -- the one with the Four Seasons hotel attached -- I would sure hope they don’t come back to the President. And frankly speaking, Pinnacle would do just fine if the President Casino had never re-opened.

 

Lumiere

After spending the winter away from St. Louis, I finally had a chance to check out the new Lumiere Place, which is located in downtown St. Louis, roughly a half-hour drive east of the Ameristar (Nasdaq: ASCA) and Harrah’s Entertainment (NYSE: HET) casinos to the west.

 

The property itself is most everything it has been promised to be, though with a couple of fairly major drawbacks. The first is the new parking garage, which -- while solving the parking space problem of the President Casino -- has been fairly horrifically designed, particularly for a structure designed from scratch. There are just too many nooks and crannies, and the design is somewhat unintuitive.

 

The other problem is that there is only one cashier’s cage in the casino, which forces patrons to suffer from extremely unreasonable lines on the weekends. It is also a complete hassle for the poker players, who are forced to buy chips from the craps and blackjack tables in order to circumvent the lines. This problem is undoubtedly easier to fix than the other one.

 

Otherwise, the casino is nicely done. There are plenty of fine dining options, and the property’s location on Laclede’s Landing is a plus, as it is within walking distance of the football and baseball stadiums, the convention center, and the Gateway Arch, as well as several restaurants and nightclubs.

 

The Lumiere Impact Report

St. Louis Q1 Gaming Market Comparison

Casino	Admissions	Q1 2007 Revenue	Q2 2008 Revenue	Change
Ameristar St. Charles (ASCA)	-4.4%	$77.7 million	$73.2 million	-5.7%
Harrah’s Maryland Heights (HET)	-15.5%	$80.5 million	$72.9 million	-9.5%
L’umiere Place (PNK)	--	--	$37.7 million	--
President Casino (PNK)	-32.8%	$17.8 million	$10.1 million	-43.5%
Casino Queen	+13.6%	$43.6 million	$41.8 million	-4.1%
Alton Belle (PENN)*	-12.6%	$32.4 million	$24.2 million	-25.2%

* Missouri Gaming Commission and the Illinois Gaming Board.

 

Thus far, the property’s impact on the St. Louis gaming market has been as expected: During the first quarter of 2008, Lumiere Place earned $37.7 million in gaming revenue, which combined with the $10.1 million take from the President Casino was good enough to vault Pinnacle into third place in the greater St. Louis gaming market. Meanwhile, the property has grown the overall market as well -- despite general weakness due to the state of the economy, the St. Louis gaming market posted a 3% increase in gaming revenue to $260 million.

 

Also as expected, Lumiere Place has had a bigger impact on Harrah’s than Ameristar. In the first quarter, Harrah’s saw casino admissions drop 15.5% and gaming revenue decline 9.5% to $72.9 million. In contrast, Ameristar -- which benefited from the opening of the new hotel, the Home nightclub, and a new bar in the casino -- managed a 4.4% decline in admissions and a 5.7% drop in gaming revenue to $73.2 million.

 

That is good enough to put Ameristar back into first place in the St. Louis gaming market.