ARE THE NEW ENGLAND STATES IN A GAMBLING ARMS RACE? Presentation to the New England Fiscal Leaders Meeting Held at Federal Reserve Bank, Boston, MA By © 2013 Clyde W. Barrow, Ph.D., University of Massachusetts Dartmouth

February 22, 2013

The U.S. Casino Industry North American Industrial Classification System (NAICS)

 The North American Industrial Classification System (NAICS) is the statistical classification standard underlying all establishment-based economic statistics in the U.S., Canada & Mexico

 NAICS classifies business establishments into twenty different Sectors and assigns each business establishment in North America a six- digit classification code. NAICS Major Sector Code 71

 Sector 71. Arts, Entertainment & Recreation

 Subsector 711. Performing Arts, Spectator Sports and Related Industries

 Subsector 712. Museums, Historical Sites & Similar Institutions

 Subsector 713. Amusement, Gambling & Recreation Industries

• Definition: The Arts, Entertainment and Recreation Sector includes a wide range of establishments that operate facilities or provide services to meet varied cultural, entertainment and recreational interests of their patrons. CASINOS AS ENTERTAINMENT

Casinos enjoy a high level of acceptance by the American public:

• 51% of the adult population view casino gambling as “perfectly acceptable for anyone” and another 30% viewing it as “acceptable for others,” but not for themselves.

• Only 16% of the American public views casino gaming as “not acceptable for anyone”

• 81% of the adult population agree that “casino gaming can be a fun night out”

Source: (AGA/Peter D. Hart 2012, 3). The U.S. Casino Industry “Fundamentally, gaming is a business.” -- Mass. Gov. Deval Patrick, Sept. 17, 2007

“Across the world casino gambling is becoming increasingly mundane…in every instance casinos have been around, they’ve operated for a long time, and they have become entirely noncontroversial in the context of people’s lives and their communities.’’ -- Gary Loveman, CEO Caesars Entertainment, Feb. 14, 2012 1. Commercial Casinos

 land-based, dockside, riverboat, cruise ships

2. Racetrack casinos or “racinos”

3. Native American or “Indian” Casinos Commercial Casinos & Racinos  In 2011, the U.S. commercial casino & racino sectors:

• Earned $35.6 billion in gross gaming revenue • Employed 339,038 people • Paid wages of $12.9 billion • Contributed $7.93 billion in gaming taxes to states

$9.8 B GGR in Northeast Gaming Market

MD to WV to ME

Another $3.2B GGR in Indian Gaming 59 Class 3 Casinos (2013) with 5 more authorized

STATE GAMBLING POLICY: FROM REVENUES TO JOB CREATION

REVENUES JOB CREATION

• 1990s – 2000s was • Deindustrialization & the revenue driven reaction intractable “blue-collar to tax revolt recession” • Fast initial start up • Great Recession High • Low capital investment Capital Investment • High tax rates • Lower tax rates

• Riverboats + Racinos • Casinos: Tables + Non- Gaming Amenities

JOBS PER $1M GGR

Gross Gaming No. of No. of Casino Revenue Employees per State Casinos Employees (billions) $1 million GGR Nevada 256 175,024 $10.405 16.8 Gross Gaming New Jersey 11 34,145 $3.565 9.6 No. of No. of Casino Revenue Employees per 30 24,707 $2.390 10.3 State Colorado 37 9,589 $0.760 12.6 Casinos Employees (billions) $1 million GGR South Dakota 34 1,512 $0.106 14.2 Oklahoma 2 770 $0.100 7.7 Iowa 17 8,915 $1.368 6.5 4 1,257 $0.369 3.4 Michigan 3 8,067 $1.378 5.9 Iowa 3 1,172 $0.455 2.6 Louisiana 18 16,873 $2.374 7.1 New Mexico 5 1,423 $0.247 5.8 Kansas 1 303 $0.038 8.0 5 2,533 $0.329 7.7 Missouri 12 11,071 $1.788 6.2 1 385 $0.062 6.2 Indiana 13 14,144 $2.794 5.1 1 309 $0.062 5.0 9 6,892 $1.374 5.0 New York 8 3,465 $1.088 3.2 Delaware 3 3,245 $0.571 5.7 Rhode Island 2 1,100 $0.477 2.3 West Virginia 5 4,528 $0.878 5.2 Total 31 12,414 $3.189 3.9 10 12,664 $2.486 5.1 Total 459 331,679 $32.275 10.3 Non-Traditional 192 122,510 $18.305 6.7

