'Stagnant' Iowa gaming needs a Cedar Rapids casino, developer chairman says

State-licensed casinos and racetrack casinos in Iowa are coming off a second straight down year in which they landed almost $78 million below their record profits of $1.46 billion two years ago.

Their adjusted gross receipts fell by nearly 4 percent through June 30.

Fiscal year 2014 reports posted by the state Racing and Gaming Commission show Iowa's 18 licensed gambling operations took in net revenue totaling $1.388 billion — a 3.9 percent drop from the previous year. That was a bigger decline than the 2.8 percent one projected by the Marquette Advisors consulting group that recently did a market study for state regulators.

'All in all, the year was not probably what the operators would like to see,' said Brian Ohorilko, commission administrator. 'I just don't think the market's completely recovered from the high point a few years back.'

All but two of the state-licensed gaming operations — Harrah's Council Bluffs Casino & Hotel and Grand Falls Casino & Golf Resort in Larchwood — posted year-to-year losses in adjusted gross revenue. Most facilities saw their admission numbers decline as well — with about 712,000 fewer patrons through the turnstiles over the past 12 months compared with the 15,721,892 head count for fiscal 2013.

'I wouldn't say it's an alarm, but it's a trend that's certainly being watched very closely,' said Wes Ehrecke of the Iowa Gaming Association, an umbrella group for the state-licensed tracks and casinos. 'Even with this downturn, we're still a very strong and stable industry for the state.'

'Increased supply'

Dan Kehl, chief executive officer at the Riverside Casino and Golf Resort south of Iowa City who also has an ownership interest in casinos in Larchwood and Davenport, said Wednesday that the drop in Iowa gaming revenue mirrors a nationwide trend.

'Increased supply has hurt gaming properties across the county,' Kehl said.

He pointed to the example of Atlantic City where three casinos are closing, he said.

Kehl's Riverside Casino saw a 1.1 percent drop in revenue, while the state's newest casino in Larchwood — which serves the Sioux Falls, S.D., market — saw a 1.7 percent increase.

Kehl will break ground late next month on a new casino in Davenport, which will replace the existing riverboat casino there, with one positioned along Interstate 80 to try to reclaim Iowa casino business lost to Illinois. The Davenport riverboat saw a drop of 8 percent in revenue in the last year.

'Illinois continues the aggressive roll out of slot machines in the taverns, and the casinos have seen declines as a result,' Kehl said. 'We are hopeful that a new (Davenport) venue will reverses the trend and bring gamblers back to the Iowa side of the river.'

Steve Gray, chairman of the Cedar Rapids Development Group LLC and public face of the group's effort to build a Cedar Rapids casino, said Wednesday that the drop in Iowa gaming revenue is proof that Iowa's gaming industry needs a change.

The Iowa Racing and Gaming Commission in April denied a state gaming license for the proposed Cedar Rapids casino, saying the state had enough casinos and a Cedar Rapids one would cannibalize business from existing casinos — especially from the Riverside venue.

'We believe that the Iowa gaming market is stagnant, not saturated,' Gray said. 'It needs new and different types of products that are located in urban areas.'

In particular, he said Iowa would benefit from a Cedar Rapids casino that is situated away from the state's borders where Iowa is losing revenue to competition in other states.

'Gaming is going to proliferate in Missouri, at some point something is going to happen in Nebraska and more aggressively in South Dakota, and it is happening in Minnesota, Wisconsin and Illinois.' Gray said.

'And when you have the second-largest market in Iowa that is the second-fastest growing market and the second-largest tourism market in the state, it's hard to believe that there are not new gaming opportunities and revenues that can be generated in Cedar Rapids and Linn County.'

Cedar Rapids Mayor Ron Corbett said as much on Wednesday.

'State gaming revenue will continue to decline until new life is breathed into the industry, which a Cedar Rapids casino will do,' Corbett said.

Saturation point?

Ehrecke and Ohorilko attributed Iowa's decline to increased competition from Illinois, where establishments holding liquor licenses are allowed to install up to five video lottery terminals on site, as well as lingering effects of the recession on discretionary entertainment spending and bad weather conditions.

Ehrecke said the Iowa effects of the polar vortex in January and February discouraged winter travel to casinos, noting 'you just don't make that back up.'

Commission members who requested market studies while deciding to grant a new state gaming license in Jefferson — but also rejected an application for a proposed casino in Cedar Rapids — have expressed concern the numbers point toward Iowa's gambling industry reaching a saturation point.

The panel is expected to discuss the future course for license applications at its July meeting.

Ehrecke said the increasingly flat revenue numbers may indicate 'very likely we are close to that saturation point.' But he noted that gambling numbers can be cyclical, and with several facilities investing in upgrades 'time will tell' if the current downward trend will be reversed.

'We don't know what the new normal might be,' he said.

Ohorilko said he expects some of the numbers will rebound in the current fiscal year with plans progressing for a new casino in Jefferson and upgrades being made at facilities in Sioux City and the Quad Cities area. He noted the positive experience for Harrah's could be directly attributed to capital improvements in moving from a riverboat to a land-based property.

'I think we'll see things stabilize at some point,' he said.