Yet, the dramatic changes belie a vexing problem facing the industry — slow growth.

St. Louis’ multibillion-dollar gambling market is the nation’s sixth largest, but growth here is slowing, which reflects the fits experienced by the rest of the state and many other regional gambling markets.

Missouri Gaming Commission figures show that casino revenue in the state over the four most recent fiscal years fluctuated between $1.7 billion and $1.8 billion. The figure for fiscal 2012 was $1.79 billion. In December, the latest month for which figures are available, River City was the only casino in the St. Louis market to post a gain from a year earlier.

“The St. Louis market is far from unique,” said Joe Weinert, an analyst with Spectrum Gaming Corp., in Linwood, N.J. “Markets east to west, north to south have to cope with additional competitors and the reluctance of customers to spend their discretionary income.”

As a result, casino operators “have to reset their expectations” to cope with slow revenue growth, at least in the short term, he said. And as a way to boost spending among regulars, the industry itself is wondering if it might be time again to ask Missouri legislators for permission to lend money to their customers, a practice that is currently banned.

Last year was one of change, particularly at the closing months of 2012.

• In late October, Penn National Gaming, which already owns the Argosy Casino in Alton, completed its $610 million purchase of Caesars Entertainment’s Harrah’s casino in Maryland Heights, rebranding the location as one of its Hollywood casinos.

• The following month, Creve Coeur-based Isle of Capri Casinos opened its $135 million gambling hall in Cape Girardeau. Its debut capped the long struggle over where to locate Missouri’s final casino. State law limits the number to 13.

• On Dec. 21, Pinnacle Entertainment announced its plan to buy rival Ameristar Casinos for $2.8 billion. If regulators grant their approval, the acquisition — which includes Ameristar casino in St. Charles — will allow the Las Vegas operator to dominate the St. Louis market. Pinnacle already owns the glitzy Lumière Place casino complex on the St. Louis riverfront and the thriving River City casino in Lemay.

• Five days later, the Koman family and its partners completed the sale of their stakes in the Casino Queen, in East St. Louis, to its workers through an employee stock ownership plan for $170 million.

Weinert said that increasing market share by buying competitors can boost casino operators’ bottom lines through shared marketing, customer rewards programs and “back of the house” efficiencies. But he warned that operators must weigh the cost of new facilities against their effect on customer growth, projected revenue increases and overall profitability.

“I think the ‘build it and they will come in droves’ strategy … those days have ebbed,” Weinert said.

In St. Louis, Pinnacle still sees value in that strategy.

The casino operator is building a 200-room hotel at its successful River City casino. It hopes the hotel, scheduled to open in September, will convert some day-trippers into overnight customers and pull in others who might not have visited St. Louis before.

“River City has had a wonderful ramping up in this market,” said Neil Walkoff, Pinnacle’s executive vice president in charge of the company’s properties in St. Louis, Indiana and Ohio. “The hotel will help expand the market by drawing gamblers from a wider geographic area.”

In another revenue-boosting move, Pinnacle won state approval to reduce the number of slot machines and increase the number of table games at Lumière Place. The changes — 500 fewer slot machines and 20 additional table games — are intended to cater to Lumière gamblers who prefer roulette and craps to slots. Many of those high rollers stay — and have dinner at — the swanky, Pinnacle-owned Four Seasons hotel adjacent to the casino.

“Lumière has always been very successful from the table games aspect,” Walkoff said. “We had more than enough slots to cover the busiest times.”

Unlocking cash
Unseen by gamblers is a more fundamental industry change begun by Penn National, the owners of the Argosy in Alton and the Hollywood in Maryland Heights.

The company, based in Wyomissing, Pa., said in November it is spinning off many of it properties into a real estate investment trust, or REIT. Penn executives have said the move will limit capital needs to the cost of equipment, fixtures, furniture and licensing. Choosing that route puts Penn on the same track as hotels, offices and malls that sell their properties to REITs, then lease them back to operate as before.

Penn’s plan is to split into two public companies this year and put its properties into a REIT owned by existing shareholders. Analysts have said success by Penn could persuade other casino operators to free up capital to fund expansions, pay down debt or return cash to shareholders. Establishing REITs and consolidating through acquisitions are steps operators might take to cope with the slow-growth U.S. gaming market, where casinos take in about $35 billion annually.

Mike Winter, executive director of the Missouri Gaming Association, a trade group, said there is no talk within the industry of raising the number of casino licenses in the Missouri. But he said “some internal discussions” have been held to revive a measure to allow Missouri casinos to make loans to customers.

Under a failed proposal in last year’s legislative session, gamblers who passed a casino’s credit check could have borrowed money and exchanged it for electronic tokens and wagering chips. Proponents said the change would have helped Missouri’s casinos attract more high-end players, such as professional athletes visiting St. Louis. Without the change, those gamblers go to Illinois, where casinos are allowed to extend credit, supporters said.

Barring casinos from extending credit, however, was one of the safeguards in the original state law authorizing riverboat gambling. Voters approved the law in 1992. Still, extending loans may only provide an initial boost to revenue. The greater challenge is competing in a mature market that offers limited growth.

The Kansas City gaming market provides an insight into that problem. December winnings dropped an overall 13.2 percent at the four casinos in the Missouri portion of the Kansas City area, the state gaming commission reported. The biggest decline was at Penn’s Argosy casino, in Riverside, Mo., where winnings fell 23.5 percent. The casino experienced monthly double-digit revenue declines during much of 2012.

Tom Teasdale, Penn’s vice president of marketing in Kansas City, said Argosy’s diminished winnings are largely the result of competition from the company’s $411 million Hollywood casino at the Kansas Speedway, in Kansas City, Kan. Hollywood has raked in more than $114 million since it opened last February.

Teasdale said gamblers earn Penn National comps and participate in rewards programs at both company-owned casinos, separated by only 16 freeway miles.

“We’re sharing customers, and we expected to,” he said. “We’re competing with ourselves.”

Tim Bryant covers commercial real estate, development and other business stories for the Post-Dispatch. He blogs at Building Blocks, the Post-Dispatch development blog.

St. Louis Post-Dispatch ©January2013