1                      A P P E A R A N C E S

 

            2    Mr. Floyd Bartch- Chairman

 

            3    Mr. Jack Gant- Commissioner

 

            4    Ms. Judith Sutter-Hinrichs- Commissioner

 

            5    Mr. Kevin P. Mullally- Executive Director

 

            6    Ms. Angie Franks- Administrative Assistant

 

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                   Concannon & Jaeger  St. Louis, Missouri  (314) 421-1000

 

 

 

 

            1                  CHAIRMAN FLOYD BARTCH:  Well, I think we're ready

 

            2    to go then.  Would you call the roll?

 

            3                  MS. ANGIE FRANKS:  Chairman Bartch?

 

            4                  CHAIRMAN BARTCH:  Present.

 

            5                  MS. FRANKS:  Commissioner Hinrichs?

 

            6                  COMMISSIONER HINRICHS:  Present.

 

            7                  MS. FRANKS:  Commissioner Gant?

 

            8                  COMMISSIONER GANT:  Present.

 

            9                  CHAIRMAN BARTCH:  Kevin.

 

           10                  MR. KEVIN MULLALLY:  Mr. Chairman, good morning,

 

           11    Commissioners.  Before we get into the materials in your

 

           12    book, there's a couple of acknowledgments.  I think today

 

           13    is a particularly melancholy day for a lot of people in

 

           14    the state, the passing of Buzz Westfall.  He was a great

 

           15    friend to the first director of this Commission, Tom Irwin,

 

           16    who worked with him on a number of issues over the years.

 

           17    And he was a -- I didn't know him as well as some of you

 

           18    did, but he was a very dedicated public servant and will

 

           19    be sorely missed.  I think we should certainly acknowledge

 

           20    that.  We might also mention that a very valued member of

 

           21    our staff is now -- he would probably strangle me for

 

           22    saying this if he were here.  But Ernie Raub is one of the

 

           23    real horses on our staff.  He does a tremendous amount of

 

           24    work as an incredibly dedicated individual, an incredibly

 

           25    talented individual.  He's recovering from surgery, and we

 

 

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            1    wish him well, as well.

 

            2            Under Tab A in your book are minutes of the June

 

            3    26 meeting.  Then we also have minutes from August 12.

 

            4                  COMMISSIONER JUDITH HINRICHS:  I'll move that

 

            5    the minutes be approved from the June 26 meeting.

 

            6                  COMMISSIONER JACK GANT:  I'll second it.

 

            7                  CHAIRMAN BARTCH:  Any others?  Can you -- if

 

            8    no, call the roll.

 

            9                  MS. FRANKS:  Chairman Bartch?

 

           10                  CHAIRMAN BARTCH:  Approved.

 

           11                  MS. FRANKS:  Commissioner Hinrichs?

 

           12                  COMMISSIONER HINRICHS:  Approved.

 

           13                  MS. FRANKS:  Commissioner Gant?

 

           14                  COMMISSIONER GANT:  Approved.

 

           15                  MS. FRANKS:  By your vote you've adopted the

 

           16    minutes of the June 26, 2003 meeting.

 

           17                  MR. MULLALLY:  Mr. Chairman, it's my

 

           18    understanding that Hearing Officer McCanse is not yet

 

           19    here.

 

           20                  MS. FRANKS:  Did we do August 12 minutes?

 

           21                  COMMISSIONER HINRICHS:  I would move that we

 

           22    approve the August 12 minutes.

 

           23                  COMMISSIONER GANT:  I'll second.

 

           24                  CHAIRMAN BARTCH:  No other discussion?  Call

 

           25    the roll.

 

 

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            1                  MS. FRANKS:  Chairman Bartch?

 

            2                  CHAIRMAN BARTCH:  Approved.

 

            3                  MS. FRANKS:  Commissioner Hinrichs?

 

            4                  COMMISSIONER HINRICHS:  Approved.

 

            5                  MS. FRANKS:  Commissioner Gant?

 

            6                  COMMISSIONER GANT:  Approved.

 

            7                  MS. FRANKS:  By your vote you've adopted the

 

            8    minutes of the August 12, 2003 meeting.

 

            9                  MR. MULLALLY:  Now I think that it's my

 

           10    understanding that Hearing Officer McCanse is not yet

 

           11    here, so if we could move directly into the next agenda

 

           12    item, which is a presentation from the staff regarding our

 

           13    analysis of the St. Louis market.  Jim Oberkirsch will

 

           14    come up and join me.  He will be making the bulk of this

 

           15    presentation.  This issue has been before several

 

           16    Commissions for a number of years.  We originally began

 

           17    looking at the St. Louis market in 1999, looking at

 

           18    additional capacity in the St. Louis market in 1999.  The

 

           19    Harrah's Maryland Heights property at that point had

 

           20    several years to prove itself and establish itself in the

 

           21    market.  It appeared from the relatively rapid growth at

 

           22    that time that there was additional capacity in the St.

