It’s time to ante up, and 15 groups have.  As of last week, theMissouri Gaming Commission has received letters from 15 parties interest in the highly anticipated 13th gaming license in Missouri.  Most letters came from real estate developers, but 4 came from cities and one came from a casino operator.

This is only the first step in the process of adding a new casino in Missouri.  The next step should come later this month when the Commission is expected to call a public meeting to outline the application process for these 15 interested parties and start collecting more specific proposals.

Interestingly enough, Pinnacle Entertainment (NYSE:PNK), current holder of the license at the President Casino which will be returned to the Commission in a few weeks, did not express interest at this time.

The 15 parties that have expressed interest are (in no particular order):

• Isle of Capri Casinos.  This is the only casino company that submitted a letter of interest.  Based in Creve Coeur, MO, the company currently has no casinos in Missouri, but has publicly stated that they are investigating several options in several areas.  The company has allegedly been in discussions with Cape Girardeau concerning a location there.
• St. Louis Capital Partners, LLC.  Joe Uram, who is the former CFO of Argosy Gaming is included in this group.  Their letter indicated an interest in a Cape Girardeau casino.
• North County Development LLC group.  Received zoning approval for a casino complex near the Columbia River Bottoms despite opposition from local residents and environmentalists.
• Coastal Capital Management, LLC, a New York-based casino developer.  The group is led by Kenneth Shea, who led gaming operations for an investment fund.
• Blue Sky Development, owned by John Parker.  Blue Sky Development also owns the French Lick Resort and casino in French Lick, Indiana.
• A group including Jim Koman, (owner of the Casino Queen in East St. Louis) expressed interest in a riverboat project south of the Chain of Rocks Bridge.
• West Alton Partners, LLC.  Tried to obtain a license in 1996 for a casino to be located in North County.
• Unbridled Entertainment.  Also expressed interest in a casino to be located in Cape Girardeau.
• The City of Sugar Creek, MO.  Located near Kansas City, the city tried to get a license in 2008 when the 13-license cap was implemented.
• Louisiana, MO.  Located about 35 miles southeast of Hannibal, MO, on the Mississippi and just south of the Ted Shanks Wildlife Management Area.
• Ingenus Management.  This gaming consulting firm from Minnesota is also pursuing a license for a casino in Iowa.
• Dream Big LLC, a small group businessmen from Cape Girardeau
• A company called Railroad Casino Train, lead by a former transportation planner for St. Louis Metro transit agency, reportedly proposing a casino license for a train that would travel from St. Louis to Kansas City, making limited stops between, which would share revenues with cities along the way.
• The City of Cape Girardeau, submitted by City Manager Scott Meyer.
• Paradox Investments, LLC (dba: Casino Celebration) submitted by Gregory Smith proposes a casino in St. Louis.

Is Isle eying a casino in Cape? With the impending closure of the President Casino, speculation grows regarding who will capture their coveted license. While several parties have already made known their interest in the license, a long awaited player may have come to the table. Oddly silent on the issue and saying only that they were “looking at a variety of opportunities in a variety of markets,” the Isle of Capri Casinos Inc. may be working with the city of Cape Girardeau to develop Missouri’s newest casino.

The relationship is unconfirmed, but recent events indicate that the possibility is more than likely. Last Friday, City Manager Scott Meyer said that he has prepared a general letter of interest in gambling for the city. Previously, Mayor Jay Knudtson confirmed that he’d met with an unnamed casino company, describing them as “a well-established casino operator with licenses in six states” based in the St. Louis area. Coincidentally, Isle of Capri’s corporate headquarters are in Creve Coeur and they operate casinos in six states.

Several other developers and locations are also possible contenders for the license. More recently, North County approved a zoning change that would allow a casino to be built near the Columbia Riverbottom conservation area (a decision that was unpopular with residents of nearby Spanish Lake and then president of Pinnacle Entertainment, Dan Lee). Additionally, interest has been expressed in building another casino in Sugar Creek, Mo, close to the Kansas City market that already has 4 casinos on the Missouri side of the river and another one in Kansas. St. Louis Mayor Francis Slay has publicly expressed his hopes that the new casino will fall within city limits to replace the more than 200 jobs and $2 million in tax revenue that will be lost when the President Casino closes.

The actual bidding process has not yet been announced and interested parties have until May 1 to submit letters to the Missouri Gaming Commission. After that, it will be interesting to see who antes up and where the chips fall.

The most pressing question now is, “Who will get the coveted 13th license?”  Several groups have been cited as having an interest in opening a new casino.   The Gaming Commission Chairman James L. Mathewson has been quoted as saying that he would welcome a bid from Pinnacle to purchase the license, so could there possibly be another suitor now?

