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Sunshine State Showdown

As racetrack casinos struggle to compete, a battle brews over the Seminoles' newly inked Class III gaming compact

Sunshine State Showdown

Two years ago, South Florida looked like one of the new hot spots of the gaming industry. When the law was passed permitting racetracks and jai alai frontons in the region’s two most populous counties to add slot machines, analysts predicted the new racinos would generate revenues well over the industry average, some putting the estimated take at more than $500 a day per machine.

The prospect of slot machines at parimutuel facilities-the first competition to Class III slots aboard cruise ships operating in waters off Florida’s coast-attracted some big names in gaming, with companies like Magna Entertainment, Isle of Capri and Boyd Gaming buying into the state’s nascent slot industry.

Magna’s Gulfstream Park was the first to open up a slot facility in November 2006, followed a month later by Mardi Gras Racetrack & Gaming and in April 2007 by Isle Casino and Racing at Pompano Park. Boyd Gaming bought Dania Jai Alai in Dania Beach, announcing plans to transform it into a racino full of resort amenities.

The rosy predictions would prove to be anything but, as slot revenues have been dismal for the first year. In fact, the per-day slot revenue at Gulfstream Park-one of the nations’ premier thoroughbred racetracks-were the lowest in the nation for commercial casinos during the second quarter, at $74.

The other two new racinos did not fare much better, managing in the best months to match industry averages of around $200 a day in per-machine revenue-a far cry from initial projections.

Meanwhile, the Class II Indian casinos operated by the Seminole Tribe of Florida have continued to hum right along, with world-class resorts such as the Hard Rock casinos in Tampa and Hollywood drawing patrons from the core of the market targeted by the parimutuel facilities. Innovative system technology resulted in the slots themselves playing much like their Class III counterparts, and with the Hard Rock theme and resort amenities thrown into the mix, the Seminoles have left the parimutuels struggling to compete.

Tough Playing Field – Part of the reason the racinos have had trouble competing with the tribal casinos is what parimutuel operators-and many lawmakers who supported slots-have complained is a decidedly un-level playing field. The parimutuel operators have to hand over 53.5 percent of their slot revenues to the state, while the Seminoles have kept every penny of their estimated $1.4 billion in annual gaming take.

The Seminoles have used that money to create enviable resort amenities at their properties, while the parimutuel operators have settled for convenience-style slot facilities in a market where for many, it is just as convenient to opt for the Indian casinos as it is to go to the racinos.

As if those woes weren’t enough, last month brought a new reason for parimutuel operators to reach for the antacid-the prospect of full-blown Class III Seminole casinos.

After years of failed negotiations and a threat by the federal government to take unilateral action, Florida Governor Charlie Crist signed a gaming compact with the Seminoles that will give the tribe the right to replace thousands of Class II slot machines at its seven casinos with traditional Class III games.

In addition to Class III slots, the compact gives the tribe the right to add banked card games including blackjack and baccarat to its casinos-a provision of the agreement that is likely to send state lawmakers, and possibly the parimutuel slot operators, to court in an attempt to alter or block the agreement.

The 25-year gaming compact also allows for six no-limit poker tournaments per year, with 70 percent of revenues going to charity.

The deal pays the state $50 million upon approval by the federal government, with graduated annual payments of at least $150 million by the third year. After the third year, the state would get a cut of gaming revenues.

The agreement also gives the Seminoles a guarantee that the deal with the state is void if existing non-tribal gaming is expanded beyond the current parimutuel facilities in Broward and Miami-Dade counties, which both were approved for slots in 2004. (Miami-Dade voters, who rejected slots in 2005, get to vote again in January, and are expected to approve the machines for parimutuel facilities there.)

While Crist initially said he would send any tribal gaming compact to the legislature for approval, he changed his tune once the federal Department of the Interior threatened to unilaterally grant the Seminoles the right to Class III slots under the Indian Gaming Regulatory Act-without a penny going to the state-if no agreement was signed by November 15. The governor’s position now is that the compact need only be approved by the federal government, and that the legislature has no right to approve or kill the deal.

Florida lawmakers do not agree, so the signing of the compact-something the Seminoles have been seeking for 16 years-likely sets up what could be a protracted legal battle before the Seminoles will see Class III slots or table games.

State lawmakers from both parties have sued Crist, not only stating that any gaming compact requires legislative approval, but that the compact itself is illegal under Florida’s constitution. The state House has already retained former House Speaker Jon Mills to study all the legislature’s legal options.

