Hollywood Casino Corporation
Hollywood Casino Corporation
Sales: $258.5 million (1996)
Stock Exchanges: NASDAQ
SICs: 7999 Amusement & Recreation, Not Elsewhere Classified; 7011 Hotels & Motels
Hollywood Casino Corporation (HCC) develops, owns, and operates themed casino entertainment facilities under the service mark Hollywood Casino. Through its subsidiaries, HCC currently owns and operates the Hollywood Casino riverboat gaming facility in Aurora, Illinois, and the Hollywood Casino and Hotel complex in Tunica County, Mississippi, located near Memphis, Tennessee. Both the Aurora and Tunica facilities feature the company’s unique Hollywood theme, which incorporates the excitement and glamour of the motion picture industry by utilizing designs inspired by famous movies, displays of motion picture memorabilia, and movie-themed gaming, entertainment, and dining areas. The company is also actively pursuing potential gaming opportunities in domestic and foreign jurisdictions where gaming is legalized or is being actively considered.
A New Company with a History
The Hollywood Casino Corporation was established in 1990 as the parent company of the Pratt Hotel Corporation (PHC). The Pratt Hotel Corporation traces its roots to 1967, when brothers Jack, Edward, and William Pratt purchased their first Holiday Inn franchise in Mineral Wells, Texas. Over the years, the PHC became the nation’s third largest developer of Holiday Inn franchises, opening about 40 hotel and resort properties in the United States and abroad. These properties reached an aggregate value of $2.5 billion. In 1981, PHC acquired its first U.S. casino property when it purchased a controlling interest in the Create Bay Casino Corporation, which operated the Brighton Hotel and Casino in Atlantic City, New Jersey. PHC renamed the resort the Sands Hotel and Casino and by 1985 had purchased it outright.
The Hollywood Casino Corporation was created to develop and expand PHC’s interests in the lodging, gaming, and entertainment industries, and it retained 80.1 percent ownership of the Pratt Hotel Corp. Approximately 47 percent of HCC’s outstanding common shares are listed and traded on the NASDAQ stock market, while the remaining outstanding HCC common shares are owned by partnerships and trusts controlled by the Pratt family. The expansion that justified the creation of the company was soon carried out, as the HCC opened the Hollywood Casino in Aurora in 1993 and the Hollywood Casino Hotel and RV Park in Tunica in 1994. By 1996 the HCC decided to spin off the PHC to stockholders, a move prompted by the seasonal fluctuations inherent in the Atlantic City casino operations (whose season peaks between May and September). The PHC concurrently changed its name to the Create Bay Casino Corporation (GBCC) and continues to operate the Sands Hotel and Casino.
Three Leading Casinos
The Sands Hotel and Casino, the original casino in the HCC group, is located in Atlantic City, New Jersey, the second largest gaming city in the United States, behind Las Vegas, Nevada. The Sands facility consists of a casino and simulcasting facility with approximately 76,000 square feet of gaming space containing approximately 2,000 slot machines and 125 table games; a hotel with 532 rooms (including 58 suites); six restaurants; a cocktail lounge; two private lounges for invited guests (the Plaza Club and the Island Club); an 800-seat cabaret theater; retail space; an adjacent nine-story executive office building with 77,000 square feet of office space for its executive, financial, and administrative personnel; the “People Mover,” an elevated, enclosed, one-way moving sidewalk connecting the Sands to the Boardwalk; and parking for approximately 1,900 vehicles. The Casino employed approximately 3,200 people in 1996, about a third of whom were affiliated with the Hotel, Restaurant Employees and Bartenders International Union, AFL-CIO, Local 54.
Prior to HCC’s spinning off the GBCC on December 31, 1996, the Sands was managed by the GBCC Group of the HCC. In that year the GBCC Group recorded revenues of $283.64 million, down roughly seven percent from the previous year’s revenues of $304.34 million. The decrease was blamed primarily on the growing competition in the Atlantic City Casino market, and on the increasing percentage of what are called “mass-market” customers. The Sands’ marketing strategy has historically consisted of seeking higher-value repeat patrons, who it courted by offering limited-access facilities and special amenities. While the Sands has strived to retain these customers, the completion of the Sands’ expansion in 1994 has allowed the Sands to broaden its appeal to the mass drive-in patron for continued growth in this market segment. The Sands markets to the “mass” casino patron market segment through various forms of advertising media as well as through group and bus tour packages. After 1996, the Sands casino was no longer part of the Hollywood Casino Corporation.
