Isle holds all the cards in Scott County gaming market
The Isle of Capri’s operations in Scott County for the past seven years can be described as the tale of two casinos.
-- The Bettendorf casino has flourished amid multimillion dollar investments in infrastructure and revenue growth.
-- Davenport’s Rhythm City Casino has continued its downward trend in revenues during years of broken promises and abandoned plans for improvements.
State regulators raised concerns about such a scenario in August 2000 when they discussed the impact of the Isle’s plan to buy the faltering President riverboat casino in Davenport. The Isle already controlled Bettendorf’s casino through a merger with Lady Luck Casinos.
Iowa Racing Commission Chairman Bill Hansen told fellow commissioners that creating a monopoly for the Isle could make “one city and nonprofit a victim and the other a winner.” Hansen’s statement referred to the nonprofit renewal authorities that own the state-issued gaming licenses and that receive shares of casino profits. The authorities then dole out money to community groups and causes.
But Isle officials assured the commission that both casinos would prosper as independent businesses.
Bernie Goldstein, the Isle’s chairman and chief executive officer, promised that the two casinos would “have different names, different themes and would be competing against each other,” according to the minutes of that meeting.
But seven years after the Isle won approval to begin operating the Davenport casino in October 2000, the commission’s fears appear justified.
The Isle continues to invest in land-based development in Bettendorf while Davenport has seen little. So far, the Isle has been willing to share little about its plans for Davenport.
That was a recurring concern voiced by residents attending a series of meetings the Davenport mayor held in August to get input on the future of the Isle’s Rhythm City.
In the wake of a recent change in state law allowing casinos to be moved off waterways, company officials had expressed interest in moving their Davenport casino to the south section of the downtown RiverCenter. In June, it offered annual rent of $138,000. Aldermen countered Sept. 5 by asking for $2 million a year.
Davenport Mayor Ed Winborn said a move by the Isle into the RiverCenter could work, but he acknowledges the company seems to have invested in its Bettendorf property at the disadvantage of Rhythm City.
“They have made major investment in Bettendorf, but not in Davenport,” Winborn said.
Fifth Ward Alderman Bill Lynn is more harsh, saying there is no competition between the two Scott County casinos.
“The problem with casino discussions in Davenport is that they (the Isle) hold the upper hand,” Lynn said. “We either deal with Isle of Capri, or we deal with no one. We needed to send a message because they hold a monopoly in this market.”
Lynn tried unsuccessfully to convince the Meskwaki Indian Tribe to open a casino in Davenport and take over the gaming license. For that to happen, however, the Isle would have to be willing to give up the license that it controls until 2097 or default on the contract. And the Davenport casino remains highly lucrative for the Isle, bringing in $66.8 million last fiscal year in adjusted gross revenues, compared to $91.3 million for the Bettendorf casino.
Market is competitive
Isle officials, and others, counter that there is plenty of competition in the Quad-Cities and nearby, and they deny favoring one property over the other.
“We compete against Jumer’s,” said Curtis Beason, a Davenport attorney who represents the Isle in Iowa. “With Jumer’s new project, that’s another reason to be sure we do the right project.”
Jumer’s Casino Rock Island has started construction on a $151 million complex that will include a 205-room hotel,
parking, an events center, restaurants and more than triple the gaming space of its current downtown riverboat. The new project will be on 110 acres at Interstate 280 and Illinois 92 in west Rock Island County.
In addition, Jumer’s and the Isle’s properties in Davenport and Bettendorf each fight for customers against the Riverside Casino and Golf Resort in Riverside, Iowa, and the Mississippi Belle II Casino in Clinton, Iowa, Jumer’s spokesman Bill Renk said.
Renk agrees that the Quad-Cities offers three distinct casino experiences for customers, even if there are only two companies operating them.
“We’re all after the same people who gamble,” Renk said. “Would that you could be in a metro area all by yourself. This is an extremely competitive market.”