“We have asked our attorney to review the details of the compact to examine the legislature’s legal options,” House Speaker Marco Rubio said in a statement. In a separate statement, Senate Democratic Leader Steve Geller, a close political ally of the governor, said Crist has “left us no recourse but to file suit to stop this folly.”

One of the main sticking points for the lawmakers is the inclusion of banked card games in the compact-games which were not included in the parimutuel gaming law and are not legal elsewhere in the state, as is required under IGRA for tribes to qualify for Class III games. Geller also criticized the provision that bars further expansion of non-tribal gaming beyond the two large South Florida counties.

“This compact delivers billions in windfall to the Seminole Tribe while the state ends up losing money,” Geller told South Florida’s Ledger newspaper. “The governor may be willing to accept such a poorly negotiated deal, but it’s highly unlikely that the legislature ever would have approved it. And I’m willing to bet that the courts will back us.”

Lawmakers are not the only ones threatening lawsuits. Dan Adkins, president of the Mardi Gras Gaming racino in Hollywood, said he is considering suing Crist over the compact as well, because it gives the tribe an unfair advantage with more games, and limits the potential growth of parimutuel slot gaming. He notes that the parimutuel slot facilities give the state more than half their revenues in taxes, a far cry from the fees the Seminoles will pay, particularly considering the revenues already generated by the tribe’s casinos.

“The good news is, I don’t believe it will ever take effect,” Adkins said of the compact.

Ironically, observers noted that the compact may actually be supported by anti-gaming lawmakers, because of the provision preventing further expansion of non-tribal gaming.

Positioning to Compete – While the timing of the Seminoles’ move into Class III gaming remains cloudy, parimutuel gaming operators nevertheless know they need to position themselves better to compete with the tribe.

The owners of the Broward County parimutuel operations say the tax rate, while an important part of their slow start, cannot be solely blamed for the dismal showing of their slot offerings for the inaugural year.

“We didn’t have the right slot product,” says Steve Calabro, corporate vice president of gaming at Magna, parent of Gulfstream Park. “We didn’t have the right denomination mix. For instance, we opened with no penny or 2-cent games. We’re changing that. We’re presently at 15 percent-18 percent of the floor with those denominations, and eventually they will be north of 30 percent.”

According to Calabro, besides the game mix, marketing of the casino has been problematic, and the casino operations were hampered by a start-up staff that was short on casino experience.

Calabro, formerly the longtime vice president of marketing for Trump Plaza in Atlantic City, is only one of the seasoned casino veterans Magna has brought on board to turn the fortunes around at Gulfstream Park. “We have a few other people in casino operations with 10-years-plus experience.” he says. “Also, I’ve embarked on an effort to really fast-track the learning curve for the marketing and operations team we have at Gulfstream. They’re sharp and intelligent people; they just need to learn the casino side better. We’ve also hired an experienced ad agency, M&M Advertising, which represents hundreds of casinos nationwide.”

This team will oversee a casino floor at Gulfstream that will soon look a lot different than it does today. In addition to bringing in more penny and 2-cent multi-line video and reel slots, Calabro says he plans to capitalize on a game offering that currently can’t be found anywhere in South Florida, and is currently impossible in the Class II Seminole casinos-high-paying video poker.

“Our casino component will absolutely have the best video poker offering in South Florida, hands down,” Calabro says. “We’re going to bring in all the Action games-Triple Play, Five Play, 50 Play, 100 Play-in addition to all the traditional poker games. We will have Spin Poker. We’ll have Super Times Poker, which is the hottest video poker game in the country right now.

“Not only will the selection be the best, but the pay schedules will be what serious video poker players look for. If you play video poker in the Northeast, even if you play in Vegas, you’ll want to play in South Florida at Gulfstream.”

Calabro says the two floors of Gulfstream’s slot operation will be reconfigured to make maximum use of the new game mix. While the second floor has been very successful, he notes, the first floor has lagged behind. “We’re going to change the first floor into a mixed-use area,” he says. “It will be a unique space in that there will be three casual restaurant offerings, a nice simulcast lounge and 170 video poker machines. The rest of the machines will be the best penny and 2-cent games we’ve been able to assemble-penny Wheel of Fortune, 2-cent Cashman, a lot of IGT nine-line, three-reel penny and 2-cent games. The nickel Deal or No Deal will be the highest denomination there.”