Aurora Casino Opens in 1993
The Hollywood Casino in Aurora opened on June 17, 1993 and takes advantage of its proximity to the nearby metropolis of Chicago. The Aurora Casino facilities include two riverboat casinos, a pavilion/dock, and a large parking structure. The two multilevel riverboat casinos— City Lights I and City Lights II —boast a combined 32,100 square feet of gaming space with approximately 975 slot machines and 56 table games. City Lights I and II can accommodate 1,875 passengers and offer the maximum number of gaming spaces allowed by Illinois law. In 1997, these riverboats made as many as 18 cruises daily, beginning as early as 8:30 a.m. and concluding the day’s voyages at 4:30 a.m., with significant seasonal variations. Onboard gaming is permitted one-half hour prior to launch time and one-half hour after docking, for a total of two to three hours of gaming per cruise. With two vessels operating on a staggered schedule, the casino is able to maximize the number of patrons using the facilities while minimizing the time they spend waiting. When weather or structural problems make cruising unsafe, the riverboats may host what is known as “dockside” gaming. During dockside gaming, the Aurora riverboats operate on their normal schedules and passengers may leave the vessels at any time but may board only during the half hour prior to the regularly scheduled start of the cruise.
While Illinois state regulations limit casino gambling to specified locations and times aboard the riverboats, HCC also provides its patrons with a number of diversions at the Aurora Casino pavilion. The 64,000-square-foot Pavilion features a glass-domed, four-story atrium with two grand staircases, two upscale lounges, two gourmet restaurants, a large buffet, and a diner. The Paramount Theatre, an 1,800-seat art deco theatre, offers a range of entertainment, including performances by Frank Sinatra, Tom Jones, Ann-Margaret, the Temptations, Howie Mandel, Willie Nelson, and the Bolshoi Ballet. Expansion of the land-based facilities in 1996 added a 4,000-square-foot ballroom, a Hollywood Casino Studio Store featuring products from major motion picture studios, and additional parking for 500 vehicles. The casino draws the majority of its patrons from the greater Chicago metropolitan area, primarily the affluent suburbs north and west of town. According to company estimates, the casino drew approximately 40 percent of its patrons from such suburbs during 1996.
The Aurora Casino has enjoyed a steady growth in revenues since its opening in 1993, though income has not kept pace with the growth in revenues. Total gaming revenues from the casino reached $157.1 million in 1996, up from $146.3 million in 1995 and $139.4 million in 1994. The rise in gaming revenues was attributed to the increase in gaming space added by an expansion in late 1995, as well as the continued health and growth of the Illinois gaming market. Nevertheless, casino income dropped slightly over the same period, to $35.3 million for the year ended December 31, 1996 compared to $35.6 million and $37.6 million, respectively, during 1995 and 1994. This discrepancy was attributed to costs associated with casino expansion during 1995 and 1996 and to a decrease in market share due to the opening of competing casinos in northern Indiana. First quarter figures for 1997 saw revenues decline 7.7 percent from first quarter 1996, to $40.4 million, while pretax earnings stood at $11.8 million, down from $14 million from first quarter 1996 but up 8.2 percent from fourth quarter 1996. Again the declines were attributed to the increased regional gambling capacity, perhaps signaling an overall adjustment of the market with each casino receiving a smaller share.
Tunica Casino Debuts in 1994
HCC opened the Tunica Casino on August 8, 1994, joining a four casino cluster located in north Tunica County, Mississippi, and serving the Memphis, Tennessee, metropolitan area. Although the Tunica facility is technically called a riverboat casino, visitors would never know it. Mississippi’s liberal gaming laws only require that there be some water beneath a gambling facility and there is—somewhere. The Tunica Casino is the most heavily “themed” of HCC’s properties: the casino resembles a large Hollywood sound stage and is adorned with authentic and replica movie props presented in multimedia display cases with larger props suspended from the ceiling. The Hollywood theme is expected to allow for periodical updates with new memorabilia, a plan which management hopes will lure repeat visitors. The Tunica facility features a 54,000-square-foot casino with approximately 1,370 slot machines and 50 table games.
Hollywood Casino Corporation is one of the most successful gaming companies in the nation and through its subsidiaries, owns and operates two casino gaming properties—one of which offers hotel facilities: Holly Casino Hotel & RV Park in Tunica, Mississippi; and Hollywood Casino in Aurora, Illinois. Each property showcases authentic memorabilia from Hollywood blockbuster movies and offers award-winning restaurants and headline entertainment.
In addition to the casino’s gambling facilities, Tunica has a hotel boasting 506 rooms (350 of which were added in a new tower in 1996), a 50-space recreational vehicle park, and Hollywood themed restaurants, lounges, and bars. The additional hotel facilities, which cost approximately $31.8 million, were added after the existing hotel experienced occupancy rates between 96 and 99 percent throughout 1995. The Tunica facility is in a competitive gambling market, with three competing casinos drawing on a patron base that is dominated by Memphis but also includes Little Rock, Jonesboro, and Pine Bluff, Arkansas; Nashville, Tennessee, Jackson, Mississippi; and southeastern Missouri. The casinos in what is called “Casino Strip” have worked together to market and advertise the area, and they operate a free shuttle bus service between the casinos. Further plans for joint development include the building of an 18-hole championship golf course. According to the company’s 1996 Securities and Exchange Commission (SEC) 10-K statement, “Management believes that the critical mass of the four property cluster, together with the ability of visitors to move freely among these properties and to access the cluster from the main Tunica highways, generates significant patron traffic to the Tunica Casino.”
