Thursday, October 12, 2006

Riverside Gambling Casino's Future

Tuesday (October 10) was the Press-Citizen's turn at making sense out of the Riverside gambling casino's financial report for September. Wednesday (October 11) it was The Gazette's turn. Today (October 12) I want to take another look at those numbers.

See, Nicholas Johnson, "Gambling: Do The Math," October 10, 2006;
the Iowa Racing and Gaming Commission, "Track Gaming Revenue Report" and "Riverboat Revenue Report," September 2006; Rachel Gallegos, "Casino Meeting Its Financial Goals; Made $7.6 Million Revenue in 31 Days," Iowa City Press-Citizen, October 10, 2006; and Gregg Hennigan, "Gambling: House Doesn't Always Win; Gambling Revenue Off at Casinos Near Riverside," The Gazette, October 11, 2006; Nicholas Johnson, "Gambling: Checking the Math," October 11, 2006.

Yesterday's blog entry focused on the impact of gambling on Iowa's economy, the impact of the Riverside gambling casino on the attendance and revenue of its neighboring, competing, casinos, and the conflicts of interest at play in the formulation of public policy regarding the expansion of gambling in Iowa.

Today I want to look at the projections of attendance and revenue for the Riverside gambling casino.

As the headline suggests, and the story continued, the Press-Citizen had a very upbeat take on those numbers:
Rachel Gallegos, "Casino Meeting Its Financial Goals; Made $7.6 Million Revenue in 31 Days," Iowa City Press-Citizen, October 10, 2006.

Gregg Hennigan's story quoted Riverside gambling casino CEO Dan Kehl as equally pleased with the numbers:

Kehl said he was happy with Riverside Casino & Golf Resort’s first full month of business. Before it opened, casino officials projected 1.6 million visitors and $83 million in gaming revenue in its first year. To meet those goals, it must average more than $6.9 million in gaming revenue and 133,333 visitors per month.

"Kehl said he was not concerned about the casino attracting fewer than 123,000 people in its opening month because it earned $7.4 million. Each casino visitor lost an average of $61 per visit, compared with an average of $55 for the 16 casinos reporting to the gaming commission.

"'The revenue numbers are the driving factor,' he said. 'Those are the ones that pay the rent.'"

Kehl is right, of course. The gambling industry is more focused on numbers than professional baseball. If Kehl is typical, and there's no reason to think he's not, he knows how much he's making per square foot, per visit, per table, per slot machine, and so forth. And clearly the business of removing money from gamblers is more about the amount of money they leave behind than the number who come to visit you.

But as Bradley Franzwa points out in a comment he posted to yesterday's entry [
Nicholas Johnson, "Gambling: Checking the Math," October 11, 2006] Kehl, and the Press-Citizen, may be just a bit overly optimistic.

(Full disclosure: "I don't have a dog in this fight." Whether Kehl prospers, or not, will have no direct effect on me financially, profesionally, politically, socially, or otherwise personally. I would prefer that Iowa not have the problems accompanying a gambling economy, but I only pay for those problems in taxes and other ways like every other Iowan. To the best of my knowledge I have never met Kehl, and I certainly have no reason to wish him ill. I have often gone to casinos (including the Riverside gambling casino once), but have always been too cheap to ever leave a dime of my own in one.)

First, the numbers. Annual visits of 1.6 million require 133,333 a month. September produced 123,000. That would mean 1,476,000 a year -- not too far off the mark. But the first, opening, three-day (Labor Day) weekend brought 50,000 visits. Subtract 3 days from 30, and 50,000 visits from 123,000, and you have 73,000 visits over 27 days, 2704 per day; which, times 365 days, is 987,000 a year -- 62% of that 1.6 million, and much further off the mark.

And wait, it gets worse.

As Bradley Franzwa notes, this was their opening month. Most venues -- entertainment, museums, restaurants, even rain forests (!) -- attract a crowd of the curious during their opening night, first month, and first year. (For example, if the Riverside gambling casino could have kept up that 50,000-visits-in-three-days opening pace they would have, not 1.6 million, but over 6 million visits a year.)