Different experiences
Will Cummings, a Massachusetts-based gaming analyst who has examined markets in Iowa for the gaming commission, said both Scott County casinos offer something different, despite being owned by the same company.
“Customers seek out a certain kind of experience, and there are all kinds of individual tastes,” Cummings said. “It’s like Ford and Mercury. They’re both the same company, but they’re different brands. Bettendorf and Davenport are vastly different properties.”
But, Cummings said, all Isle properties are run fundamentally the same. In the Quad-Cities, Bettendorf has a superior location, an important aspect for any casino operation. Its position just off Interstate 74 ramps allows customers from far and wide to find it easily. Finding Rhythm City requires some knowledge of interior Davenport streets.
The Isle’s Bettendorf property also has the advantage of being owned by the gaming company, making it more likely for the company to invest there, Cummings said. In Davenport, the Isle leases virtually all its sites from the city.
The Isle and the Goldstein family own nearly 110 acres on Bettendorf’s riverfront, said Decker Ploehn, city administrator. The hotel, parking, meeting space and casino complex occupies about 24 acres. Since it has been involved with the
operation, the Isle has invested $80 million in land-based facilities, he added.
“They own the 24 acres they are on, so it would make sense that they would take advantage of the land that they own,” Ploehn said.
During the most recent fiscal year that ended June 30, Isle of Capri Bettendorf took in adjusted gross revenue of $91.3 million.
In Davenport, there has been little land-based development by the company. In 2005, the Isle won a hard-fought battle to build a $43 million hotel and parking complex on the riverfront between Brady and Perry streets. Now the project appears dead. Last month, the Isle asked for an end to the 2005 agreement as part of a deal to convey the vacant Blackhawk Hotel downtown to the city.
License renewals
The Isle’s exclusive rights to operate casinos in Scott County give it the strong hand in any negotiations.
The Isle operates under gaming licenses held by the Riverboat Development Authority, or RDA, in Davenport and the Scott County Regional Authority, or SCRA, in Bettendorf. Both are nonprofits.
These so-called “evergreen” agreements allow the Isle to seek annual renewal of the licenses before the gaming commission as long as they continue operating the casinos in both cities. They could lose that exclusivity if another nonprofit was created and another gaming license was approved by the state, but that is unlikely, officials said.
In 2000, Isle completed the purchase of Lady Luck Gaming Corp., which operated casinos in Bettendorf and Marquette, Iowa. Isle purchased Lady Luck in a bid to grow the company and expand into Iowa, executives told the racing and gaming commission. It will be allowed to use the Bettendorf license as long as it maintains an operational casino.
Replacing President
The Isle appeared to be the savior of the Davenport casino.
In 2000, The President riverboat casino run by the Connelly Group of Wilmington, Del., teetered on bankruptcy. Company officials had actively shopped around the operation to potential buyers, the gaming commission was told by Jim Zwiefel, the company’s executive vice president and chief financial officer during a meeting on March 3, 2000.
The Connelly Group had already reneged on a promise included in a 1990 agreement with Davenport to build a 14-story, 320-room hotel worth more than $30 million on land between Perry and Brady Streets near the river.
The Isle was the only casino operator to show interest in replacing The President, said Mary Ellen Chamberlin, the RDA’s president and executive director.
And the Isle’s reputation as one of the largest riverboat operators in the country was a key factor in listening to its pitch, Chamberlin said. The RDA board worried about what might happen if The President went bankrupt before a new casino operator was found.
Local officials also were worried that it would take a company not already operating in the area longer and more money to get a Davenport operation up and running, Chamberlin said. The Isle had already taken over the Bettendorf casino and was familiar with the market. It also was familiar with Iowa laws and gaming rules, Chamberlin said.
“The President was facing bankruptcy, and we had to look at those who could lose their jobs,” Chamberlin said. “Our overriding concern was, what if no one else comes forward and The President goes bankrupt.”