I’m also intrigued that the spokesperson for this announcement has been Mathewson, and not Executive Director of the Missouri Gaming Commission, Gene McNary.  McNary has been rumored to have political ties with the North St. Louis County government and the development company which has expressed interest in building a casino near the Columbia Riverbottom conservation area, so I wonder if the commission is trying to distance McNary from the process until the license is awarded.

I’m also curious why Pinnacle decided to give up the license.  It seemed, following the recent court decsion, that the fate of the President was far from sealed.  I’ll be interested to see if Pinnacle and the Commission have made any other agreements.

I also find it humorous to read comments on other blogs applauding the closing of the President and at the same time expressing hope that the Admiral riverboat will be converted into a cruising vessel.  I’m curious who would be willing to underwrite such a venture.  Certainly Pinnacle will have no interest in the boat, will they?  If they didn’t want it as a casino, why would they want it at all?  Are there investors out there who would be willing to buy the boat and then pay to fix it up?  That cannot be an inexpensive proposition.  The hull still isn’t expected to pass inspection this summer, so it’s not like it would be a quick fix to convert the boat into another business.

Still, it will all be interesting to watch.

Pinnacle also has some leadership opportunities to address. The company is still actively pursuing candidates to replace their former CEO, Dan Lee. I wonder what this means for Kim Townsend. Back in October, Pinnacle tapped her to be the general manager of Lumiere Place, but then in November announced she would be staying in Atlantic City to focus on that property. Will she move to another Pinnacle property? The company has announced plans to add a casino to their resort in Lake Charles, La., and to build a casino in Baton Rouge, La. Might either of these properties be a home for Townsend?

What does all this mean for shareholders? On the one hand, Pinnacle seems to be undergoing some very big changes. There are some additions in the form of new properties, new jobs and new leadership. They are also going to be shedding some properties (Atlantic City and possibly the President Casino). On the other hand, the properties they’ll be left with could be some of their most productive assets, which might make the stock more valuable. All of this comes against the backdrop of an ailing economy, which many (including Pinnacle) blame for some of the industry’s performance. It will remain to be seen whether these cuts are enough to maintain long-term viability and shareholder value.

One of his most interesting arguments come from the seemingly suddenness of the decision.  As he points out, “the Gaming Commission staff has not directly communicated with the the home dock city about this recommendation.”  Why wouldn’t the Commission at least contact the Mayor’s office, if only out of courtesy?  Mayor Slay also brings up a very valid concern regarding the impact of removing $2 million from the City’s budget.   Surely, this cut would be a concern and impact the City.  Why not address it first before contemplating closing the casino?  As he points out in his letter, this process is “the kind of action that makes taxpayers mad at government.”

Slay also calls into question the same concern I voiced in an earlier blog: is Pinnacle being treated fairly?  The Mayor pointed out that Pinnacle has offered up plans and alternatives to remedy the President Casino’s declining revenues, but all have been shot down.  As the Mayor says, “it would be like your local government rejecting a legitimate building permit to repair your house, then condemning your house because you didn’t repair it.”

I question the strength of some of the arguments, though.  While closing the casino would cost St. Louis more than 240 jobs in an economy where unemployment is a major concern, any new casino that opens up would certainly employ at least that many people.  Those 240 jobs might not be lost, but just be relocated elsewhere in Missouri.  Indeed, the new casino could even be located in St. Louis and the City would get those jobs back.  Similarly, the argument regarding cutting $2 million from the St. Louis budget could be offset if the state revenues increase by more than $2 million.   Mayor Slay is right to defend those jobs and tax dollars – as Mayor of St. Louis, it’s his job.  But the Gaming Commission could argue that it’s looking out for the whole state of Missouri, not just St. Louis.

I wonder if the City, the Commission and Pinnacle could all work together to come up with a plan that would satisfy everyone.

I’m concerned about the potential conflict of interest in this conflict.  McNary cited a “decline in performance” as justification for the decision.   And to be fair, his statement is correct.   Revenues at The President Casino have declined steadily since 2005, with a significant drop in 2008.   So the Commission has a valid point in wanting the license to go to a property that produce more tax revenue for the state.  But does the Commission bring in more revenue by revoking the license and putting it up for bid rather than letting Pinnacle keep and renew the license at another location?  Why take the license away a year early (Pinnacle Entertainment bought the license as part of its acquisition of the President Casino in 2006, and that license is supposed to be good through 2011) and force Pinnacle to bid for it against other suitors?  Could the fact that the Commission knows there are several other parties interested in the license influence their decision to revoke and resell the existing license?