He adds that as soon as he gets the go-ahead from regulators, he will place a minimum of four progressive video poker links on the first floor. On the second floor, Gulfstream will add a dedicated high-limit area with 40 games. “We could have fit 60, but we chose 40 so there will be comfort and lots of space,” Calabro says.

Calabro says he’s confident these measures, plus the addition of a Lifestyle Mall retail component nearby, will turn Gulfstream’s slot fortunes into the kinds of numbers that match up with one of the most beautiful racetracks in the country. “Our racetrack is very successful-it’s one of the most successful tracks in the country,” he says. “We want to bring the casino to that same level.”

Doug Shipley, corporate vice president and general manager of Isle Casino & Racing at Pompano Park, says his casino’s fortunes-which were not as dire as Gulfstream’s last quarter, but were still well below initial projections-began to turn around in July, when the state permitted ATMs on the casino floor.

“That certainly helped us,” he says. “Obviously, though, the cost of doing business in Florida is expensive, and it has you strategizing where you spend every penny. Certainly, the reinvestment rate is low here.”

The way they’ve made up for that at Pompano-per-machine revenues currently range from $200 to $225 per day, Shipley says-is through top-flight customer service, experienced casino management and a big emphasis on quality food and beverage.

“We’re particularly proud of our guest service rating,” Shipley says. “It’s consistently above 9 on a 1-10 scale in exit interviews. We’ve invested a lot in our guest services training modules, and on human resources. We have a good, solid management team-each individual has well over 10-15 years experience, either in Las Vegas, Atlantic City or one of the other Isle of Capri properties.”

On the F&B side, Isle brought in celebrity-chef restaurants and other upscale dining. “We brought in Luke Paladino, who did restaurants for Steve Wynn at the Mirage, and three at the Borgata,” says Shipley. “We brought him here to design our Italian restaurant, Bragozzo. It was just rated one of the top 10 restaurants in Florida. Our steakhouse also is top-notch. We’re close to the Palm Beach market, and we’ve been well-received by that market.

“A slot machine is a slot machine. We all have the same Class III machines. What separates us are our F&B offerings, which we are really proud of.”

The Wild Card – Both Calabro and Shipley say that initial projections on per-machine revenues were simply unrealistic at $500 or more, and both look forward to vastly improved results in the coming year. “2008 will be Gulfstream Park’s year,” says Calabro.

Adds Shipley, “We’re bullish, because when you look at the population base and the number of positions, even if Boyd comes in with 2,000 machines, it still looks to be a healthy market.”

The wild card, both say, is the Seminoles, and the competitive environment with which the racinos have to deal. “There is an un-level playing field between us and the Seminoles, and the competitive climate presents a vast imbalance right now,” says Shipley. “We hope that gets righted.”

Calabro adds that even without Class III slots, the Seminoles hold an advantage because of the racinos’ 53.5 percent tax rate. “We’re in a situation where our tax rate limits us as to the promotions we can offer our customers, and 20 minutes away, the Seminoles can do pretty much anything,” he says.

Boyd Gaming, meanwhile, is holding off on any announcement on groundbreaking for a slot facility at Dania. “We’re certainly watching the Class II/Class III situation, but in any event, we’re carefully and thoughtfully studying the market,” says Boyd corporate communications VP Rob Stillwell. “Although this market has great potential, we want to make sure we don’t run into the same difficulties facing those who are open now.”

While all of Broward County’s parimutuel slot operators will be closely monitoring the legal battles ahead for the Seminoles, and the tribe’s Class III situation, all are working with the legislature to level the playing field for South Florida gaming. “We’re lobbying the legislature now to let them know how difficult it is right now with the playing field,” Shipley says. “Even without Class III Seminole gaming, we have a problem with it not being a level playing field, and all of the parimutuels are active in the legislature to do something about it.”

Florida lawmakers, for now, seem to be in the parimutuels’ corner, universally rejecting the new Seminole compact and vowing legal action to block it.

Whether or not the parimutuels get the relief they need is something that remains to be seen.

Frank Legato is editor of Global Gaming Business magazine. He has been writing on gaming topics since 1984, when he launched and served as editor of Casino Gaming magazine. Legato, a nationally recognized expert on slot machines, has served as editor and reporter for a variety of gaming publications, including Public Gaming, IGWB, Casino Journal, Casino Player, Strictly Slots and Atlantic City Insider. He has an B.A. in journalism and an M.A. in communications from Duquesne University in Pittsburgh, PA. He is the author of the books, How To Win Millions Playing Slot Machines... Or Lose Trying, and Atlantic City: In Living Color.  

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