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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Louisiana approves Pinnacle project

12 February 2008

LOUISIANA -- Voters in Baton Rouge, La., gave casino operator Pinnacle Entertainment approval over the weekend to move one of the company's riverboat gaming licenses from Lake Charles to the state's capital city.

The positive vote came despite a heated and often bitter campaign, fueled by two rival gaming companies that operate riverboat casinos in Baton Rouge.

Las Vegas-based Pinnacle Entertainment won approval from 56 percent of the voters after saying it would spend $250 million to build Riviere, an entertainment complex on 550 acres that will include a 100-room hotel and a 70,000-square-foot casino moored on the Mississippi River.

Gaming analysts lauded Saturday's vote in notes to investors Monday, saying the project would enhance the company's earnings.

"This is likely to be one of the higher return projects in the Pinnacle portfolio of development," Wachovia Capital Markets gaming analyst Brian McGill said. "Gaming appears underserved in Baton Rouge. It is expected that the Pinnacle property will take considerable share from the incumbent operators."

Pinnacle spent more than $7 million on the campaign, including advertisements to thwart an anti-casino expansion effort propagated by casino operating rivals Columbia Sussex Corp. and Penn National Gaming, who wanted to keep a third competitor out of the market. Penn and Columbia spent upward of $4 million since October against the Pinnacle project.

Baton Rouge gaming revenue has grown in the past two years, primarily because of the shift in population from post-Hurricane Katrina New Orleans, when roughly 100,000 storm evacuees moved into the region. In 2007, the two Baton Rouge riverboats, Penn's Hollywood Casino, and Columbia Sussex's Belle of Baton Rouge, generated $260 million in gaming revenue, up from $190 million in 2004.

Pinnacle said it believes its Baton Rouge casino could have a better than 15 percent annual return on investment.

"Our next steps will be to work with local and regional officials on a development agreement, and to move forward on other aspects of zoning, design, planning and safety," Pinnacle Chairman and CEO Dan Lee said in a statement Monday. The company hopes to open the project in 2010.

Advertising for and against the Pinnacle casino turned nasty in the final weeks of the campaign.

One series of television advertisements brought up a $2.25 million fine levied against Pinnacle in 2002 by Indiana gaming regulators, in which casino executives were accused of bringing in prostitutes to entertain high rollers at the company's Indiana casino. The incident happened before Pinnacle's current management team took over the company and all executives involved in the matter no longer work for Pinnacle.

Pinnacle countered with a campaign against Columbia Sussex, pointing out the company lost its New Jersey gaming license in December when regulators questioned the company's stewardship of the Tropicana Atlantic City. Columbia Sussex owns the Tropicana Las Vegas.

Pinnacle and Columbia Sussex have been at odds for several years. Columbia Sussex trumped Pinnacle in a 2006 bidding war over the acquisition of Tropicana parent Aztar Corp.

Pinnacle had secured the original signed agreement to buy Aztar, but lost out when Columbia Sussex agreed to pay $2.75 billion for the company.

Lee told the Baton Rouge Advocate the recent campaign was one of the nastiest he ever experienced.

"We've never had competing casinos launch such a negative campaign against us," Lee said after the vote.

Shares of Pinnacle rose 30 cents on the New York Stock Exchange Monday to close at $17.15, up 1.78 percent.