But gambling also exemplifies discretionary spending, and in the current economic climate discretionary spending is down across the board.  Ameristar Casinos Inc., based in Las Vegas, owns and operates casinos in six states, including Ameristar East Chicago in East Chicago, Ind.  While the entire casino industry is struggling, Ameristar stands out: it alone was profitable in the third quarter.

Brian McGill, an analyst with Janney Montgomery Scott LLC in Philadelphia, said, “Everyone has known for the past year that economic conditions would remain challenging, but Ameristar has held up better than expected. They’ve focused more on the property and done a better job running it, and people are starting to realize what the Ameristar experience is like. Their casinos have better customer service and better food quality.  That type of idea transcends their properties.”

Steve Ruggiero, an analyst who covers Ameristar for CRT Capital Group LLC in Stamford, Conn., agreed that Ameristar has done a better job than most casino operators in dealing with the country’s current economic situation.

“They are very well managed and they’ll get through this,” Ruggiero said.  “They’re experiencing the negative effects of the recession a little less because, we believe, they have a superior product.”

Ruggiero also said that while Ameristar has stumbled to some degree, its outlook for the next year is strong.

“Through August [2009], win per visitor per day fell off on a year-over-year and month-over-month basis,” Ruggiero said. Win is the amount bet by gamblers in table games and slots, less winnings paid out to gamblers.“The good news is perhaps things have stabilized," Ruggiero went on. "We expect them to be in line with the overall marketplace in 2010.”

In addition to Indiana and Nevada, Ameristar operates casinos in Missouri, Iowa, Colorado and Mississippi.  The company hopped on the profits roller coaster at the beginning of the recession, and continues to experience the ups and downs.  From the fourth quarter of 2007 through the third quarter of 2009, the company reported a net income in six quarters and a net loss in two (first and fourth quarters of 2008), resulting in a loss of $72 million in that span.

The entire casino industry is in the doldrums, as all major owners and operators have reported major losses since the start of the economic downturn.  However, Ameristar appears to be on the upswing.

In its earnings report released Wednesday, the company posted a 1 percent increase in profits for the quarter ended Sept. 30, to $14.5 million from $14.3 million.  Diluted earnings per share held at 25 cents, while revenues fell 6.8 percent to $299.4 million from $321.4 million.

In East Chicago, the property saw a 5.6 percent jump in earnings before interest, taxes, depreciation and amortization, or EBITDA, to $10.2 million from $9.7 million.

By comparison, industry leader Harrah’s Entertainment Inc. reported a $1.6 billion loss in the most recent quarter.  Wynn Resorts Ltd. reported a 33 percent decrease in profits for the quarter ended Sept. 30 to $34.2 million from $51.2 million.  Boyd Gaming Corp.’s profits fell 27 percent to $6.3 million from $8.7 million.  Pinnacle Entertainment Inc. took a $21.9 million loss, widening from an $11.8 million loss in the year-earlier quarter.  And Las Vegas Sands Corp. suffered an $80.6 million loss, growing from a $32.5 million loss in the third quarter of 2008. Ameristar’s ability to reel in a profit in today’s economic climate makes it unique in the industry.

On Oct. 29, 2007, the date that casino stocks began their precipitous drop, Ameristar’s stock sat at $30.35. It bottomed out at $4.64, but recovered to close at $16.01 Wednesday, down 47 percent from the peak.  \

Comparatively, Wynn and MGM Mirage Inc., two giants of the industry, have taken a larger hit than Ameristar.  Using the same date in October 2007 as a jumping off point, shares of Wynn were then at $172.90 and MGM Mirage was at $92.92. Wynn hit rock bottom at $14.50 and MGM fell all the way to $1.81. On Wednesday, the two closed at $55.27 and $9.32, still down 67 percent and 90 percent, respectively.   

Analyst Steve Altebrando, who covers Ameristar for Sidoti & Company LLC in New York, gives the stock a neutral rating.

“Consumer spending has been hurt but they’ve largely been able to keep profitability flat since the recession hit because they’ve cut costs,” Altebrando said.

Altebrando went on to say that new competition has adversely affected Ameristar East Chicago, and the same could be on the horizon for the company's largest casino in St. Charles, Mo., about 20 miles northwest of St. Louis, which helps to explain his neutral rating.

He downgraded his expectations for 2009 through 2011 to $1.34, $1.19 and $1.51 per diluted share from $1.51, $1.57 and $1.86 per diluted share, respectively.  The consensus estimate on Wall Street comes in at $1.17 for ’09, $1.12 for ’10 and $1.23 for ’11.  Last year the company lost $2.28 per diluted share.

Altebrando said, “It’s a tough market for their East Chicago location because Harrah’s completed an expansion of the Horseshoe Hammond in August 2008 that has hurt Ameristar’s year-over-year comparable sales.”

On the other hand, even as the Horseshoe has cut into Ameristar’s sales, McGill said, the property performed surprisingly well.

“When the Horseshoe opened, there was a worry that there would be a dropoff in revenues, and it has had an impact,” McGill said.  “But from Wall Street’s perspective, it has actually been an outperformer this year.  Part of the issue is that the boats in Indiana are benefitting from the tax rate and smoking ban policies in Illinois.”

 According to the Indiana Gaming Commission, Ameristar East Chicago has seen a decrease in both admissions, people through their turnstiles, and win. In the commission's fiscal year ended last June 30, encompassing the depth of the recession and the reopening of the enlarged Horseshoe Casino in Hammond, Ameristar East Chicago's admissions fell 8 percent to 3.3 million from 3.6 million in the prior fiscal year, and its win took a 9 percent dive to $289.7 million from $320.3 million.  Its win per admission fell 1.5 percent to $88.55 from $89.86.

Nevada’s casinos did not fare as well. Their win took a 13 percent plunge to $10.79 billion in the 12 months ended June 30, 2009.

The Horseshoe Hammond, just seven miles away from Ameristar East Chicago, boasts over 350,000 square feet of gaming space.  Indeed, the Horseshoe has clearly poached business from Ameristar East Chicago.  Of the four casinos in Lake County, Ind. (Majestic Star and Majestic Star II, owned by Majestic Star Casino LLC are the others), only the Horseshoe saw an increase in admissions and win from fiscal 2008 to 2009, by 28 percent and 17 percent, respectively.  Total admissions for the four casinos climbed 5.5 percent, while win for the four casinos bumped up marginally by 1.9 percent.  With such a small increase, especially in win, it’s likely Horseshoe took more existing business than it created new business in the market.

All casinos operate with a graduated state-tax structure.  When a casino hits a certain level of adjusted gross receipts, another term for net win, its tax status moves up a level.  In Indiana, a casino starts at a 15 percent tax rate.  When its AGR reaches $25 million, it begins paying taxes at 20 percent.  It continues to rise before topping out at 40 percent when the casino’s AGR reaches $600 million.

In the 2008 fiscal year, Ameristar East Chicago reached the 40 percent rate on Dec. 28, 2007.  In fiscal year 2009, it took until Jan. 8, 2009, nearly two weeks later.  Although Ameristar has experienced success, there have been fewer gamblers risking less money since the start of the recession, no matter how you slice it.

Ultimately, Ameristar’s relative success comes from the company’s operations off the casino floor.

“They do a really good job with non-gaming amenities,” McGill said.  “They really do focus on service levels, and you see it.”