The Tunica Casino enjoyed a boost in performance for the first quarter of 1997, with net revenues increasing 11.3 percent, to $27 million, compared to the first quarter of 1996. This gain represented good news for the casino, whose 1996 performance had seen a slight decline compared to 1995. Gaming revenues in 1996 stood at $87.4 million, down from $88.3 million in 1995 (the casino’s first year revenues were $30.4 million). Income also dropped sharply in 1996, down from 1995’s high of $15.7 million to $6.3 million. Management hoped that 1997’s increased performance was more indicative of future trends, for it represented the first figures since the addition of hotel space and a new gaming theme called “Adventure Slots.” HCC president and CEO Edward T. Pratt III announced in a news release that accompanied the announcement of 1997 first quarter earnings that “We estimate that the Hollywood Casino in Tunica is achieving in excess of 125 percent of its fair share of gaming revenues in the Tunica market. This attests to the quality of our facilities and the overwhelming popularity of the Hollywood theme at this property.”
New Technologies, New Games Drive Growth in Mid-1990s
In addition to adding lodging space and expanding existing gaming space, Hollywood Casino Corporation has tried to maximize the efficiency of its casinos through the use of casino information technology developed by Advanced Casino Systems Corporation (ACSC), a subsidiary of GBCC. ACSC’s information technology includes table game and slot monitoring systems that allow the casinos to track and rate patron play through the use of a casino players’ card. When patrons utilize the casino players’ card at different games, the information is immediately available to management. Management uses such information to develop marketing programs and to reward patrons “on the spot.” Such promotions and complimentaries include free food, admissions, retail merchandise, and sweepstakes giveaways. According to the company, management believes that its ability to reward its higher value patrons on a “same-visit” basis is valuable in implementing its strategy of developing a loyal patron base of premium-rated players. Moreover, ACSC’s systems allow the casinos to monitor, analyze, and control the granting of gaming credit, promotional expenses, and other marketing costs.
Another Hollywood Casino innovation was introduced in 1996 at the Tunica casino. Called “Adventure Slots,” the new slot environment represented an attempt to bring the gaming experience into the modern age of casino entertainment. “Adventure Slots,” wrote Roger Gros in Casino Player Magazine, “is attempting to capitalize on the same kind of excitement created by those volcanoes, pirate battles and themes resorts, and fully integrate it into the gambling experience.” HCC worked in conjunction with a Hollywood set design firm called Scenographic Designs to design an oversize gaming room filled with a temple to the gods, interactive “sets,” a show replete with “dancing water and spitting fire,” and animated scenes from favorite Hollywood movies. In the midst of all this entertainment there are—of course—slot machines. “We’re trying to create more entertainment value for our customers while maximizing play,” Pratt told Gros. “You can’t become stagnant. You have to continue to grow and create higher entertainment values for the customer. That’s what Hollywood Casinos are all about.”
Hollywood Casinos seemed to be in a good position for future growth in an admittedly crowded and competitive gambling market. Net revenues for the company (excluding the GBCC group) came to $258.5 million in 1996, up 4.5 percent from the previous year’s figures of $247.3 million. Earnings for 1996 were $16.9 million, down dramatically from the previous year’s earnings of $27 million. First quarter returns for 1997 revealed earnings of $1.5 million on net revenues of $67.5 million, with the earnings figure a big improvement over the previous year’s first quarter loss of $6.7 million. As Pratt noted in a news release, “With the spin off of Create Bay completed, the first quarter of 1997 is the first opportunity for our company to report earnings on a post spin off basis.” With the company’s holdings consolidated around the Hollywood theme, and with potential future casino developments pending in Bossier City, Louisiana, and Houston and Dallas, Texas, Hollywood Casino Corp. appeared to be in a favorable position in the late 1990s.
Hollywood Casino—Aurora, Inc.; Hollywood Casino— Tunica, Inc.
“Casinos Plan Golfing, Ponder Monorail,” Commercial Appeal (Memphis, Tenn.), June 8, 1995, p. B8.
“Firm Seeks Casino Site Next to the JB Bridge,” St. Louis Post Dispatch, May 17, 1995, p. C1.
Gros, Roger, “The Adventure Begins,” Casino Player Magazine, April 1996.
“Hollywood Casino Corporation Reports First Quarter Earnings,” PR Newswire, April 28, 1997.
“Hollywood Casino on S & P Credit Watch,” Dallas Morning News, August 10, 1996, p. F3.
“More Troubles in Tunica as Yet Another Riverboat Weighs Anchor,” International Gaming and Wagering Business, October 5, 1994, p. 77.
Perlman, Ellen, “Gambling, Mississippi Style,” Governing Magazine, April 1995.
“Sands Announces Expansion Plans,” International Gaming and Wagering Business, September 1996, p. 12.
Walkup, Carolyn, “Casinos Trump Operators in Gaming Towns,” Nation’s Restaurant News, August 8, 1994, pp. 1, 63.