Source: Calculated from data in AGA, State of the States, 2012 EFFECTIVE TAX RATES

Gross Gaming Revenue Gaming Tax Effective Gaming State No. of Casinos (billions) Revenue (billions) Tax Rates Nevada 256 $10.405 $0.84 8.0% New Jersey 11 $3.565 $0.31 8.6% Gross Gaming Mississippi 30 $2.390 $0.29 11.9% Revenue Gaming Tax Effective Gaming State No. of Racinos (billions) Revenue (billions) Tax Rates Colorado 37 $0.760 $0.11 14.1% South Dakota 34 $0.106 $0.02 16.2% Oklahoma 2 $0.100 $0.02 16.6% Iowa 17 $1.368 $0.31 22.3% Louisiana 4 $0.369 $0.07 18.4% Michigan 3 $1.378 $0.31 22.6% Iowa 3 $0.455 $0.11 24.1% Louisiana 18 $2.374 $0.57 24.1% New Mexico 5 $0.247 $0.06 26.0% Kansas 1 $0.038 $0.01 25.1% Florida 5 $0.329 $0.14 42.8% Missouri 12 $1.788 $0.49 27.2% Maine 1 $0.062 $0.03 48.9% Indiana 13 $2.794 $0.87 31.3% Maryland 1 $0.062 $0.03 48.9% Illinois 9 $1.374 $0.47 33.9% New York 8 $1.088 $0.50 46.3% Delaware 3 $0.571 $0.24 42.5% Rhode Island 2 $0.477 $0.30 62.1% West Virginia 5 $0.878 $0.38 43.1% Total 31 $3.189 $1.26 39.5% Pennsylvania 10 $2.486 $1.33 53.4% Total 459 $32.275 $6.53 20.2% Non-Traditional 192 $18.305 $5.385 29.4%

Source: Calculated from data in AGA, State of the States, 2012

EXPORTS TO RECAPTURE

 CFPA POLLS FIND THAT „RECAPTURING‟ TAX REVENUE IS ONE OF THE TOP TWO RATIONALES THAT GENERAE SUPPORT FOR EXPANDING GAMING

 RECAPTURE WAS A PROMINENT LEGISLATIVE RATIONALE IN PENNSYLVANIA & MASSACHUSETTS GAMING EXPANSION

 PLAYING A MAJOR ROLE IN NEW YORK AND NEW HAMPSHIRE DEBATES RURAL TO URBAN

 PHILADELPHIA (SUGAR HOUSE + 1)  PITTSBURGH  RESORTS WORLD (NY)  EMPIRE RACEWAY (NY)  BANGOR, ME  SPRINGFIELD AND BOSTON, MA

 INCREASE PROPENSITY TO GAMBLE BY MOVING FACILITIES CLOSER TO PEOPLE & INCOME

 GAIN COMPETITIVE ADVANTAGE WITH CONVENIENCE INTEGRATED RESORT TO URBAN INTEGRATION

 USE OF EXISTING ENTERTAINMENT & CONFERENCE VENUES

 COMP FREQUENT PLAYERS WITH TICKETS TO LOCAL ENTERTAINMENT EVENTS

 SMALLER HOTELS & PARTNERSHIPS WITH NEARBY EXISTING HOTELS

 PLAYER REWARDS USED AT LOCAL RETAIL OUTLETS & RESTAURANTS

 CROSS-MARKETING TO PROMOTE TOURISM & HOSPITALITY INDUSTRY GENERALLY

 LOCAL VENDOR PREFERENCE & LABOR AGREEMENTS

IS THERE SATURATION?

DEF.: “The point of a product life cycle where the market has been completely filled so that no more sales for goods and services can be taken up.”

SOURCE: Shim & Siegel, Dictionary of Economics (1995), p. 306. THE GREAT RECESSION WAS A BUSY TIME FOR GAMING IN THE NORTHEAST (2007-2011)

• West Virginia authorized table games at its four racetrack casinos • Delaware authorized table games at its three racetrack casinos • Delaware reauthorized a sports lottery • Pennsylvania opened nine slot parlors and then added table games • Rhode Island authorized 24-hour gaming at its two slot parlors • Maryland opened a racetrack casino (now two) • New York opened 3 additional racinos, including Empire City ======• Resorts World (Aqueduct) (2011) • Revel (2012) • Valley Forge (2012) • Horseshoe Cleveland (2012) • Oxford Casino (2012) ======• $3.4 B in capital investment HOW MANY CASINOS IS TOO MANY?