Why not give Pinnacle a chance to earn that revenue?    Pinnacle has already expressed interest in using the license for another casino in the hotly contested North County area - one of three speculated locations for a new casino.  Pinnacle also has a proven record of success, with Lumière Place Casino earning some of the highest revenues in the St. Louis gaming market, even in a down economy.  Pinnacle has employed more than 1000 people at Lumière and is currently hiring more than 1000  more employees for the new River City Casino, due to open in March.  Pinnacle offers a compelling record of success.  Why would the Commission not give them another chance to do more of the same?

From an investment standpoint, it seems much more risky to give the license to another entity, which may or may not have the same record of success in the St. Louis market.   Does the potential, one-time revenue boost from reselling the license offset this risk?  Does it make sense to trust a company that has 2 successful operations in the St Louis are to try for a third?  In the long run, what’s the best option for the people of Missouri?

My questions are: 1) who is going to run the Lumiere Place casino? Todd George, vice president and general manager at Lumiere Place was named vice president and general manager of the new River City Casino (scheduled to open in March). At the time, Townsend was expected to take over at Lumiere, presumably so that George could focus on River City. Based on revenues, Lumiere is a top (possibly the most successful) casino in the St. Louis area. So will George have the capacity to maintain Lumiere’s leading position while launching the area’s newest casino? Will he be able to replicate his success from Lumiere to River City? Or will the need to divide his attention cause both properties to suffer?

Question 2: How will this management decision affect shareholder confidence? Lee resigned in November, leaving Pinnacle’s board without a chairman. Townsend is no longer coming to help out at Lumiere. The President casino is headed for troublesome times in summer of 2010 (when the Coast Guard inspection of the Admiral Riverboat, home to the President casino, is due). Are these items causes for concern?

With so much attention on Pinnacle’s St. Louis properties, these casinos and the Pinnacle corporation have a fantastic opportunity. There’s no such thing as bad publicity, right? So the real question is what will Pinnacle do with all this attention?

The one thing that raised my eyebrow in their press release today was the absence of the President Casino.  In th release, John Giovenco, Pinnacle’s interim chief executive officer, said that, “… Along with Lumiere Place, its sister property in downtown St. Louis, River City represents a major investment in the future of the St. Louis area.”  I’m curious why the quote didn’t also mention Pinnacle’s President Casino.  Is it because the other two are new and required large amounts of capital to build?  Is Pinnacle trying to distance itself from the ailing President Casino, which faces certain challenges of its own?  Is Pinnacle underscoring its dedication to St. Louis and its record of investing in St. Louis in the hopes of facilitating the efforts to keep and/or move the President’s coveted 13th license?

The early bird gets the worm, but it’s the second mouse who gets the cheese. That’s because the first one got killed by the trap and the second one learned from the mistakes of the first. While first-mover advantage is good in many situations, being first is not without risk.

In Illinois, one of the first states to pass a smoking ban that eliminated smoking in casinos, the smoking ban taught legislators in other states the financial impact of such a decision. Recent reports from the Illinois Gaming Board and Missouri Gaming Commission have reported, yet again, that revenue in Illinois casinos are down more than revenues in Missouri casinos.  This data is in keeping with the results published by Federal Reserve Bank of St. Louis in their study of the impact of smoking bans on casino revenues.

Clearly, other states have learned this lesson from Illinois’ misfortune, and have avoided the same fate. St Louis passed a smoking ban last month, but exempted casinos. Michigan just passed a smoking ban this month, which also exempted casinos. It would seem that states are watching Illinois as a bellwether and benefiting from the state’s proactive smoking stance.  States that have followed suit with Illinois, such as Oregon, have also seen significant losses of casino revenue and their associated tax revenue.  While the smoking bans have certainly had a positive health impact in states that have effected such bans, clearly the available data suggests that smoking bans have had an unintended consequence of further damaging an already unhealthy economy (lost revenue, fewer jobs, smaller tax base, etc).

Can Illinois now learn from its own actions?  And if Illinois has learned its lesson, how can lawmakers put the genie back in the bottle?  Surely a full repeal of the smoking ban is not in the cards.  But is it possible to grant an exemption to the law after the fact?  Alternatively, is it possible to offer smoking licenses, as has been suggested before, to undo the damage the smoking ban has already done and possibly increase state revenues (which could be directed towards healthcare concerns)?

According to various reports, the new casino is hiring all kinds of position from kitchen workers and card dealers to top level managers. The employment office is open Monday through Fridays from 9am to 6 pm and is basically a computer center where prospective workers can log on to fill out online applications. Staff is available to help people fill out the applications on site too. However, there were lengthy wait times for a computer on Thursday (over an hour) so it might make more sense to fill out these applications from home (at www.workatrivercity.com), since it’s all the same system.