GAMBLING IMPACT STUDY: Part 1, Section A: Assessment of the Florida Gaming Industry and its Economic Effects Prepared for the State of Florida Legislature July 1, 2013 i Contents EXECUTIVE SUMMARY ..................................................................................................................... IX INTRODUCTION ........................................................................................................................................... IX KEY GAMBLING SECTOR FINDINGS .................................................................................................................. X FISCAL IMPACTS ........................................................................................................................................ XIII I. INTRODUCTION .........................................................................................................................1 METHODOLOGY .......................................................................................................................................... 2 II. GENERAL ASSESSMENT OF GAMBLING .......................................................................................5 A. GROWTH AND EVOLUTION OF GAMBLING IN UNITED STATES ..................................................................... 5 1. How Governments Respond to Gambling Expansion ............................................ 8 a. States Endeavor to Realize Value from Gaming via License Fees ....................... 13 2. Racetrack Casinos Evolve, Table Games Arrive................................................... 17 a. Mid-Atlantic – Pennsylvania and Delaware, Collective Example ........................ 18 b. Delaware ............................................................................................................ 19 c. West Virginia ...................................................................................................... 20 d. Pennsylvania ...................................................................................................... 21 3. Battle for Entertainment Dollars: Competition on a Broader Scale .................... 22 4. Conclusion .......................................................................................................... 29 B. TYPES OF GAMBLING AND THEIR PERFORMANCE, PARTICIPATION ............................................................. 29 1. The Prevalence of Gambling ............................................................................... 31 a. Nationally ........................................................................................................... 31 b. Florida ................................................................................................................ 32 2. Competitive Issues .............................................................................................. 37 3. Identifying, Capturing Markets........................................................................... 39 4. Profitability ......................................................................................................... 42 a. Reasons for Gaming Profitability ........................................................................ 43 b. Factors Affecting Profitability ............................................................................. 45 Profitability within the Casino ............................................................... 46 5. Florida’s Competitive Landscape ........................................................................ 47 6. Casinos (Commercial, Racetrack, Indian) ........................................................... 49 a. National Overview .............................................................................................. 49 b. Evolution of Destination Resort Casinos ............................................................ 54 c. Evolution to Hub and Spoke Business Model ..................................................... 57 d. Florida’s Racinos ................................................................................................. 63 e. Native American Casinos .................................................................................... 63 Nationally .............................................................................................. 63 Florida ................................................................................................... 65 7. Pari-mutuel......................................................................................................... 66 a. National Trends .................................................................................................. 66 b. Florida ................................................................................................................ 69 Issues with PMW Annual Reports.......................................................... 71 Cutting Costs ......................................................................................... 72 c. Decline of Purses, Handle ................................................................................... 73 d. Impact of Advance Deposit Wagering (‘ADW’) ................................................... 74 e. Impact of Slot Machine Casinos, Cardrooms on Purses ..................................... 76 f. Pari-Mutuels by Sector ....................................................................................... 77 Thoroughbred Racing ............................................................................ 77 Florida Gaming Study, Part 1-A ii Harness Racing ...................................................................................... 80 Quarter Horse Racing ............................................................................ 81 Barrel Racing ......................................................................................... 82 Greyhound Racing ................................................................................. 83 Jai Alai.................................................................................................... 86 g. Critical Issues to Address .................................................................................... 87 8. Cardrooms .......................................................................................................... 89 a. Nationally ........................................................................................................... 89 b. Florida ................................................................................................................ 89 9. Charitable Bingo ................................................................................................. 91 10. Lottery ................................................................................................................ 96 a. Nationally ........................................................................................................... 96 b. Florida .............................................................................................................. 100 11. Retail Gaming ................................................................................................... 101 12. Sports Betting ................................................................................................... 103 13. Illegal/Unregulated Gambling .......................................................................... 106 14. Conclusion ........................................................................................................ 112 C. THE NEW US FRONTIER: INTERNET GAMBLING .................................................................................... 113 1. Nationally ......................................................................................................... 113 2. Internet Poker Evolution ................................................................................... 116 3. Lotteries Online ................................................................................................ 119 4. Conclusion ........................................................................................................ 120 D. OVERVIEW OF GAMBLING REGULATORY SCHEMES ................................................................................ 121 1. Overview of Florida’s Regulatory Structures .................................................... 121 a. Florida Regulation of Pari-Mutuel and Slot Machine Facilities ......................... 123 Division Application Requirements ..................................................... 125 Additional Functions of PMW .............................................................. 126 Changes to the Division because of Slot Machine Licensing................ 127 b. Lottery .............................................................................................................. 127 c. Charitable Bingo ............................................................................................... 128 d. Native American Casinos .................................................................................. 128 2. Regulation in Other States ............................................................................... 130 a. Introduction: Establishment of Standards ........................................................ 130 b. Bid Process or Non-Competitive Application.................................................... 130 c. Regulatory Structures Consolidated or Separated Oversight ........................... 131 Massachusetts ....................................................................................