Concord Monitor: Track Revenue Projections Cooked

Massachusetts Governor projects $600-$900 million license fees for 3 casinos.

Millennium (and the tracks) offer $9.5 million fees for 4 casinos.

Gambling industry researcher projects $200-$250 daily revenue per slot machine.

Millennium projects $370 per machine.

Who do you trust?

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September 21, 2007

A million-dollar question:  

Expert doubts slot machine projections

Concord Monitor

September 21, 2007

By SARAH LIEBOWITZ
http://concordmonitor.com/apps/pbcs.dll/article?AID=/20070921/FRONTPAGE/709210319

If New Hampshire were to legalize slot machines, how much money would land in lawmakers' laps?

Slot machines at horse racetracks - like those proposed for Salem's Rockingham Park - typically generate between $200 and $250 per machine, per day, said gambling industry researcher Clyde Barrow. But an analysis commissioned by Millennium Gaming, the Nevada-based company hoping to install 3,000 video lottery machines at Rockingham, estimated a far higher daily take, nearing $370 per machine.

"That's a pretty aggressive estimate," said Barrow, who directs the University of Massachusetts Dartmouth's Center for Policy Analysis. "That would be a little more than 10 percent higher than what you'd find at Foxwoods, which is among the highest in the country," he added, referring to Foxwoods Resort and Casino in Connecticut.

And the Rockingham Park facility would draw most of its customer base from the local area, not from other New England states, Barrow said. Racetracks with slots, called "racinos," "are what we call convenience facilities," he said, not destination facilities. The vast majority - 90 percent - of such patrons live within a 30-minute drive of the facility, he said.

Roughly 80 percent of Rockingham Park's customers come from Massachusetts, Ed Callahan, the facility's general manager, told a group of lawmakers who visited the park last week. With slots, Callahan predicted even more Massachusetts traffic.

Millennium is sticking by its numbers, which were generated by the consulting company Innovation Group.

"Based on the demographics and scope of the area, I'd disagree with him," Millennium spokesman Rich Killion said of Barrow's assessment.

"We believe that the Rock is perfectly positioned to compete with anybody," Killion added, citing the park's proximity to Interstate 93 and the Massachusetts border.

"It's a huge facility that has the potential to be a premier attraction again," said Killion, pointing to Millennium's success with a Pennsylvania slot machine venue. In New Hampshire, slots would revive the struggling park, saving the facility from closure, and replenish the state's coffers, Millennium and park officials say.

As New Hampshire lawmakers consider whether to legalize slot machines, they are attempting to forecast the likely proceeds. They have the experiences of a host of East Coast states to draw on: Legislators are increasingly turning to gambling to shore up finances and, in some cases, reduce other taxes.

But it's unclear how much money New Hampshire slots could generate. Revenue varies depending on location, proximity to other gaming venues and the type of facility in which slot machines sit, industry experts said. At Rhode Island's Newport Grand, for example, each machine netted $198 a day in 2006, according to a report by Barrow. Bangor's Hollywood Slots, meanwhile, netted an average of $216 per machine per day last year. At resort casinos, such as Foxwoods, the daily take is higher, Barrow said.

The state-by-state move toward slot machines also makes revenue prediction difficult. Massachusetts is the latest state to enter the gaming fray: Earlier this week, Massachusetts Gov. Deval Patrick proposed that the state sell licenses for three resort casinos. Massachusetts casinos would likely cut into the profits of New Hampshire slots, experts said.

According to the Millennium-commissioned analysis, 3,000 slots at Rockingham would generate $403 million in the first year of operation. Under a proposal drafted by Millennium, 40 percent of the net income from slot machines would go to the state. The creation of slot machines at some Massachusetts facilities could reduce the park's slot profits by $67 million in the first year, the analysis predicted.

But the Massachusetts facilities would likely draw a different clientele from Rockingham Park's potential patrons, Barrow said. Casino patrons tend to be more affluent than racino customers, he said. "What our research shows is that nearly four-fifths of casino gamblers never visit a racino."

Apart from taking a cut of slot machine proceeds, states make money from selling gambling licenses. Herein lies another question about Millennium's numbers.

Under the proposal drafted by Millennium and submitted to lawmakers studying the issue, the state lottery commission would charge an initial licensing fee of $5 million to install slots at Rockingham Park. Licenses for placing slots at the dog tracks would cost $1.5 million each, under the proposal.

Pennsylvania, meanwhile, charged $50 million for licenses to operate slots casinos, which Barrow described as "the same type of facility" as Rockingham. License fees are generally up for renewal every 10 years, he said. In Massachusetts - where Patrick is envisioning resort casinos, not slot machines at racetracks - Patrick's administration estimates that the 10-year licenses would generate between $600 million and $900 million in up-front fees for the state, according to the Boston Globe.

For other states, slot machines have proved a windfall.

"The revenue is much higher than we expected," said Delaware Lottery Director Wayne Lemons. Since the first slots were installed in Delaware racetracks in late 1995, revenue has increased each year, he said.

"During the time that the legislation was working its way through and shortly thereafter, there were concerns. One, that we would have a big increase in problem gamblers, but that has not happened," Lemons said. "And also an increase in crime in the surrounding areas, and that has not happened."

Another common concern is that slot facilities will diminish traffic to local businesses, harming restaurants and retailers. But in Bangor, Maine, where Hollywood Slots recently began operations, that wasn't the case. Between November 2005 and March 2007, Hollywood Slots patrons spent about $20 million at Bangor-area restaurants and hotels and motels, said Todd Gabe, an associate professor of economics at the University of Maine who studied the effect.

Millennium recently relied on Innovation Group projections for The Meadows, a harness racetrack near Pittsburgh. Since the company added thousands of slots to The Meadows, the facility has "exceeded" financial expectations, Killion said. According to the Pennsylvania Gaming Control Board, each Meadows slot machine grossed about $330 daily earlier this month.

Since Pennsylvania authorized the creation of slot parlors in 2004 - a move that was expected to generate $1 billion of state revenue annually - "the casino revenues have been higher than expected," said Frederic Murphy, a professor of business and management at Temple University in Pennsylvania.

But Murphy predicted a decline in revenue. Most slot profits come "from problem and addicted gamblers," Murphy said. "Once you allow slots and a bunch of people tap out and go bankrupt, gambling revenue will start to fall."

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