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Rock On!

Why upscale racinos are serious competition for full-scale casinos

Rock On!

A rose by any other name would smell as sweet, William Shakespeare once wrote.

Apparently, the Bard of Avon didn’t know about the rose—or “rocksino”—that graces the property of Northfield Park harness racing track in suburban Cleveland.

Rocksino is the name given to the slots casino that Hard Rock International has built at the track. Rocksino is a play off of the word racino that was contrived to describe the combination of a racetrack and casino.

But the rocksino is more than a name or a marketing tool. It is an experiment in whether a racino can go upscale.

Historically, there has been a class distinction between racinos and casinos.

The latter were for a more upscale crowd, as in patrons willing to plunk down $100 or $1,000 or more a hand at the blackjack table.

The former were thought to be the home of middle-age ladies plunking quarters into slot machines.

But Northfield Park brought in Hard Rock to develop its slots casino and, as Hard Rock Chairman Jim Allen says, a new creature was created—an upscale racino with entertainment value and a global brand name.

Most other racinos have been inexpensive affairs—rows of slot machines jammed beneath racetrack grandstands with a daub of paint and a café thrown in.

The rocksino, at $268 million, is clearly more than that.

But the question is, does it matter?

January was the first full month of the rocksino’s operation, and if early results mean anything, it does matter.

The rocksino took in $12.817 million. That far outperformed Ohio’s other racinos.

The next best performer was MTR Gaming’s Scioto Downs outside Columbus at $9.695 million. And Scioto Downs has had more than a year to build a player base.

Then came Caesars/Rock Gaming-managed ThistleDown, also near Cleveland, at $8.904 million, and the Delaware North-Churchill Downs property Miami Valley at $7.776 million.

Of course, a lot of factors go into revenue variations, including the sheer size of the rocksino, which at 2,200 machines is the state’s biggest slots casino.

But the indications are that an upscale racino can outperform.

The rocksino isn’t the first racino to go upscale. Dover Downs has done that in Delaware. That property sports gourmet restaurants, a spa and a destination resort-quality hotel.

For a long time, Dover Downs produced strong gaming numbers. Its performance, however, has been damaged by the proliferation of regional competition, especially the opening of Maryland casinos.

For a property that got more than half of its business from states to its west, DDE was especially vulnerable.

Still, the nice hotel, restaurants and resort amenities allow Dover Downs to remain a getaway for residents of the surrounding cities of Baltimore, Washington and Philadelphia.

The next experiment will come later this year when Pinnacle opens its $209 million slots casino at River Downs outside of Cincinnati.

PNK expects the property to perform strongly, and also to act as a feeder to Belterra, its destination-quality resort in southeastern Indiana about 30 miles west of Cincinnati.

In short, as Hard Rock’s rocksino appears to be showing, the upscaling of slots casinos can make them competitors to full-fledged casinos.

Wow Macau!

There’s a reason the stocks of all six Macau casino operators are soaring in Hong Kong and New York, and why the founders of Galaxy Entertainment, Las Vegas Sands and Wynn Resorts keep climbing in Forbes’ list of billionaires.

Gaming revenues just keep soaring, regardless of any worries about the Chinese economy.

In February, for example, revenues jumped 40.3 percent over last year to $38 billion, breaking the record set last March, which had three more days.

An early Chinese New Year helped. It meant casinos got both the tourist spike during the holiday and the rush of VIP gamblers afterwards. Some of those VIPs came in March last year.

A case can be made that there’s still time to jump on the Macau bandwagon. Certainly, Las Vegas Sands and Melco Crown appear positioned to take advantage of premium mass-market growth, and Wynn has been transitioning more towards that segment.

But there could be other ways to play Macau.

Analyst Jake Lynch of Macquarie suggested one of them—Paradise Entertainment.

The Hong Kong-listed casino manager and gaming supplier can more than double over the next three years, Lynch says.

Paradise will grow by filling the gap caused by the limit on live table growth in Macau, and by expanding into the U.S. and elsewhere in Asia, Lynch said.

Paradise makes electronic table games that, while appealing to lower-stakes players compared to live tables, can make up the difference in more hands per hour, Lynch said.

Paradise has grown from zero electronic gaming machines four years ago to 1,749 today. But the Big Kahuna is the U.S., where Paradise has placed machines in Las Vegas Sands properties, Lynch noted.

We’ll point out that Paradise also has a quality that we like, especially in the casino industry. CEO Jay Chun is a visionary founder who owns 60 percent of the company.

Those are qualities that have worked well for companies like Wynn and Las Vegas Sands, and in Macau for Melco Crown and Galaxy.

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