 

           23    Louis market, and there was certainly a lot of interest

 

           24    from applicants and various communities in having a casino

 

           25    in their area.  We began that with an 18 month long process

 

 

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            1    of having applicants in before the Commission, the staff

 

            2    meeting with applicants, as well as hearing

 

            3    public testimony from both proponents and opponents of the

 

            4    various casino proposals.  And at that time there were a

 

            5    number of them.  At the conclusion of that process in the

 

            6    summer of 2000 the Commission selected a proposal from the

 

            7    Isle of Capri in unincorporated Jefferson County as a

 

            8    prioritization for investigation.  As you know, that's the

 

            9    first step in our process towards licensure.  It doesn't

 

           10    mean that you'll be licensed.  It just means that we've

 

           11    taken a look at them and it's kind of the, I guess a

 

           12    stalking horse to use a banking term.  It's the one at the

 

           13    early stages of the process that we think has the best

 

           14    possibilities to make it through the licensure.  During

 

           15    the course of the investigation into that application the

 

           16    Commission discovered that there had been some mistakes

 

           17    made during the presentation.  There had been some

 

           18    misstatements of fact by the applicant.  And the

 

           19    Commission chose to in, I believe August of 2001, chose to

 

           20    withdraw that prioritization from Isle of Capri and fine

 

           21    the company for its misconduct during that time period.  A

 

           22    couple of times in the interim we have attempted to

 

           23    restart this process, but the relatively fluent membership

 

           24    on the Commission has prevented us from doing so.  Now

 

           25    that we have three members that are going to be with us

 

 

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            1    for quite some time, we hope, and the govenor's office has

 

            2    assured us that shortly we will have two more, we think

 

            3    it's now appropriate to begin this process.

 

            4            So what we would like to do for you today is have

 

            5    Jim Oberkirsch, who is our financial analyst and really

 

            6    has done a phenomenal job, as did Tom Irwin before.  Tom

 

            7    Irwin essentially was the financial analyst before Jim got

 

            8    here.  He really served in that role more

 

            9    than anybody else.  I think if you look at the

 

           10    Commission's track record in managing this market, it is

 

           11    really quite a feat.  There's no community in the state

 

           12    that has a casino that doesn't want one, where there is an

 

           13    overwhelming community support for it, both at the time

 

           14    of licensure and that continues today.  And we hear it in

 

           15    their relicensure proceedings.  And for the most part the

 

           16    casinos have been successful, productive members of their

 

           17    community.  So -- and I think that the choices the

 

           18    Commission has made over the years reflect the good work

 

           19    that's been done there.  So with -- we're using the city's

 

           20    equipment, so you'll have to bear with me for a moment.

 

           21    Problem solved.

 

           22                  MR. JIM OBERKIRSCH:  We ready to go,  Kevin?

 

           23    Good morning, Chairman and Commissioners.  With the first

 

           24    few slides I'd just like to present some of the dynamics

 

           25    currently affecting the St. Louis market.  Give you a

 

 

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            1    flavor for some of the casinos currently operating in the

 

            2    market, things like that.

 

            3            There are currently five casinos in the St. Louis

 

            4    market, what we call the St. Louis metropolitan area,

 

            5    which is made up of about nine counties in Missouri and

 

            6    Illinois.  There's three on the Missouri side and two on

 

            7    the Illinois side.  The Missouri casinos are the Ameristar

 

            8    in St. Charles, Harrah's in Maryland Heights, and the

 

            9    President in downtown St. Louis.  They're represented by

 

           10    push pins on the map.  The Illinois casinos are the Casino

 

           11    Queen in East St. Louis, Illinois, just across the river

 

           12    from the Admiral, and the Alton Belle, up north in Alton.

 

           13    You can see the -- you can see the way the St. Louis

 

           14    market evolved.  The sales are kind of clumped in two

 

           15    different areas, then one up north, that's kind of

 

           16    isolated.

 

           17            Now, total capital investment in this market has

 

           18    been about a billion dollars, $800 million on the Missouri

 

           19    side, $200 million on the Illinois side.  There's currently

 

           20    about 10,800 gaming positions, 8,300 on the Missouri side

 

           21    or 77 percent, 2,500 on the Illinois side or 23 percent.

 

           22    The two largest casinos in St. Charles and Maryland

 

           23    Heights represent about 62 percent of all the gaming

 

           24    positions in the entire market.  So things evolved kind of

 

           25    clumpy.  Now, all these casinos have slot machines and

 

 

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            1    table games, but that's pretty much where the similarities

 

            2    end.  Harrah's and Ameristar are basically entertainment

 

            3    complexes.  They're very large, in excess of 120,000

 

            4    square feet of gaming space.  They feature streetscapes,

 

            5    a large amount of amenities.  I think we've got a grand

 

            6    total of ten restaurants between the two casinos.  There's

 

            7    a hotel at Harrah's.  The casinos are well-finished, high

 

            8    ceilings, a very enjoyable atmosphere.  The cost -- the

 

            9    investment in those two casinos is somewhere around 750,

 

           10    740 million dollars.  You contrast that to the President,

 

           11    the Alton Belle, and the Casino Queen, which currently

 

