Suburban competition hurts Pittsburgh's Rivers Casino

PITTSBURGH - There was plenty of room to play inside Rivers Casino on a recent weeknight.

The $780 million casino, which debuted six months ago on the North Shore waterfront as Pennsylvania's costliest slots parlor and its first in an urban setting, has struggled against nearby competition from the Meadows Racetrack & Casino and two established West Virginia gambling halls.

"You get better comps in Atlantic City and at the Meadows," said Phyllis Sanguigni, who lives on the North Side just minutes from Rivers and is typically at the casino a few times a week to play slots. "I don't know what the door prize is for all the hours I sit here and gamble."

The 72-year-old retired schoolteacher also said that she found the Rivers food selection limited and that jackpot winners' names were not posted anywhere in the casino.

"They're not aware of the needs of the gambler - from the high roller to a 50-cent slots player," Sanguigni said. "It's out of sync."

Rivers' owner and management have been trying to change that perception and to match expectations.

The casino has had two credit-rating downgrades from Standard & Poor's since debuting Aug. 9. The most recent was on Nov. 24, when its credit rating went from a "B-" to a "C" for severe underperformance.

A new management team was hired in January to retool the food-and-beverage offerings and step up the promotional giveaways - resulting in the casino's strongest month yet.

But Rivers, which has consistently finished in the bottom tier among Pennsylvania's nine casinos, remains on pace to earn slightly less than half the revenue projected by the state before it opened, and slightly less than 40 percent of the revenue projected by its owner, Chicago billionaire Neil Bluhm, who is also majority investor of the planned SugarHouse Casino for Philadelphia's waterfront.

"They had a good month, but they are still facing an uphill challenge," said Michael Listner, the S&P analyst who authored both downgrading reports.

He said Rivers was not likely to have the cash flow needed this year to fulfill its contractual obligations, such as debt payments, and a $7.5 million annual contribution to the new Penguins hockey arena.

The City of Pittsburgh and Allegheny County each receive 2 percent of the casino's gross slots revenue annually as local shares for hosting the casino. The city is guaranteed $10 million annually, regardless of Rivers' gross revenue for the year, while the county's share is based on a straight 2 percent cut, no guaranteed minimum.

"They are facing expenses, and their interest reserve runs out on their term debt at the end of the month," he said. "At that point, they are on the hook and will need to start using actual cash that is generated from the casino to pay for the interest on a portion of their debt."

Listner said a debt restructuring was looming since "financing for Rivers was structured based on those [earlier] projections."

Some say the challenges confronting Rivers could confront Philadelphia, which plans to build two waterfront casinos.

"These same factors - parking, traffic, the availability of substitute forms of entertainment, the ease of getting in and out of the city, all play into it," Listner said.

The Rivers and its main rival, the Meadows, are 25 miles apart, but they appeal to different demographics.

The Meadows in North Strabane Township debuted two years ago and moved into an expanded facility next to it last April. It has two restaurants, a bowling center, and harness racing. Like PhiladelphiaPark Casino & Racetrack (now called Parx) in Bensalem, it is a suburban casino with acres of open surface parking and near a busy interstate.

"Clearly, we offer an alternative to driving in the city," said Meadows spokesman David La Torre. "We are a leisurely drive down I-79 from either direction - coming south from West Virginia, or from Pittsburgh in the other direction. It's certainly not difficult to get to the Meadows."

Bernice DeVitis, 59, of South Franklin, Pa., lives 15 minutes from the Meadows. She said her fears of city crime and a longer trip had kept her from giving Rivers a try.

"This doesn't have the glamour of overlooking the river or a stadium, but I don't go for that," said the software-company manager, while she played a penny slot machine at the Meadows recently. "I just wouldn't go [to Rivers] because of the traffic and parking, and I feel the area is not safe. I'm just more comfortable here."

At least a half-dozen shop and restaurant owners interviewed last month at Station Square - a dining and retail complex on the waterfront, about a mile from the Rivers - said the glitzy downtown casino had not brought them much new business.

"People book a room and find out there's a casino here, and not the other way around," said Ed Nassan, 52, a bell captain at the Sheraton Station Square. "It's had no impact. We expected busload after busload of people. It didn't happen."

On a recent Thursday night, a band played to an empty lounge area at Rivers, more than half the seats surrounding the Drum Bar were empty, and plenty of slot machines were available.

"We assumed we had a great location and people would just come," said Rivers' chief executive officer Greg Carlin, who is also CEO of Philadelphia's SugarHouse Casino. "You have to give people a great product and a great experience and the right marketing offers for them to come."

Several changes have been made. A new director of marketing came on board in December. Then a new vice president of slots, an executive chef, vice president of food and beverage, and chief operating officer were hired last month.

Revenue figures for the last week of January showed Rivers was gaining on its chief rival. The Meadows, with 3,727 slot machines, generated $4.6 million in gross slots revenue that week, while the 3,000 slot machines at Rivers generated $4.5 million, the slimmest gap in six months. From Dec. 28 to Jan. 3, the Meadows grossed $5.4 million and Rivers $4.7 million.

There were now more gift giveaways at the Rivers, and free slots play drawings.

Rivers recently added a burger bar, baked potato bar, and Italian wedding soup to its buffet, and this month it plans to add french fries to the salad bar.