If Proposition A fails at the polls next week, Kansas City gamblers can only hope Missouri casino regulators are paying attention to a controversy brewing in northwest Iowa.
Lyon County voters recently approved plans for a USD 90 million casino near the rural community of Larchwood, a stone’s throw from the South Dakota border.
The project is not a done deal, however, and a handful of commercial and tribal casino operators in the region are starting to worry that this new competitor, if licensed, could steal their customers.
In a story posted last week at SiouxCityJournal.com, an executive with the Wild Rose casino in Emmetsburg, Iowa, about 90 miles from Larchwood, was singing the market-saturation blues.
This is the same Wild Rose Entertainment LLC that hopes to build a casino in suburban Sugar Creek, just a few miles east of the Ameristar Kansas City Casino and Hotel and Harrah’s North Kansas City Casino and Hotel.
But no saturation fears were evident on Wild Rose’s part last year when it was the only casino developer to submit a bid to Sugar Creek officials. A surprisingly agreeable Missouri Gaming Commission appeared poised last spring to approve Wild Rose in Sugar Creek when the measure was abruptly tabled.
Area casino operators, stock market analysts and state lawmakers had sharply questioned the commission’s zeal to license a fifth casino in the Kansas City market at a time when Kansas was moving toward what we now know will be the Hard Rock Hotel & Casino at Kansas Speedway in Wyandotte County.
In self-defense, the Missouri casino industry drafted Proposition A on the Nov. 4 ballot, which, among other things, would cap the number of casinos statewide at the current 13, including one under construction south of St. Louis.
Now Sugar Creek casino advocates are at the forefront of opposition to Proposition A, beating the free-market drum ever more loudly in insisting their community is entitled to a slice of the casino pie.
What these free-market advocates don’t seem to understand is that the problem lies in the size of the pie.
The cost of market entry is simply too great to license casinos up and down the riverfront and expect all to survive, much less thrive and deliver the perks and the quality casino experience that gamblers expect and demand.
States such as Illinois understood that from the outset and balanced a high tax rate with a cap of 10 casinos statewide. True open-market states such as Nevada and Mississippi are structured around a low tax rate and welcome all competitors to the fray.
Missouri is a middle to high tax-rate state, but without a cap. Until the Sugar Creek plan came along, state regulators had carefully measured market demand before increasing supply. There was one notable exception. A decade ago, commissioners miscalculated in Kansas City when it licensed five casinos and then watched Sam’s Town go out of business in less than three years.
That lesson seems to be lost on today’s gaming commission. If Proposition A fails, commission director Gene McNary said, the Sugar Creek plan „would then move forward“ for resumed consideration.
Just as Wild Rose rightly fears too much competition in Iowa, Kansas City operators rightly fear Wild Rose in Sugar Creek.
Wild Rose’s market study assumes no commercial casinos in Kansas and estimates a Sugar Creek casino would gross USD 86 million to USD 114 million a year.
But it acknowledged a new casino in Sugar Creek would only grow market demand by USD 12 million to USD 16 million a year. „The balance would be taken from competing casinos,“ it said.
Now the Kansas Hard Rock is in the picture. It will open in 2009 and immediately grab market share from Kansas City’s four riverboats — perhaps as much as USD 200 million of today’s USD 720 million-a-year market.
It won’t take long for such a massive revenue shift to jolt the five-casino market into a belt-tightening fiscal retreat.
In Illinois, New Jersey and other jurisdictions where tax increases or more competition slashed revenues, the slots got tighter, promotional giveaways and goodies dried up, and employee layoffs degraded casino cleanliness and quality.
Sometime next year, Kansas City will become a five-casino market again, but maybe not for long. At least one casino can be expected to swamp in red ink and sink.
A six-casino market here is unthinkable, except, perhaps, in the executive offices at Wild Rose and the Missouri Gaming Commission.