           12    operate on boat vessels, typically two or three decks, low

 

           13    ceilings, not as high-level finish work, not as many

 

           14    amenities.  The President has one restaurant, very limited

 

           15    parking.  The Casino Queen has two restaurants.  They do

 

           16    feature a nice surface parking lot, and they do have a 150

 

           17    room hotel.  Up north the Alton Belle is the smallest

 

           18    casino, 23,000 square feet, probably a fifth of the size

 

           19    of either Ameristar or Harrah's.  They've got two nice

 

           20    restaurants.  You know, it's a fairly nice facility,

 

           21    pretty good level of finish work with regard to the Alton

 

           22    Belle.

 

           23            So when you step back and look at the market in

 

           24    terms of customer convenience, there's really only one

 

           25    location if you want to go to one of the nicer

 

 

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            1    entertainment complexes.

 

            2                  MR. MULLALLY:  This was really by design.

 

            3    If you look at the Commission's mission statement, it

 

            4    is -- just to repeat it, to serve the citizens of Missouri

 

            5    by ensuring integrity of charitable and commercial gaming,

 

            6    that's our enforcement investigative side, and by

 

            7    optimizing its social and economic impact on the state.

 

            8    And the purpose of that is that if this is something that

 

            9    the people of the State of Missouri want, as they have

 

           10    reflected by a number of votes, some in the neighborhood

 

           11    of 60 percent of the people have continuously said they

 

           12    want this product to be offered to them.  If that is going

 

           13    to be the case, we had tried to, through the regulatory

 

           14    licensing process, to encourage facilities that are what I

 

           15    call entertainment facilities rather than just gambling

 

           16    joints.  It's the difference between, I guess what you call

 

           17    gaming versus gambling.  You can do one of two ways.

 

           18    Either you can slap a make shift building down there and

 

           19    put a bunch of slot machines and table games in there and

 

           20    people can just go there to gamble, or you can have, as Jim

 

           21    just described and what we have certainly in our

 

           22    metropolitan market, full scale entertainment complexes

 

           23    that have a lot of nongaming opportunities.  And then I

 

           24    think what you have is a product that is much more like

 

           25    entertainment.  And I think those things tend to

 

 

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            1    minimize -- I'm not saying they eliminate.  They tend to

 

            2    minimize the gambling problems that you have, I think.

 

            3                  MR. OBERKIRSCH:  Right.  And the Missouri

 

            4    constitution allows gaming on the Missouri River and

 

            5    Mississippi River.  And you can see in the St. Louis

 

            6    market that there's quite a bit of shoreline in this

 

            7    market.  The Missouri comes in through here, goes up north

 

            8    into Alton.  And the Mississippi River, you know, it

 

            9    spans the entire length of the metropolitan area.  So

 

           10    there's a lot of unused shoreline with regard to gaming

 

           11    potential.

 

           12                  MR. MULLALLY:  Are those trees in the way?

 

           13    Can you see the screen okay?

 

           14                  COMMISSIONER GANT:  Not yet.

 

           15                  MR. OBERKIRSCH:  This next slide kind of

 

           16    highlights the population in the St. Louis metropolitan

 

           17    area.  Currently 1.8 million adults, 1.4 million or 77

 

           18    percent on the Missouri side and 400,000 or 23 percent on

 

           19    the Illinois side.  As you can see, there's some --

 

           20    there's various highly-populated regions that --

 

           21    particularly to the south that are unserved by a casino to

 

           22    date.

 

           23            Let's take a look at the market in terms of gaming

 

           24    revenue.  Currently generates for fiscal year 2003 $827

 

           25    million, $553 million or 67 percent on the Missouri side,

 

 

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            1    $274 million or 33 percent on the Illinois side.  Now, keep

 

            2    in mind from the previous slide that the distribution of

 

            3    population was 77 percent on the Missouri side versus 23

 

            4    percent on the Illinois side.  So immediately you can see

 

            5    inequity between the population base and the amount of

 

            6    revenue in Missouri, that Missouri is getting.  And I went

 

            7    ahead and ran the numbers.  If you evenly apportioned

 

            8    gaming revenue against the population base, Missouri would

 

            9    have an additional $84 million.  That would equate to $24

 

           10    million in taxes.  One of the obvious reasons -- actually

 

           11    I wanted to point out a couple more statistics.  If you

 

           12    apportioned the gaming revenue against capital investment

 

           13    in the market the result would be even more dramatic.

 

           14    Missouri should get about another $125 million in gaming

 

           15    revenue.  And if you apportioned it against size -- the

 

           16    size of the casinos, Missouri should be getting about $157

 

           17    million more in gaming revenue.  So the question is why

 

           18    does the inequity exist?  Part of it is definitely due to

 

           19    the loss limit that Illinois does not have to contend

 

           20    with.  But another part of it has to do with the location

 

           21    of Missouri's high end casinos.  They're not right on the

 

           22    border between Missouri and Illinois.  They're offset into

 

           23    the suburbs.  So for residents living in Belleville,