Harrah's Coupon Snafu

This was to be the week I wrapped up my report from the annual Global Gaming Expo, with notes on gaming's future and Las Vegas' past. That'll have to wait a week.

A couple of recent events in the news cry out for comment first. In Gary, Majestic Star casino's owner, Detroit businessman Don Barden, has reached agreement to buy out Trump Indiana, unifying Gary's two Buffington Harbor casinos under a single operator. In Joliet, meanwhile, Harrah's had a direct mail snafu, sending vouchers for $525 apiece for customers who were supposed to get much smaller amounts.

Let's look at the Majestic Star deal first, since it will have a larger, longer-lasting effect for players. Such a deal has been rumored for several years, seeming close and then falling apart at least twice before.

The idea is to make one strong competitor out of the two weak links in the Northwest Indiana gaming market. Ever since Trump and Majestic Star opened on June 11, 1996, there really has been only enough business for one casino at the Buffington Harbor location they share. In September, Trump earned $11.835 million in gaming revenue, Majestic Star $11.775 million. A few miles away in East Chicago, Resorts earned $22.218 million and Horseshoe took in a whopping $32.954 million.

That's no fluke --- that's the way it is month in and month out, year in and year out. In fiscal year 2005, ending Sept. 30, Majestic Star and Trump earned a combined $284 million. That's still not up to the $310 million earned by Harrah's/Resorts, or the $409 million players left on the tables and in the machines at Horseshoe, but it's a solid piece of the market. Break it down into $148 million at Majestic Star and $136 million at Trump, however, and it looks positively puny.

Marketing has been a difficult chore at Buffington Harbor from the beginning. A shared pavilion meant shared restaurants, gift shop, lounge and meeting space, limiting opportunities for Trump and Majestic Star to carve their own identities. Majestic Star has done its best to carve an identity for itself. Mike Ditka was hired as spokesman and has even been seen delivering checks to sweepstakes winners in promotions. There has been a new emphasis on attracting premium players. And the video poker at Majestic Star is some of the best in the Midwest, making the casino a well-known stop for video poker players throughout the region.

And yet, the bottom line says Majestic Star has pulled only slightly ahead of Trump in the process, and lagged behind Resorts and Horseshoe. No matter what one Buffington Harbor casino has done with marketing, it's been with the knowledge that some of the customers attracted will wind up going to the other casino.

With Barden, who also operates Fitzgerald's casinos in Las Vegas; Tunica, Miss.; and Blackhawk, Colo.; in control of both boats at Buffington Harbor, there's a new opportunity to make Majestic Star a serious competitor. Majestic Star now will have space to offer onboard amenities that could be the envy of the competition, starting with a no-smoking deck on the Trump boat.

Several years ago, plans were in the works to build a hotel, entertainment and shopping complex near the casino. Now, with the Trump hotel as a start, Barden can work on making Majestic Star a premium property.

* * *

Over in Joliet, Harrah's at first declined to cash the $525 vouchers mailed by mistake, but the Illinois Gaming Board ruled that cash them it must. Some reports suggested Harrah's could take a $5.8 million hit if all the coupons are redeemed.

The actual hit, of course, will be much smaller. Some coupons won't be redeemed. And most players will use at least part of the money to gamble. When Empress Joliet had a similar snafu in 1998, sending $125 vouchers to players who were supposed to get $5, revenues shot up for the month. Players not only used the coupons but wagered money of their own.

Harrah's situation will be different on a couple of fronts. The sheer size of the vouchers means that a large percentage of customers will take at least some of the money home. Hey, $525 is the kind of win many of us hope for when we go to the casino.

Second, the tax structure is much different than it was in 1998. Gaming revenue was taxed at 20 percent then. On the extra gaming revenue driven by the $525 vouchers, Harrah's will pay a 50 percent gaming tax. If every customer redeemed the vouchers AND LOST ALL THE MONEY BACK, Harrah's would take a $2.9 million hit in taxes on the extra revenue.

The state of Illinois stands to be the biggest winner, an uncomfortable little conflict of interests. Even after a rollback from the former top tax rate of 70 percent, Illinois' gaming tax is by far the highest in the nation. The state is a full partner-plus in the casinos, taking up to 50 percent of revenue with none of the expenses or risks. The regulators who ruled Harrah's must honor the vouchers are employees of the entity that stands to gain the most by the ruling.

Listen to John Grochowski's "Beat the Odds" tips Saturdays at 6:20 a.m., 2:50 p.m. and 7:41 p.m. and Sundays at 8:20 a.m., 2:50 p.m. and 10:42 p.m. on WBBM-AM, News Radio 780 in Chicago, streaming online at www.wbbm780.com