Market Feasibility Study Expanded Gaming in Maine
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Market Feasibility Study Expanded Gaming in Maine Final Report August 2014 August 31, 2014 Mr. Grant T. Pennoyer, Director Maine State Legislature Office of Fiscal and Program Review 5 State House Station Augusta, Maine 04333-0005 Re: Report to the Joint Standing Committee on Veterans and Legal Affairs of the Maine Legislature Regarding the Feasibility of Expanded Gaming in Maine Dear Mr. Pennoyer: Pursuant to a competitive Invitation to Submit a Proposal ("RFP") dated May 5, 2014 issued by David E. Boulter, then Executive Director of the Legislative Council, WhiteSand Gaming LLC ("WhiteSand") was selected to conduct a market analysis regarding the feasibility of expanded gaming in Maine. Performed pursuant to the statutory mandate of LD 1856 (Resolves 2013, c.111) adopted April 30, 2014, as amplified in the RFP, the report that follows: Evaluates the current regional gaming market's capacity for additional commercial casino gaming in Maine, considering all existing facilities where wagering is currently conducted in the State and the potential or imminent establishment of casino facilities in Massachusetts and New Hampshire; and A market having been determined to exist, the report identifies: The optimal location(s) for additional commercial casino facilities in the State. The scope of facility that will best serve the objective of promotion of economic development in the identified region with a focus on job creation and increased tourism. A tax rate and revenue distribution scheme that effectively balances the commercial viability of commercial casino gaming in Maine and its ability to contribute revenue to the General Fund or to Funds the Legislature has prioritized for receipt of casino revenues. Requirements for minimum capital investment and reinvestment for each type of facility identified. The impact of expanded commercial casino gaming on the State's existing commercial casino operations as well as its other gaming sectors including lottery, racing, bingo and games of chance. A license fee for each type of facility identified that is representative of market value. 131 N. Iowa Avenue Atlantic City New Jersey 08401 P: 609.677.8253 F: 609-939-0241 www.whitesandgaming.com Table of Contents Executive Summary ................................................................................................... 1 Current State of Commercial Casino Gaming in Maine ........................................... 5 Relevant Regional Factors ......................................................................................... 9 WhiteSand Methodology ......................................................................................... 19 License Recommendation ........................................................................................ 24 Capacity for a Fourth License ................................................................................. 32 Fees, Tax Rates and Minimum Capital Investment ................................................ 37 Competitive Bid License Award Process ................................................................ 48 Statutory Amendments ............................................................................................ 55 Other Findings Related to Gaming in Maine .......................................................... 62 Maine State Lottery ........................................................................................... 63 Horse Racing ..................................................................................................... 68 Bingo and Games of Chance ............................................................................. 74 Tribal Gaming ................................................................................................... 83 Appendix .................................................................................................................. 90 Exhibit A - Casino Revenue and Distribution....…...........................………91 Exhibit B - Comparitor Data Set…………………………………………...95 Exhibit C - Comparitor Set Revenue and Demographics……...……….…...96 Exhibit D - Regional Analysis….…………………………………………121 Exhibit E - Regression Analysis High and Low Models. …..…….………126 Exhibit F - Internal Rates of Return…………...........……………………....…..130 Exhibit G - Comparator State Summary….………………………...……..132 Exhibit H - Lottery Gross Sales and Transfers…………..……… ….….....134 Exhibit I - Harness Racing Distributions.…..…..….………………....…..137 Exhibit J - Bingo and Games of Chance Revenue and Distribution……..138 EXECUTIVE SUMMARY WhiteSand was engaged by the Maine Legislative Council to analyze the regional gaming market's capacity for additional casino-style gaming in Maine, considering all existing facilities where wagering is currently conducted in Maine and the potential launch of casino gaming in Massachusetts and New Hampshire. Using our methodology, described in more detail later in this report, we believe there is additional capacity for casino gaming in Maine as part of an integrated dining and entertainment offering, consistent with its existing brand and image. Based on demographics, including population, income, age and propensity to game this facility should be located in Southern Maine (Maine Beaches) with close proximity and access to Interstate 95. Southern Maine includes not only substantial Maine population but is positioned to draw upon important demographics in New Hampshire and Massachusetts. With regard to fees and minimum capital investment for a third casino license, WhiteSand believes the collective impact of the following recommendations will generate net positive revenue for the State in the short run and, at the same time, will encourage capital investment, generate desirable employment and enhance tourism for the State. Our recommendations reflect a clear bias in favor of a robust capital investment requirement over a high license fee or tax rate. This bias is predicated on the general principal that both license fees and tax rates to a significant extent are inversely related to capital investment. In the end, it is the capital investment in gaming that creates jobs and is the surest multiplier of a region's economy. We view the value of the opportunity in Maine to be collectively reflected by a $5,000,000 license fee and a minimum capital investment requirement of $250,000,000 and would assert that the combination of the two fairly represents the value of the opportunity, will have a significant likelihood of attracting a quality operator and is realistic in light of the fact that Maine has in place an existing regulatory apparatus. Initial Nonrefundable Application Fee: $250,000 Initial Nonrefundable Investigative Deposit: $100,000 Initial License Fee: $5,000,000 Initial Minimum Capital Investment Requirement: $250,000,000* (excludes the licenses fee, land acquisition and off-site improvements) License Term: Five years Slot Machine Registration Fee: $100 per slot machine 1 Table Game Registration Fee: $100 per table game License Renewal Fee: $250,000 Renewal Refundable Investigative Deposit Fee: $50,000 Annual Capital Reinvestment Requirement: 3-4% Annual Regulatory Cost Recapture: TBD by Board Renewal Slot Machine Registration Fee: $100 per slot machine Renewal Table Game Registration Fee: $100 per table game Any comprehensive approach to expanded commercial casino gaming must address not only the cost of entry to the jurisdiction for this new applicant but should incorporate a standardized taxing and license renewal scheme applicable to all licensees, existing and future. Our analysis confirms that tax rates on slot machine and table game revenue can be lowered modestly and still deliver net positive distributable revenue for the State. Implementation of a modestly lower tax rate, applicable uniformly to all licensees, will not only attract a quality operator to compete for this third license but will signal to Maine's existing licensees, who may both experience moderate revenue declines as a result of this third license, that the State recognizes the potential impact on these operators and is willing to modify the tax scheme for their mutual benefit and long term profitability. For this reason we are recommending a tax rate of 35% on net slot machine income and 16% on net table game income applied uniformly to Bangor, Oxford and a third licensee. Our analysis indicates that at those rates Bangor, Oxford and a third licensee in the first year of operation would return $67M to the State, up from $53.2M in 2013, assuming a very prudent cannibalization factor of 20% for Oxford. If the Legislature is inclined, and if located and restricted as described herein, an additional license could be authorized in Aroostook County or Washington County, close to the border entry with the provinces of Quebec and New Brunswick. If limited to 250 slot machines and 10 table games, it would not negatively impact the revenue stream from the existing or the proposed gaming locations. For this facility we would recommend: Initial Nonrefundable Application Fee: $100,000 Initial Nonrefundable Investigative Fee: $100,000 Initial License Fee: $1,000,000 Initial Minimum Capital Investment Requirement: $25, 000,000 License Term: Five years 2 Slot Machine Registration Fee: $100 per slot machine Table Game Registration Fee: $100 per table game License Renewal Fee: $100,000 Renewal Refundable Investigative Deposit Fee: $50,000 Annual Capital Reinvestment Requirement: 2% Annual Regulatory Cost Recapture: TBD by Board Renewal Slot