Cedar Rapids hopes to join the casino club, but market studies loom large

Iowa Racing and Gaming Commission meetings can yield some good theater.

In one respect, these are clubby affairs. Lots of lawyers, casino executives and government types in dark suits huddle in private conversations, all the while sizing up other suits huddled in other conversations. In the 18-member state-licensed casino club, everybody knows everybody.

At Thursday's meeting at Lakeside Casino near Osceola, investors backing a proposed casino in Cedar Rapids and city leaders arrived early with high hopes of eventually joining that club. The lead local investors, executives Steve Gray and Drew Skogman, easily fit into this scene. Cedar Rapids city officials looked comfortable as well, pressing the flesh before the meeting with members of the commission. Sharing, smiling, thanking and influencing, maybe.

Two commissioners, Chairman Jeff Lamberti of Ankeny and Commissioner Rich Arnold, of Russell, served in the Legislature with Cedar Rapids Mayor Ron Corbett. If another commission member, former state Rep. Delores Mertz, hadn't been absent Thursday, it would have been Statehouse old home week.

Commissioner Carl Heinrich, is an Air Force vet and former community college president from Council Bluffs who has been active in Republican politics. Commissioner Kris Kramer is a New Hampton car dealer now on the other side of a sales pitch for a shiny new 2014 Cedar Rapids Casino. Have we got a deal for you.

PROTECTING THE INDUSTRY

But when the gavel drops, the schmoozing stops. The commission suddenly shows its steely-eyed-defenders-of-the-realm side. And that realm is Iowa's $1.5 billion casino industry.

Protecting the health of that big 'oil cash machine and fountain of tax revenues sometimes means being less than friendly, such as picking a new group of investors to build a land-based casino in Sioux City, while pulling the rug out from under the longtime operators of the city's gambling boat. It's just business.

One minute you're schmoozing. The next you're paying a $20,000 fine for letting a minor gamble in your joint.

There's gaming in the name, but nobody's playing around.

The commission did, without much fanfare, let Linn County take a small but important step toward club membership Thursday. Gray's group must have its application for a gambling license in by Sept. 3. “We've got a lot of work to do, but we're optimistic," he said.

At the same time, the commission will hire firms to do a pair of gambling market studies, one statewide and one focused on the Linn County market. The question: What impact would a new casino have on the existing realm?

SLAM DUNK?

But surely, with a big yes-vote margin here and the personal connections we've obviously forged, this study will be little more than a formality of membership. It's a slam dunk, right?

“I would strongly disagree with that,” Lamberti said. “I think, certainly give a lot of credit to the people who put together the yes vote, they certainly, I think, exceeded most people's expectations on the margin.

“When we're looking at a new facility, however, the overriding factor is the impact of a new facility on existing facilities. ... Now, we have casinos that people have invested hundreds of millions of dollars in. A huge factor is what's the impact? So a market study in particular in Linn County is going to be extremely important.”

I spoke with all four commissioners present, and each one said the market study will be the biggest factor in deciding whether a Cedar Rapids casino gets a state license. No other factor comes close.

“Everybody says the market's saturated in that area,” Kramer said. “We just want to make the right decision for the state of Iowa and for Eastern Iowa.”

Riverside Casino and Golf Resort CEO Dan Kehl says he knows what that study will say.

“I believe the study will show somewhere in the neighborhood of 30 percent cannibalization,” said Kehl, who fought to beat the Linn County referendum and plans to object to the license application. “It would be really detrimental to how we operate. ... We'll be working for the banks, bottom line.”

Maybe, maybe not. Gray and his investors say a local casino's competitive impact will be far more modest.

HAS MARKET CHANGED?

But the last statewide market study, done in 2009, left very little room for expansion.

“In summary, we believe that the opportunity for additional gaming development in Iowa is limited at this time,” wrote GVA Marquette Advisors in its 2009 study. “Based on our analysis and professional experience, we believe that most of Iowa is approaching an ‘equilibrium' gaming market situation, whereby the supply of gaming approximately matches up with maximum demand originating from the population base.”

Not “saturated.” But close.

Back then, those words helped persuade the commission to put the lid on expansion. The question now is whether a new study will persuade this commission that it can now add to Iowa's casino fleet.

“We're open-minded,” Heinrich said. “I think all of us are open minded on it. I don't think any of us feel that it's not going to happen. But I think what I'm saying is we want to study it and feel confident that everyone can be successful.”

Cedar Rapids casino backers are optimistic. And if I had to bet today, I'd bet that Linn County gets a license.

But if those studies show a very tight gambling market with modest growth prospects, a market in which a new facility would have to make a large chunk of its money at the expense of existing operations, I think we'll see the clubhouse doors close pretty quickly.

After all, it's just business.