Potential indoor smoking bans in two St. Louis-area counties could damage gaming revenue from casinos just as three properties in the area are about to be sold.
St. Charles County voters will decide on two competing smoking bans on the Nov. 6 ballot. One measure would ban smoking everywhere except for cigar bars, tobacco stores and private clubs such as American Legion posts, as well as in private homes.
The other would allow additional exceptions, including half of the gaming floor at the Ameristar Casino St. Charles. Smoking could continue at bars and restaurants with separately ventilated smoking areas.
In neighboring St. Louis County, a ballot measure was certified that would get rid of exemptions for casinos and more than 90 bars allowed under the county’s current seven-year-old smoking ban. The county also could end up with two dueling smoking bans. Another petition – financed by Penn National Gaming – seeks to keep the exemptions in place.
Jefferies gaming analyst David Katz told investors Tuesday the proposed smoking bans could be detrimental to both Penn National and Boyd Gaming Corp.
Penn owns the Hollywood Casino St. Louis and buying the River City Casino from Pinnacle Entertainment as part of its $2.8 billion acquisition of the company. Both casinos are in suburban St. Louis.
Boyd Gaming is acquiring the operations of Ameristar St. Charles from Pinnacle through a lease agreement with Gaming and Leisure Properties. The operations are one of four properties – two Ameristar casinos in Missouri and the Belterra gaming brands in Indiana and Ohio – the company is acquiring for $575 million.
“Our experience is that smoking bans could result in significant revenue declines,” Katz wrote in the report. He cited historical gaming revenue decreases of 20.7 percent in Illinois and 12.3 percent in Colorado in the years indoor smoking bans at casinos went into effect.
Katz told investors the Ameristar St. Charles casino purchase “is perhaps the most impactful.” The acquisition could hurt Boyd, which is estimated to draw 9 percent of its annual cash flow from St. Charles, the analyst projected for 2019.
“However, the detrimental effect may be mitigated given one proposal permits smoking on half the casino floor,” Katz said.
Similarly, the Hollywood Casino accounts from 4 percent of Penn’s overall cashflow while River City could increase the company’s annual cash flow from the market to 7 percent.
Also, Eldorado Resorts is acquiring Lumiere Place in downtown St. Louis as part of its $1.8 billion acquisition of Tropicana Entertainment with GLPI. Katz said he has not made any estimates on Lumiere Place.
News of the possible smoking bans didn’t seem to have much of an impact of the companies’ stock prices Tuesday. Eldorado shares were down 25 cents of 0.51 percent to close at $48.35 on Nasdaq; Boyd was up 16 cents or 0.44 percent to close at $36.24 on the New York Stock Exchange, and Penn was up 21 cents or 0.61 percent to close at $34.51 on the Nasdaq.
“With the current process likely to continue through election day and an uncertain outcome for the moment, we expect the stocks to price in some modest amount for a negative outcome,” Katz said.
However, the analyst said the outcome is “in the limited context of the St. Louis market” and does not alter his positive view on regional gaming.
“We therefore would consider any potential weakness an especially good buying opportunity,” Katz said.
A spokesman for Boyd declined comment Tuesday on the potential smoking ban since the company does not currently own the property.
Ameristar General Manager Ward Shaw spoke in favor of the weaker smoking ban at the St. Charles County Council meeting, saying businesses and their customers should be able to make their own decisions regarding smoking.
“We live in a country based on individuals’ rights to make choices,” Shaw said, according to the St. Louis Post-Dispatch.
Ward told the council Ameristar St. Charles draws 5.6 million guests per year, which is the most out of any attraction in that. He said an all-out smoking ban would mean a decline in business.
An attorney for St. Charles County said it was unclear what will happen if voters pass both measures. He told the Post-Dispatch the issue would then likely be resolved by the courts.
Unlike in St. Charles County, a St. Louis County ordinance says if two ballot measures with conflicting provisions both are approved by voters, the one getting the most votes prevails.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
