PENNSYLVANIA GAMING MARKET ASSESSMENT & COMPETITIVE ANALYSIS: Prepared by: THE INNOVATION GROUP 400 N. Peters St., Suite 206 New Orleans, LA 70130 September 2011 Pennsylvania Statewide Gaming Market Assessment Table of Contents INTRODUCTION......................................................................................................................... 1 ECONOMIC AND DEMOGRAPHIC ANALYSIS .................................................................. 3 POPULATION ................................................................................................................................ 4 Total Population ..................................................................................................................... 4 Gamer Population ................................................................................................................... 5 INCOME ........................................................................................................................................ 5 National and Regional Trends ................................................................................................ 6 Regional Income ..................................................................................................................... 7 EMPLOYMENT .............................................................................................................................. 9 National Trends ...................................................................................................................... 9 Regional Labor Force ........................................................................................................... 10 Major Employers .................................................................................................................. 12 TOURISM .................................................................................................................................... 13 PENNSYLVANIA GAMING .................................................................................................... 17 OPERATORS ............................................................................................................................... 18 Eastern Region ...................................................................................................................... 18 Western Region ..................................................................................................................... 27 HISTORICAL SLOTS TRENDS AND SATURATION ANALYSIS ................................... 31 STATEWIDE ................................................................................................................................ 31 EASTERN REGION ...................................................................................................................... 34 Philadelphia Submarket ........................................................................................................ 36 Poconos ................................................................................................................................. 38 WESTERN REGION ..................................................................................................................... 41 Pittsburgh Market ................................................................................................................. 43 PENETRATION COMPARISON ...................................................................................................... 44 PERFORMANCE COMPARISON WITH PROJECTIONS FROM 2003 STUDY ....................................... 46 Statewide ............................................................................................................................... 46 Eastern Region ...................................................................................................................... 48 Western Region ..................................................................................................................... 51 COMPETITIVE ENVIRONMENT .......................................................................................... 54 New Jersey ............................................................................................................................ 54 Delaware ............................................................................................................................... 56 New York ............................................................................................................................... 60 Maryland ............................................................................................................................... 62 The Innovation Group Project #054-11 August 2011 Page i West Virginia ........................................................................................................................ 64 GAMING MARKET ANALYSIS ............................................................................................. 68 METHODOLOGY ......................................................................................................................... 68 MARKET CARVE-OUT ................................................................................................................ 70 MODEL CALIBRATION ................................................................................................................ 72 LOCATION ALTERNATIVES ......................................................................................................... 81 Eastern Region ...................................................................................................................... 81 Western Region ..................................................................................................................... 82 Central Region ...................................................................................................................... 82 FINANCIAL ANALYSIS ........................................................................................................... 84 METHODOLOGY AND RESULTS .................................................................................................. 84 IMPLICATIONS ............................................................................................................................ 88 DISCLAIMER......................................................................................................................... 1089 APPENDIX A – PROPERTY TRENDS ................................................................. ATTACHED APPENDIX B: ALTERNATIVE RESULTS BY MARKET AREA ................... ATTACHED The Innovation Group Project #054-11 August 2011 Page ii INTRODUCTION The Innovation Group was retained by the Pennsylvania Treasury to assess the past and future performance of the Pennsylvania gaming market, taking into consideration the gaming and net statewide tax revenue potential for the two undeveloped Pennsylvania gaming licenses—the proposed Valley View location and the former Foxwoods site in Philadelphia. Alternative locations throughout the Commonwealth were also assessed, keeping within the parameters of the exclusion zones as defined by existing Pennsylvania legislation. The analysis assesses the gaming revenue potential for each location as well as its net impact to state gaming revenues, that is, after impacts to existing Pennsylvania casinos are deducted. Proposed new competition in surrounding states is also included in the analysis, most significantly slot machine development in Baltimore and Anne Arundel, Maryland and casino and racino development in Ohio. The following table summarizes the results of the analysis, on the basis of net gain to statewide gaming revenues. Alternatives: Net Gain to PA Gaming Revenues (MMs) South York $153.99 Reading $124.75 Valley View $122.65 Chambersburg $106.59 W. Philly/City Line $98.43 Beaver Valley $98.27 Altoona $96.11 Port Jervis $95.56 Foxwoods Site $89.96 Valley View w/ Youngstown Impact $83.39 Johnstown $76.85 Williamsport $54.82 In the Eastern region, South York or Reading offers the largest net impact to the commonwealth. A western Philadelphia location would add approximately 10% or $10 million more in revenues than the Foxwoods site, but would still be considerably lower than developing in a less competitive location like South York or Reading. In the Western region, Valley View at the current time ranks high in net impact at $122.65 million. However, if a racino is developed in Youngstown, Ohio, the net impact from Valley View is diminished to $83.39 million. Racino development in Ohio has received legislative The Innovation Group Project #054-11 August 2011 Page 1 approval, which would place two slot-machine casinos in Cleveland’s southeast suburbs. However, the proposed re-location of Toledo’s Raceway Park to Youngstown has not been finalized.1 In Central Pennsylvania, Altoona has the largest market potential. Although the facility’s market potential is limited, it would have a very small impact on existing Pennsylvania casinos, and thus the vast majority of its gaming revenues would be a net gain to the commonwealth. However, its financial viability is questionable given the $66.5 million license fee and effective gaming tax rate. 1 With state approval, racetrack owners can apply to move their tracks to either Dayton or Youngstown. However, it is expected that approval would entail significant re-location fees. The Innovation Group Project #054-11 August 2011 Page