Success no sure bet for casinos

By ROBERT STRUCKMAN of the Missoulian

Montana casino owners are competing harder than ever for gambling dollars, and some are losing.

"It's a function of the industry, redistribution. Some guys went down

20 percent and some others went up 29 percent," said J. Grant Lincoln, who owns Century Gaming Inc. of Missoula.

"Gains for some machines are not what they've been used to," agreed Rich Miller, Helena-based director of the Gaming Industry Association of Montana.

Gambling revenues rose 9 percent in fiscal year 2004, according to the Montana Gambling Control Division. But it wasn't an across-the-board increase.

About 3 percent of Montana's 920 gambling establishments earned more than

$1 million from each machine in 2004;

21 percent of casinos earned less than $25,000 per machine.

The gambling industry in Montana is maturing, Miller and others said. In the industry's early days, gambling machines were cheap, about $2,000 each. Prime locations were available. And it wasn't hard to reach new customers.

These days customers flock to new machines, which cost about $12,000 each and offer keno and poker, Miller said.

Five new machines might set a casino operator back $50,000 or more, but they earn more than the old machines, Lincoln said.

The combined keno and poker machines earn on average $80.91 per day, more than twice the take of the average poker machine, said Rick Ask of the state's Gambling Control Division.

But those added earnings are not necessarily automatic. The operators who made those investments are anxious to recoup them, Miller said.

One sign of the increased competition is the nature of the promotional campaigns. They are aimed at creating steady customers, not at bringing new faces through the doors.

"It's not so much about advertising. It is in-house promotions," Miller said.

One promotion works like this: A patron comes in with $5 and the casino offers credit for another $5. Other casinos have "player's club" situations. In that scenario, the house will track the money spent by a gambler. When that person cashes out, the casino will give them back a portion of the money they lost, Miller said.

Besides building loyalty among customers, those practices throw off the earnings tally of each machine. For instance, one machine may record a $10 win for a patron, $5 of which originated with the casino.

Miller polled members of the statewide association about last year's profits. A significant percentage of the fiscal year's gain - as much as 4 percent or 5 percent - might have had to do with the promotions, he said.

Not that the casino owners will talk specifics of cash spent on promotions.

"It's extremely proprietary information. Even my ex-partners won't tell me what they spend," Miller said.

Others are wary of dismissing last year's reported net gains.

"Look at the new rooftops, new apartment buildings," said Lincoln, a route operator who leases and services machines across the state. The population growth in some counties probably accounts for some increase in gambling revenues, he said.

But he also agreed with Miller.

"The promotional dollars falsely inflate the net profit. It could be that overall the growth is closer to zero percent," Lincoln said.

From the state's perspective, though, it hardly matters.

"That (the promotions) is hard for us to report on," Ask said. He stood by the state's accounting system. The promotional activities are simply an expense of the operator; they bring in more players and are likely reflected by profits, he said.

The bottom line is this: The state tax rate on gambling revenue - the money put into each machine minus the cash paid out - is at 15 percent.

The source of that money - whether it's from a casino owner or a patron - hardly matters.

Reporter Robert Struckman can be reached at 523-5262 or rstruckman@missoulian.com.