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St. Louis is probably one of the most dynamic gaming markets in riverboat land. PNK’s Lumiere Place opened last year and another PNK property will open in South St. Louis County next year. A statewide referendum on the ballot in November could eliminate the loss limit in exchange for a 1% higher gaming tax rate.
  • We’ve done some revealing work on local housing prices as the most important driver of gaming revenues over the past 15 years (see “IT’S THE HOUSING STUPID, 7/17/08). We all know what is happening with housing nationally but it is instructive to view the variable on a localized level. As shown below, St. Louis homes did not experience the explosive pricing growth as other parts of the country. Gaming revenue growth was also more moderate. For this reason, I expect declines to be on the reasonable side as well which makes St. Louis one of the more attractive gaming markets. This is all relative of course.
  • The other attractive feature of the market is of course, the potential for the loss limit elimination. PNK and ASCA are the clear winners should the referendum pass. Polls indicate that a slight majority favor passage. Missouri remains the only state with loss limits in place, effectively repelling significant high end business. ASCA could experience a 10-15% net increase in EBITDA over time from the loss limit removal.
  • PNK appears on track to open in South County late next year which will negatively impact same store revenue. Ameristar and Argosy (PENN) look to be pretty insulated from the new competition. Harrah’s Maryland Heights will feel some impact but the major market share losers will be PNK’s own Lumiere Place and President, and the privately owned Casino Queen.
  • Given the horrendous results following smoking bans in Illinois, Atlantic City, and Colorado, everyone seems to be focused on this issue. We are fairly optimistic we won’t see a smoking ban any time soon in Missouri. A smoking ban proposal was last rejected in 2006.
  • ASCA generated 27% of its EBITDA in St. Louis and should be the prime “beneficiary” of less bad results in this market and the potential loss limit removal.
It's the housing, stupid!
On a relative basis, STL exposure is probably a good thing