Iowa Supreme Court Shuts Down Argosy as State Revenue Continue Slide

The Argosy Sioux City riverboat casino will close this week as the Iowa Supreme Court refused allow it to stay open while conducting the legal fight. Sioux City’s new Hard Rock Hotel (l.) will open on August 1. And the recently ended fiscal year delivered more bad new for Iowa's 18 state-licensed casinos.

On Friday, July 25, the Iowa Supreme Court ruled that the Argosy Sioux City riverboat casino, set to close originally July 21, will close on July 30. It settles District Court Judge Eliza Ovrom ruling, in which she said she agreed with the Iowa Racing and Gaming Commission’s April 17 order to close the riverboat since it does not meet state gaming license requirements, but gave Argosy a week to obtain a stay from the Supreme Court or face closure. In court documents filed with the Supreme Court, Argosy owners stated the Ovrom’s district court order, like the IRGC ruling it affirmed, “is based on errors of law and is not supported by substantial evidence.”

The IRGC, along with Hard Rock Hotel & Casino Sioux City developer SCE Partners LLC and the Hard Rock’s nonprofit license holder Missouri River Historical Development, objected to a Supreme Court stay. If the Supreme Court had granted Argosy’s application, the casino could have remained open until the appeal has been decided, a process that could take months.

In July 2012, talks over a long-term contract broke down between Penn and MRHD. At that point, the IRGC decided to replace the Argosy with a land-based casino and put Woodbury County’s license up for bid. The IRGC allowed the Argosy to stay open under “operation of law.” The following April, MRHD had switched its allegiance to SCE Partners, and the IRGC awarded a license to them, over three other applicants, including Penn National which proposed two Hollywood-style casinos. The Hard Rock Sioux City is set to open August 1.

Meanwhile, Iowa casinos were glad to bid farewell to fiscal 2014, which ended June 30. Compared to fiscal 2013, adjusted gross receipts at the state’s 18 licensed casinos and racinos dropped 3.9 percent to $1.388 billion. It was the second consecutive year in which profits fell about $78 million below the record set in 2011 of $1.46 billion, according to Iowa Racing and Gaming Commission numbers. The decrease was greater than the 2.8 percent forecast by consulting group Marquette Advisors in a report for the IRGC.

IRGC Administrator Brian Ohorilko said, “All in all, the year was not probably what the operators would like to see. I just don’t think the market’s completely recovered from the high point a few years back.” Wes Ehrecke of the Iowa Gaming Association added, “I wouldn’t say it’s an alarm, but it’s a trend that’s certainly being watched very closely. Even with this downturn, we’re still a very strong and stable industry for the state.”

Specifically, every casino except Harrah’s Council Bluffs and Grand Falls Casino & Golf Resort in Larchwood posted year-to-year losses in adjusted gross revenue. In addition, most of the operations also posted drops in admissions with 712,000 fewer patrons in fiscal 2013 compared to 15,721,892 in fiscal 2012.

Ohorilko and Ehrecke said the poor showing was due to increased competition from Illinois where licensed establishments may install up to five video lottery terminals. The recession and bad weather also took some blame.

Ehrecke also noted the flat revenues may indicate “very likely we are close to that saturation point” in Iowa casinos. But he added gambling numbers can be cyclical. Plus, several properties are investing in renovations. “We don’t know what the new normal might be,” Ehrecke said. Ohorilko agreed, noting he expects some of the numbers will rebound in the current fiscal year due to a new casino in Jefferson and upgrades at Sioux City and the Quad Cities area. “I think we’ll see things stabilize at some point,” he said.

The IRGC also felt the state’s casino industry may be saturated. It denied a gaming license for the proposed Cedar Rapids casino, based on studies indicating it would cannibalize business from existing casinos. But Steve Gray, chairman of the Cedar Rapids Development Group LLC said, “We believe that the Iowa gaming market is stagnant, not saturated. It needs new and different types of products that are located in urban areas.”

He said Iowa would benefit from a Cedar Rapids casino that is not located near the state’s borders where competition in other states is stealing revenue. “Gaming is going to proliferate in Missouri, at some point something is going to happen in Nebraska and more aggressively in South Dakota, and it is happening in Minnesota, Wisconsin and Illinois. And when you have the second-largest market in Iowa that is the second-fastest growing market and the second-largest tourism market in the state, it’s hard to believe that there are not new gaming opportunities and revenues that can be generated in Cedar Rapids and Linn County.”

But Dan Kehl, chief executive officer at the Riverside Casino and Golf Resort south of Iowa City, who also has an ownership interest in casinos in Larchwood and Davenport, said the drop in Iowa gaming revenue reflects a nationwide trend. “Increased supply has hurt gaming properties across the county,” Kehl said, noting the closure of three casinos in Atlantic City.

Kehl’s Riverside Casino posted a 1.1 percent drop in revenue, while the state’s newest casino in Larchwood, which attracts players from Sioux Falls, South Dakota, saw a 1.7 percent increase.

Construction will begin next month on Kehl’s new land-based casino in Davenport. It will replace the existing riverboat casino there that posted an 8 percent drop in revenue last year, losing business to Illinois. “Illinois continues the aggressive roll out of slot machines in the taverns, and the casinos have seen declines as a result. We are hopeful that a new Davenport venue will reverse the trend and bring gamblers back to the Iowa side of the river.”