No. of Casino Gross Gaming Revenue Employees per $1 million State No. of Casinos Employees (billions) GGR

South Dakota 35 1,647 $0.101 16.3

Nevada 256 174,381 $10.700 16.3

Colorado 40 9,263 $0.750 12.3

Mississippi 30 23,721 $2.240 10.6

New Jersey 11 32,823 $3.320 9.9

Louisiana 18 17,207 $2.370 7.3

Iowa 18 9,384 $1.368 6.9

Kansas 2 303 $0.048 6.3

Maine 1 364 $0.059 6.1

Missouri 12 10,435 $1.810 5.8

Illinois 10 7,911 $1.480 5.3

Indiana 13 14,079 $2.720 5.2

Michigan 3 7,303 $1.420 5.1

Delaware 3 2,730 $0.552 4.9

West Virginia 5 4,475 $0.959 4.7

Pennsylvania 10 13,050 $3.020 4.3

Total 467 329,076 $32.918 10.0

Non-Traditional 200 121,872 $18.898 6.4 Source: AGA, State of the States, 2012. HOW MANY SLOT MACHINES ARE ENOUGH?

Adults (aged 21+) Per Slot Machine By Select States/Markets: Pre-Expansion Massachusetts 1,000

893 900

800

700

600 537 500

388 400 309

300 256 227 225 224 227 202 200 171 119 107 100 57

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Sources: Meister, Indian Gaming Industry Report, 2012; AGA, 2012 Survey of Casino Entertainment (Innovation Group); U.S. Census 2010. Note: Includes 529 slots at Oxford Casino (ME) + 400 additional slots in Phase II Oxford expansion (Fall 2012). Adults (aged 21+) Per Slot Machine By Select States/Markets: Post-Expansion Massachusetts 1,000

893 900

800

700

600

483 500 388 400 377 309 300 256 227 227 225 224 202 200 171 119 107 100 57

-

Sources: Meister, Indian Gaming Industry Report, 2012; AGA, 2012 Survey of Casino Entertainment (Innovation Group); U.S. Census 2010; Center for Policy Analysis. Note: Estimate assumes 2,850 slot reduction in CT & RI due to recapture + 5,000 slots in Region A, 2,500 slots in Region B, 2,500 slots in Region C, and 1,250 slots at slot parlor + 1,929 slots in Maine. MASSACHUSETTS IS WHERE THE PEOPLE ARE! MASSACHUSETTS IS WHERE THE MONEY IS! PERSONAL DISPOSABLE INCOME & PROPENSITY TO GAMBLE

% New England Wager/PDI State DPI (2011) PDI NE Wager (2011) $ $ RI 41,478,215,000 6.5% 397,677,799 0.96% $ $ CT 171,847,111,000 26.8% 871,069,321 0.51%

MA $ 304,577,893,000 47.5% 755,919,190 0.25% $ $ ME 45,591,683,000 7.1% 84,337,395 0.18% $ $ NH 54,669,172,000 8.5% 54,600,074 0.10% $ $ VT 23,709,048,000 3.7% 10,315,661 0.04%

*U.S. $ 11,700,000,000,000 $ 62,200,000,000 0.53% $ $ New England 641,873,122,000 100.0% 2,495,262,980 0.39%

Sources: Bureau of Economic Analysis; CFPA, New England Casino Gaming Update, 2012. DEMAND FOR CASINO GAMING IN NEW ENGLAND U.S. Wager 0.00532 $ Potential Avg. NE Market (GGR) 3,412,351,127 Wager $ Maine 110,000,000 Includes Oxford $ Connecticut 1,663,656,201 Minus NY $ Rhode Island 513,000,000 $ Unmet Demand 1,125,694,926

MA Recapture (.60) $ 454,000,000

N. NE States ReC (.750) $ 112,000,000

CT/RI/NY Capture $ 153,000,000 Distance + Non-Smoking

Mass Demand $ 1,844,694,926 250,000 Tourism Factor (.10) $ 184,469,493 Visitations

Total Mass Demand $ 2,029,164,419 GGR NGR TR Return to Avg. $ $ Propensity $ 2,680,083,609 616,419,230 3,296,502,839 http://www.umassd.edu/seppce/centers/cfpa/

Center for Policy Analysis University of Massachusetts Dartmouth 285 Old Westport Road North Dartmouth, MA. 02747-2300