Horseshoe Casino GM outlines year two goals: Broaden impact in crowded market

Kline: Hotels delivering lower rates to casino

CINCINNATI - Year one was about laying the foundation at Horseshoe Casino Cincinnati. Year two will be about expanding the impact.

“This is a great revitalization story happening here in our community,” said Kevin Kline, general manager of the $450 million casino property on downtown’s northeast corner. “A big part of year two, not just for us but for our tourism partners and the Reds and everybody, is how do we continue to get more of the 2.3 million people in our metropolitan area to come downtown to see all the great things that are happening.”

That external focus is a solid approach in an overcrowded gaming market where revenue has fallen short of expectations, said Carl Jenkins, managing director for Duff & Phelps, a financial advisory firm in Boston.

“I think they’re trying to establish a difference between themselves and the other casinos,” Jenkins said. “It’s a good that they’re doing that.”

Jenkins studied Ohio’s gaming industry for the Greater Boston Chamber of Commerce. He thinks the Buckeye state allowed too many competitors and imposed too high a tax for the industry to be sustainable long term.

Ohio has authorized four full-service casinos like Horseshoe Cincinnati and seven smaller racinos, with slots parlors next to horse racing tracks. The four casinos have now been open for a full year, raking in $821 million in 2013, including $184.5 million from Horseshoe Cincinnati. Four racinos pulled in another $249 million in 2013, with $5.7 million of that coming from Miami Valley Gaming in Monroe, which opened in December.

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Racino number five, Belterra Park in Anderson Township, is scheduled to open May 1. That will make Cincinnati one of the more crowded gaming markets in the Midwest, with six properties fighting for market share – three in Ohio, three in Indiana.

“Putting in more casinos to compete against each other, I don’t think that increases the demand,” Jenkins said. “You’re shooting yourself in the foot.”

Crowded House?

Jenkins isn’t the first to raise the issue.

“This market is fairly finite,” said Todd George, general manager of Hollywood Casino in Lawrenceburg, Ind., in a WCPO interview last month. Hollywood dropped below $15 million in January for the first time in its history, causing George to question how deep the local appetite for gambling really is.

“Every time a month like this comes out it’s going to be an opportunity to reflect and say ‘What is real now?’’ George said. “What is real from a job-creation standpoint? What is real from the tax base standpoint versus what were some theories based on prior numbers?”

Revenue figures from gaming regulators in Ohio and Indiana show Cincinnati’s gambling market is about 7 percent bigger since Horseshoe Cincinnati opened last March. But each new competitor is taking more revenue from existing properties than growing the industry as a whole. With a sixth rival just two months away, Kline appears confident in Horseshoe's strategy.

“I don’t know that I look at it as a threat,” said Kline. “It’s obviously more supply, more competition. You know, we’re ramping up a new industry. I would point out that most importantly, we have a different product offering and a different positioning relative to what you’re seeing with the racinos. We’ve competed very well with southern Indiana. We are a destination, full-service experience here in downtown Cincinnati. We’re Cincinnati’s hometown casino. And we expect that we will be able favorably continue to attract people not just for the casino but the full set of experiences we offer.”

Kline declined to say whether Horseshoe Casino will add new attractions in 2014, saying his immediate goal involves “leveraging the assets that we do have. How do we grow visitation with really having this full-service destination style gaming experience? How do we get more people to our steak house and our buffet … and Margaritaville as a destination restaurant and concerts out front, more meetings and events and concerts on our second level?”

Hotel Industry Responds To Challenge

Kline said an on-site hotel is definitely not in the cards for the Horseshoe property this year. He said downtown hotels have responded well to a challenge for lower rates that he issued in January in a speech to local real estate professionals.

“I can’t fill tens of thousands of rooms at $110 rates,” Kline told the University of Cincinnati’s Real Estate Roundtable at Kenwood Country Club on Jan. 10. “If somebody offered me an $80 rate I could probably fill a lot more hotel rooms and I could probably drive you from 70 percent occupancy …  to 85 percent.”

Kline didn’t offer specifics but said hotel partners have responded with lower rate packages for the casino’s second year.

 “I think the hotel operators have seen the impact we’ve been able to drive,” Kline said. “We’ve seen a very positive partnership yield some movement in rate that should bode well for building our hotel demand in year two.”

Figures from Smith Travel Research show hotels in and near downtown

generated $13 million more in 2013 revenue than they did in 2012. Occupancy rates increased from 61.1 percent to 61.9, while average daily room rates increased 6.4 percent to $129.

An economic impact statement , released by the Horseshoe property Monday, said the casino booked 45,000 hotel room nights in and near downtown in its first year. That’s about 4 percent of the total room demand for 2013, according to Smith Travel Research.

The downtown hotel industry isn’t the only positive impact from the fledgling Ohio casino industry.

Pendleton developer Bobby Maly said the area surrounding the casino is cleaner, brighter and safer than it was before Horseshoe arrived. Maly, chief operating officer at Model Group, is pursuing a $26 million housing and office development within a few blocks of the casino.

“There are a lot of indirect benefits” of having the casino as a neighbor, Maly said. “There are other positive things happening, which raises the street life, which increases safety perception.”

Casino Taxes Having An Impact

Government coffers haven’t grown as much as projected, but they have grown because of Ohio’s developing casino industry. Figures from the Ohio Department of Taxation show the industry has delivered $48.4 million to local governments since 2012, including $10 million to the city of Cincinnati, $7 million to Hamilton County and $13.1 million to Butler, Warren and Clermont counties. School districts in the four counties of Southwest Ohio netted an additional $18.3 million, according to the state data.

“It certainly beats a poke in the eye with a sharp stick,” said state Sen. Bill Seitz, a Republican from Green Township. “As these local governments are grubbing around for resources … this is one thing that’s been accretive to their budgets.”

Seitz disagrees with critics who think Ohio allowed too many casinos. He says smoking, not competition, is the main culprit in preventing a better revenue performance. In fact, he said casino executives told him that Ohio smoking restrictions reduced revenue by up to 20 percent.

“You’re artificially constricting your potential market,” Seitz said. “They’re our partners. I would think we would want them to succeed. If we really want them to succeed, we’d give them the right to designate a portion of their buildings for smokers.”

Kline said the Ohio gaming industry will stabilize. But for now, he’s more interested in maximizing the reach of his own property than worrying about rivals.

“Clearly the industry has ramped up a little slower than what some might have expected but the impact in year one has been very positive,” Kline said.  “I believe we have a great foundation in place by which we can continue to grow this business and see results improve as we move into year two.”

Data specialist Mark Nichols contributed to this report.

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