Spectrum Gaming Group LLC 1001 Tilton Road, Suite 201 Northfield NJ 08225 March 10, 2006 Economic Study, Feasibility Report Regarding proposed Pocono Manor casino/hotel complex Prepared for Matzel and Associates Acquisition LLC Executive Summary..................................................................................................................... 4 Introduction .................................................................................................................................. 6 Background: Capital investment ............................................................................................... 8 Working with public sector: parallel interests......................................................................... 9 Construction estimates.............................................................................................................. 11 Projecting gaming revenue....................................................................................................... 12 Core markets...........................................................................................................13 Gaming revenue model: assumptions...........................................................................13 Number of slots: Initial installation of 3,000 units.....................................................13 Determining optimal level of machines..................................................................... 17 Peak‐period analysis: Justifying 5,000 slots ...........................................................18 Number of regular gaming customers: up to 1.4 million adults...............................18 Sensitivity analysis: Pocono Manor’s share ...........................................................19 Assumptions: hotel occupancy, ADR ................................................................... 20 Determining ‘lift’: benefits of hotel rooms................................................................ 20 Sensitivity analysis: complimentary room nights..................................................21 Future expansion: Adding up to 1,000 additional rooms..................................... 22 Gauging Profitability................................................................................................................. 23 Revenue, earnings...................................................................................................................... 27 Competitive challenge: gaming-tax rates ..................................................................... 28 Leveraging strength: Creating a resort from a resort ........................................................... 30 Golf..........................................................................................................................31 Spa...........................................................................................................................31 Other assets............................................................................................................ 34 Targeting family market ........................................................................................ 35 Advancing public policy........................................................................................... 35 Withstanding competition ........................................................................................ 36 Improving returns ......................................................................................................37 Benefits of building destinations .............................................................................. 40 Advancing public policy: Withstanding competition .......................................................... 41 Las Vegas experience ................................................................................................ 42 Borgata Hotel Casino & Spa.................................................................................. 45 Dover Downs Hotel & Conference Center............................................................ 46 Seminole Hard Rock Hotel & Casino.................................................................... 48 Convention business: added boost ........................................................................... 49 Meeting and Exhibit Space........................................................................................ 54 Tapping convention market .................................................................................. 54 Regional leadership ................................................................................................55 Page 2 of 96 Identifying capacity needs........................................................................................................ 68 Parking capacity ........................................................................................................ 78 Competitive landscape.............................................................................................................. 78 Access .............................................................................................................................79 Air access ................................................................................................................... 80 Comparative access: Pocono region ............................................................................. 82 Competition for license ............................................................................................. 82 Mount Airy Lodge...................................................................................................... 83 Pocono Raceway ........................................................................................................ 84 Regional competition .................................................................................................... 85 Pennsylvania.............................................................................................................. 85 Chester................................................................................................................... 86 Philadelphia Park................................................................................................... 86 Philadelphia............................................................................................................ 86 Harrisburg area ...................................................................................................... 87 Lehigh Valley ......................................................................................................... 87 Mohegan Sun at Pocono Downs........................................................................... 88 Gettysburg.............................................................................................................. 88 Pittsburgh ............................................................................................................... 89 Erie area................................................................................................................. 89 New Jersey................................................................................................................. 90 New York ....................................................................................................................91 New York metro ......................................................................................................91 Catskills.................................................................................................................. 92 Long Island............................................................................................................. 92 Southern Tier ......................................................................................................... 92 Delaware .................................................................................................................... 93 Delaware Park ....................................................................................................... 93 Dover Downs.......................................................................................................... 93 Harrington Raceway .............................................................................................. 93 Connecticut................................................................................................................ 94 Maine ......................................................................................................................... 94 Rhode Island.............................................................................................................. 94 Maryland.................................................................................................................... 94 Conclusion .................................................................................................................................. 95 Page 3 of 96 Executive Summary Pocono Manor is competing for a Category 2 gaming license in Pennsylvania. If successful, this would allow it to host up to 5,000 slot machines. Pocono Manor is extremely well positioned to capitalize on several assets that would ensure both its long‐term viability and the economic health of the greater Pocono region: The Pocono region already enjoys natural beauty and a thriving hospitality industry and is among the states top tourism locations with core assets – such as the Pocono