Phil Yerington, Davenport’s mayor in 2000, said he knew of no other company that showed an interest in replacing The President. He did remember a visit from Goldstein, who showed up one day at his City Hall office to lay out the Isle’s plans for the Davenport riverboat if it were chosen to operate a casino in the city.
Yerington, running for mayor again after being out of office for nearly six years, said the meeting ended with him being impressed by Goldstein and the Isle’s plans and he was ready to back the company’s bid to operate a riverboat in the city.
“He didn’t promise that they would do land-based development, but he talked about a future hotel and other development on the riverfront,” Yerington said. “I was impressed that he had a plan and he knew what he wanted to do here. He never did anything to try and fool me, and he was always up front.”
Watchdogs watching
As the Isle has become a larger presence in Iowa’s gaming market, its influence has increasingly become a topic of conversation by the gaming commission, said Kate Cutler, current chairman of the regulatory panel. With the opening of its new casino in Waterloo in June, the Isle now operates four of the state’s 17 gambling properties.
The talk among gaming commission members has not focused on whether the company can impose its will on any particular market in the state, Cutler said. Instead, the concern has been about what happens to all its properties and the thousands of people it employs should it fall on financial hard times.
The board keeps an eye on the company’s financial outlook at operations around the country, Cutler said. The main concern is that Isle continue to have the financial ability to complete what it starts.
“If we were to see abuse in any single market, we would be there,” she said.
Tom Saul can be contacted at (563) 383-2453 or tsaul@qctimes.com.
Key components of Isle agreements to operate Rhythm City
The following are key components of agreements the Isle of Capri has with the Davenport and the Riverboat Development Authority that allow it to operate the Rhythm City riverboat casino on the city’s riverfront.
Riverboat Development Authority
-- RDA gets 4.1 percent of weekly adjusted gross receipts from the casino.
-- The Isle has a so-called “evergreen” agreement giving it exclusive use of the state gaming license held by the RDA as long as it does not violate agreements with the RDA or the city and receives annual renewal from the Iowa Racing and Gaming Commission.
-- The RDA can end its agreement with the Isle after giving 30 days written notice — and an opportunity to fix problems — if it finds:
1) Any governmental license needed to operate a casino has been lost or suspended for more than 30 days.
2) The Isle is in “material breach” of obligations under its agreement with the RDA or any agreement with the city.
3) There is absence of an operational gaming facility for more than 30 days in any 12-month period.
City
-- City leases with the Isle allow it to use riverfront property between Perry and South Harrison streets for berthing of its riverboat and for parking through 2097. The company also has leases other city property and the Redstone parking ramp at Main Street and River Drive for varying lengths.
-- The Isle is required to make annual payments to the city of 1.65 percent of adjusted gross revenues from Rhythm City to cover most leases and berthing rights and an additional half of 1 percent of adjusted gross revenue as a gaming tax. The company also makes an annual payment in lieu of property taxes to the city of $226,179.
-- Davenport and the Isle agree to enter into “good-faith negotiations” on land-based development projects, but neither party is obligated to anything until a detailed agreement, including terms and conditions, is executed.
-- The city can end its agreement with the Isle after giving 30 days written notice and an opportunity to fix problems if it finds that:
1) Any governmental license needed to operate a casino has been lost or suspended for more than 30 days.
2) The Isle is in “material breach” of obligations under its agreement with the city or any agreement with the RDA.
3) There is absence of an operational gaming facility for more than 30 days in any calendar year.
IN THE SERIES
Today: Isle of Capri officials say there is plenty of competition in the Quad-Cities and nearby, and they deny favoring one of their Scott Co. properties over the other. But some in Davenport charge there is no competition between the two at all.
Monday: Both Council Bluffs and Dubuque have healthy, competing casinos, which have completed or plan major expansion projects. In the Quad-Cities, meanwhile, only Bettendorf and Rock Island have expansion projects planned.