|By Lisa Brown and Tim Logan, St. Louis
Post-DispatchMcClatchy-Tribune Regional News
Dec. 28, 2012--The Koman family and its partners have sold their stakes in the Casino Queen for $170 million to workers, nearly two decades after the casino's debut on the East St. Louis riverfront.
The sale, conducted through a newly created employee stock ownership plan, comes amid increasing competition in the local gaming landscape and the Casino Queen's languishing revenue, which has not returned to pre-recession levels.
The deal, which closed Wednesday, includes the assumption of $31 million in existing debt. The plan, called an ESOP -- employee stock ownership plan -- financed the deal through $170 million in debt.
After several months of studying the deal, the Illinois Gaming Board voted unanimously to approve the sale on Dec. 20.
The ESOP will be managed by co-trustees Jeff Watson, the Casino Queen's general manager and president, and Chief Financial Officer Robert Barrows.
Through the ESOP, company stock will be held in a trust and employees will receive a payout when they retire or leave the company.
"To my knowledge, it's the first ESOP casino in the country," Watson said in an interview.
The Casino Queen has about 700 employees, and most will be able to participate in the new ownership plan, which will provide retirement benefits tied to the Casino Queen's financial performance.
"It allows employees to become beneficial owners in the company," Watson said. "The more successful the company is, the more value employees have individually in their retirement accounts."
The company's size is much larger than most ESOPs, which typically have between 40 and 150 employees, said Loren Rodgers, executive director of the National Center for Employee Ownership, an Oakland, Calif.-based nonprofit membership and research group.
In some cases, the company can be huge. Clayton-based Graybar Electric, a Fortune 500 company with $5.4 billion in revenue last year, is an ESOP.
Employees tend to fare better in an ESOP than if a company is sold to a third party, he said.
"It tends to be a more stable form of ownership," Rodgers said. "ESOP companies know they have something to lose if there is a change in ownership."
The Casino Queen has a 40,000-square-foot gaming floor with 1,100 slot machines and 27 table games. The casino, in Illinois across from downtown St. Louis, replaced a riverboat in 2007 with a new facility that cost $92 million.
Before Wednesday's sale, the Casino Queen was owned by a group of private investors, including members of the Koman family in the St. Louis area, which held a 20 percent ownership stake. Other stakeholders included members of the Bidwell, Kenny and Rand families in Chicago and Las Vegas casino operator Michael Gaughan.
Jim Koman told the Post-Dispatch that the ownership group received several inquiries from prospective buyers in recent years but opted to sell to the ESOP to preserve continuity in management. In 2006, Columbia Sussex reached a $200 million deal to buy the Queen, but the deal fell through in 2007.
A Creve Coeur-based real estate development firm, the Koman Group, led by Jim's brother, Bill Koman Jr., developed the Casino Queen property.
"It was a great run for our organization," Jim Koman said in an interview Thursday. "We think this is a good transition, and the best way to keep the ideas we've built was to sell it back to employees."
Jim Koman is now the managing partner and founder of ElmTree Funds, an investment firm based in Clayton. He will serve on the Casino Queen's new board of directors.
The Queen, as it is widely known, was the first casino to open in the core of the region in 1993. It was joined a year later by the President Casino, across the river, but maintained a strong share of the St. Louis gaming market well into the 2000s.
That gradually changed, though, as competing operators Ameristar and Harrah's beefed up their properties in St. Charles and Maryland Heights, respectively, and then Pinnacle Entertainment opened Lumiere Place downtown in 2007 and River City Casino in south St. Louis County in 2010.
The Queen pushed back, launching its own expansion and becoming the first casino in Illinois to leave the river for a land-based "boat in a moat" facility. That opened in 2007, a few months before Lumiere's glitzy grand opening across the river, and helped the Casino Queen to its best year ever for revenue.
But it has struggled since.
Through November, the Casino Queen had $120.9 million in gaming revenue this year, according to the Illinois Gaming Board. That's up 2 percent from the same time last year but nearly one-third less than its peak in 2007, when it earned $172.1 million in the same period.
In addition to new competition across the river, the Casino Queen's management has also pointed to the Illinois smoking ban and the removal of Missouri's $500 loss-limit rule in 2008 as drags on business, and warned that proposed slot machines at the Fairmount Park racetrack would clobber revenue even more.
Meanwhile, a wave of consolidation is rippling through the region's billion-dollar-a-year casino business and could leave the Queen heavily outgunned.
Earlier this year, Argosy Alton owner Penn National Gaming bought Harrah's in Maryland Heights, while Pinnacle announced a deal last week to buy Ameristar Casinos, which would give Pinnacle ownership of three of the region's four biggest casinos.
Compared with those well-capitalized regional gaming giants, the independent Casino Queen is tiny and can't offer comps to Las Vegas properties or broad rewards networks.
Despite the challenges, Watson said the Casino Queen has built a loyal following of customers over the past two decades.
"We stick to our core business plan, giving people the best gambling in town, giving people quality food at affordable prices and the best customer service," he said. "That philosophy has led to a loyal customer base that allows us to be competitive in the market."
(c)2012 the St. Louis Post-Dispatch
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