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Measuring the Impact of Racing on

Richard Thalheimer, Ph.D. Thalheimer Research Associates Lexington, [email protected]

2008 Symposium of Racing & Gaming University of Race Track Industry Program

December 9, 2008 ““AnAn EconomicEconomic--StatisticalStatistical AnalysisAnalysis ofof RacingRacing andand SlotSlot MachineMachine WageringWagering atat PrairiePrairie MeadowsMeadows RacetrackRacetrack andand CasinoCasino””©© by Thalheimer Research Associates Lexington, KY ([email protected]) for Thoroughbred Horsemen’s Benevolent and Protective Association (IAHBPA) Iowa Thoroughbred Breeders and Owners Association (ITBOA) Iowa Quarter Association (IQHRA) Iowa Harness Horse Association (IHHA)

August 18, 2008 Study Objective

The objective of this study was to measure the impact of changes in key gaming, parimutuel and economic factors on slot machine and horse race wagering at a - Racetrack and in Altoona, Iowa.

Of particular interest in this study was the interrelationship between the racing and gaming sides of the racino.

Thalheimer Research Associates Study Method • Two economic-statistical wagering models were developed one for slot machine wagering and one for on-track horse race wagering.

• The models allowed us to measure the effect of a number of key factors on wagering at the racino.

• An important property of the statistical method used was that the effect of a change in each factor on wagering could be measured, “holding constant” changes in other factors over time.

Thalheimer Research Associates Study Period

• Horse Race Wagering Model Study Period • January 1993 through December 2006 • 168 months • Slot Wagering Model Study Period • April 1995 through December 2006 • 141 months • Tables introduced December 2004

Thalheimer Research Associates Factors Included In Both Slot and Horse Race Wagering Statistical Models • Seasonality (Jan, Feb, ..) • Per capita personal income • Gaming factors: • Number of slots at Prairie • Slot machine win percent at Prairie • Number of tables at Prairie • Parimutuel Factors: • Number of live horse race days • Number of import simulcast horse & greyhound races • Average daily purse, quality races (Festival of Racing) • Off-site competition factors: • Tama Indian Casino and Terrible’s Lakeside Casino Thalheimer Research Associates Selected Data Plots

Thalheimer Research Associates SlotSlot HandleHandle ($mill)($mill)

$300

$225

$150 $1.5-$2.6 billion 72% change slot handle first to last 12 months $75

$0

-95 -95 -96 97 -97 -98 -98 -99 00 -00 -01 -01 -02 -03 -03 -04 -05 05 -06 -06 c-99 c-02 c- pr ug ug pr- ec-97pr ug ug e pr- ec-00pr ug ug e pr ec-03 ug ug e pr ec-06 A A Dec-95Apr-96A Dec-96A AugD A A Dec-98Apr-99A D A AugD A A Dec-01Apr-02A D A AugD Apr-04A Dec-04Apr-05A D A AugD

Source: Iowa Racing and Gaming Commission

Thalheimer Research Associates InflationInflation--AdjustedAdjusted SlotSlot HandleHandle ($mill)($mill)

$160 Lakeside Open Tama Tables Jan 00 Close Dec 04 May-Dec 03 $120

$80 31% change slot handle first to last 12 months

$40

$0

6 7 7 7 9 9 9 1 2 2 2 4 4 5 5 5 -95 -96 -9 -9 -9 -9 9 -00 -0 -0 -03 -04 0 -0 -0 -06 r-95 c g-9 r-9 c r-98g-98 r-00 c g-0 r-0 c r-03 c g-0 r-0 c r-06 c p p p u pr p u p e p p e p A Aug-95De AprAu Dec-96A AugDe A A Dec-98A AugDec-A Aug-00De Apr-01A Dec-01A AugD A Aug-03De AprAu Dec-A AugD A Aug-06De

Source: Iowa Racing and Gaming Commission U.S. Department of Labor, Bureau of Labor Statistics for CPI Thalheimer Research Associates Statistical Slot Machine Wagering Analysis Results

Thalheimer Research Associates Selected Results of Economic-Statistical Analysis of Slot Handle at Prairie “Holding constant” changes in other factors affecting slot handle, slot handle was –

•up 17% from decrease in slot win percent: 8.0% to 6.4% •up 24% from increase in slots: 1,100 - 1,700 •down 8% from increase in tables: 0 – 57

Off-site competition caused slot handle to decrease - •25% from Terrible’s and Tama Indian combined

Thalheimer Research Associates Relationship of Horse Racing to Slot Handle “Holding constant” changes in other factors affecting slot handle, the following parimutuel factors caused 2006 slot handle to be -

•up 12.9% from 4.4 months of live horse races

•up 13.1% from daily import simulcast horse races

•up 11.7% in July from Festival of Racing - quality races

Thalheimer Research Associates Relationship of Gaming to Parimutuel Wagering

“Holding constant” changes in other factors affecting on- track handle, the following gaming factors affected parimutuel wagering to be:

•down 33% from combined slots-table effect

•down 13.7% from off-site competition - Terrible’s

Thalheimer Research Associates Comparison to Prior Published Peer- Reviewed Economic-Statistical Racino Study* •Subject: Mountaineer Park Racino, WV Study Period: weekly 1994-2002

•Selected Results of Economic-Statistical Model: • -39% change in parimutuel handle, VLT’s 400-3,000 • +22% change in slot handle, year-round live racing

• dollar increase in VLT handle much greater than dollar decrease in parimutuel handle.

*Thalheimer, R., “Government Restrictions and the Demand for Casino and Parimutuel Wagering”, Applied Economics, 2008. Thalheimer Research Associates Did Revenue Created by Horse Racing at Prairie Meadows Help to Offset Purse Payments in 2006?

• Parimutuel Revenue = $4 million

• Slot Revenue = $164 million

• Purses paid from Slot Revenue = $17.8 million

Thalheimer Research Associates Racing’s Effect on Slot Revenue-2006

Parimutuel Factor % Slot $ Slot Revenue Revenue Gain Gain

Live thoro-mixed meet days- 4.4 mo.* 12.9% $7 mill

Import simulcast horse races-12 mo.* 13.1% $18 mill

Total slot revenue increase $25 mill

*Additional $4 million revenue provided by parimutuel wagering.

Thalheimer Research Associates Summary of Findings on Interaction of Racing and Gaming at Prairie Meadows

• Increased slot revenue of $25 million from live and simulcast horse racing exceeded the $17.8 million in purses and contributed to other expenses in 2006.

• Revenue from parimutuel wagering added $4 million.

• The study did not address the potential increase in table revenue from horse racing.

Thalheimer Research Associates