Moreover, this September was unusual for other reasons. It had five rather than four weekends. It had three Hawkeye home football games. The latter is particularly relevant given the partnership between the UI football program and the Riverside gambling casino. (See, Nicholas Johnson, "UI Football Promoting Gambling?" September 16, 2006, and William Petroski, "E. Iowa Casino to Lure U of I Fans; It Will Offer Post-Game Parties, Stadium Shuttles," Des Moines Register, August 29, 2006.) On top of that, they later had an opening entertainment headliner-superstar, Jay Leno, on one of those football Saturdays. He not only brought in a crowd that day, but gave the place a luster for a few days before and after (that will rapidly fade unless the casino is willing and able to bring in comparable stars on a fairly regular basis.)

In short, the survival of entertainment venues depends, not on how they open, but on what they do thereafter to keep from closing. Thus, without more (and there will be more once the golf course opens) one would expect the Riverside gambling casino's attendance numbers to have a significant drop in the months and years to come.

Nor should attendance figures be the only concern for investors. It's not obvious that the $61 loss per visit (well above the state's $55 average) will continue. It's counter intuitive that one of Iowa's casinos would successfully take 20% more from each gambler's visit than the average at the other casinos. Why would that be true -- over time?

The $61 is undoubtedly a "mean" average rather than a "median" or "mode" average. Here's an example. Suppose there are 10 visits from 10 gamblers; 9 of the 10 only play slot machines and lose between $25 and $35 each before quitting, averaging (the "mean") a $30 loss each. The tenth, a high roller, loses $340 at poker. The 9 x $30 ($270) plus the $340 totals $610; thus, the "average loss" (mean) of the 10 is $61 each -- although most gamblers (mode) and the gambler in the middle of the pack (median) lost around $30 each.

Were there more heavy bettors during the opening month? Gamblers who check out all the new casinos, but soon thereafter settle back into their favorite places -- not unlike those who try out virtually all new restaurants in their home town? Some who bet over their heads and have either learned, or find themselves sufficiently strapped financially, that they're not coming back?

I take the Press-Citizen's report that "The resort still is working on increasing its hotel occupancy numbers, Kehl said" to mean that, as one would expect, there are not a lot of hotel guests. Since most of the facility's revenue stream was projected to come from gambling (and most of that from slot machines), the lack of hotel revenue is not all that serious, but it's still not good news. As even the Riverside gambling casino predicted before it opened, most of its business comes from within an hour or so drive from Riverside. So there are not a lot of gamblers who need, or want, to stay overnight. And at least at the present time, aside from the gambling casino there's not a lot of reason to stay overnight in Riverside, Iowa.

Whether it turns into a genuine "resort" destination after the golf course is playable remains to be seen. The serious golfers I've talked to aren't that excited about playing the course, and none of them would be interested in staying over night.

So we need to watch the attendance numbers, the monthly net, and the average loss per visit figures, and how all of them are affected by the golf course next summer.

We'll know more a month from now, and even more in a year. Meanwhile, it appears that the Riverside gambling casino's financial success is not as much of a slam dunk as the Press-Citizen's headline suggested.

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Anonymous said...

Casinos aid the economic development of Iowa about as much as it helps a person improve their cash flow for the month by taking money out of a piggy bank.

Not only that, your point is just that casinos generate skewed data from the onset of lauching is right on. You would enjoy reading about Butler's S-shaped life cycle model for resorts. It's often quoted in a lot of the business articles out there.

Nick said...

Alex: Thanks so much for that reference. The Moss, Wagoner and Ryan paper, "Forecasting Casino Winnings" is dynamite. I sure hope it has been widely circulated among Iowa legislatos and the Racing and Gaming Commission. -- Dad

Nick said...

FYI: This blog runs an open comments section. All comments related to blog entries have (so far) remained posted, regardless of how critical. Although I would prefer that those posting comments identify themselves, anonymous comments are also accepted.

The only limitation is that advertising posing as comments will be removed. That was why some of the comments posted here, containing links to gambling businesses, have been deleted. -- Nick