Cummings response to global gaming

Cummings Associates

135 Jason Street, Arlington, Massachusetts 02476Telephone: 781.641.1215 - Fax: 641.0954 - e-mail: [email protected]

Cummings Response to

Global Gaming Solutions, LLC’s

Submissions Regarding Revenue

Projections and Distance Issues

December 13, 2010

Cummings Associates

Cummings Response to Global Gaming

Solutions, LLC’s Submissions Regarding

Revenue Projections and Distance Issues

I have reviewed the relevant portions of the following material submitted by Global Gaming

Solutions, LLC, as it relates to our differences regarding revenue projections and the effects of

distance (and competition) thereon:

o 20111109_Global_Gaming_Integrated_response_to_Consultant_follow_up_questions

o GlobalGamingKS_-__Lotteryreviewboard_01December2010_(final)

o KS_-_KansasRacingGamingCommission_FollowUpQuestion-ALL_07December2010

o 20101209_Global_Gaming_--_RevenueProjectionsAnalysis_08December2010

This response generally follows the last of these documents, as it appears to summarize, and

in some cases extend, the main points of the previous submissions. I quote from the Global Gaming

document(s) in blue Arial font, and my responses follow in black Times Roman.

“We would ask the Review Board to carefully consider the case of Worth County, Iowa. . .Comparison results show that actual revenue generated was double that of the Cummings originalprojections. As you will see in the attached CBRE analysis, there are stark parallels between WorthCounty and Sumner County. . .”

(letter of Michael Chang to Patrick Martin, December 8, 2010, page 1)

I agree that I vastly underestimated the actual revenues of the new casino at Northwood in

Worth County, Iowa (as did the applicant, Peninsula Gaming). I also agree that there are parallels

between Worth County and Sumner County. I would argue, however, that there are also parallels

Cummings ResponseDecember 13, 2010

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with Waterloo, Iowa; Hoosier Park and Indiana Live in Indiana; and Dodge City, Kansas. These are

all markets where distance matters in which I overestimated casino revenues. I believe it is

inappropriate to cherry-pick among properties and/or markets, and I therefore base my projections on

a range of experience that is as wide as reasonably possible. This experience includes the current

performance of the Diamond Jo Northwood.

(For additional comment on the Worth County experience, see pages 18-19 below.)

“Cummings has acknowledged the following three points:

1. Our analysis on deconstructing his Gravity Model and what drives the gravity modelassumptions is accurate. . .”

(ibid., page 1)

I recall saying that CBRE “did a good job.” I would not characterize their analysis as

“accurate,” in particular with regard to the following point:

“2. If you believed CBRE’s analysis of factors in the model that drive revenue differentials, thenyou would conclude as CBRE did that material differences attributable to a competitor’sattractiveness do not exist. . .”

(ibid., page 1)

At no time have I made any statement to this effect. CBRE in fact misunderstands the effects

of “power ratings” in my gravity models. I believe that the “other things” that cumulatively add up to

“attractiveness” do matter, and are reflected appropriately in my models. There are material

differences in “attractiveness” between facilities, and these have substantial impacts in my models:

for example, the Isle of Capri Kansas City (slot power rating 86) versus the other casinos in Kansas

City, Missouri (101 to 106) – the resulting difference in win per slot per day is roughly 50%.


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“3. NO changes have been made to the Cummings Gravity Model since its use in the SumnerCounty bids in 2007/2008.”

(ibid., page 1)

At no time have I made nor acknowledged such a statement. For this year’s models, I have:

1. Updated demographic data.

2. Updated the locations of the proposed facilities (which differ slightly from those in2008).

3. Updated travel times to those facilities, including direct access to that proposed byPeninsula at Exit 33.

4. Updated the “sizes” of all facilities represented in the model (numbers of slots andtables), both in Kansas and in all surrounding states.

5. Updated the power ratings of those facilities that report gaming revenues.

6. Revised (slightly) my assessments of the power ratings that I estimate for somecompeting facilities in Oklahoma based on my observations of their physicalcharacteristics and volumes of patronage.

7. Revised my assessments of the power ratings that I expect for the new facilities, asdocumented in Exhibit 5 of my report.

The fundamental relationships regarding the impacts of distance, size, and “attractiveness”

(power ratings) remain unchanged.


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“This year the differential appears to be 27%, though no changes in the model have beendisclosed.”

(ibid., page 2)

This year’s differential is indeed roughly 27% – in 2014 and 2016. At “full build,” it is only

25%. I apologize for not “disclosing” updates 1 through 6 above. I thought they would obviously be

essential for the current analysis.

“Approximately half of the percentage difference can be attributed to distance (the extra 12 minutesto Exit 19), and the other half is attributed to the relative attractiveness of the competition.”

(ibid., page 2)

I disagree. Almost all of the percentage difference can be attributed to distance. The relative

attractiveness of the competition is the same whether you are at Exit 19 or at Exit 33. (The effects of

that competition differ between Exit 19 and Exit 33, but that is largely a function of relative distance

/ travel time, not attractiveness.)

“Sometimes the common sense approach should prevail. The Cummings model assumes that‘revenue declines by 38% as distance from the population center doubles.’ What if one casino was1 mile from the population center and was projected to generate $100 million? Would a site onemile further away generate only $62 million?”

(ibid., page 2 – italics in the original)

The near-quotation from my report of November 23 omits a key qualification. What I

actually state on page 2 of my Appendix regarding methodology is:

“I have analyzed such data from a wide variety of markets, other examples being presented in

Exhibits A-4 through A-11. Based on this type of data, I estimate that in general, over a reasonable

range of distances the aggregate “elasticity” of spending with respect to distance is roughly -0.7, that


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is, consumers’ total spending declines in somewhat less than direct proportion to the distance to be

traveled.” (italics added)

I would not consider the difference between one and two miles to fall within such a

“reasonable range.” I do have what I consider to be ample data, a portion of which is presented in

Exhibits A-6 through A-11, to conclude that the difference between 20± and 30± miles (which is the

range most relevant here) does indeed have substantial impacts.

“Distance matters, but common sense perspective on the distance differential would produce amuch smaller percentage difference . . .”

(ibid., page 2)

“Common sense” sometimes errs. I prefer to base my analyses on data regarding actual

performance.

“There is no real world situation you can look at that provides actual data to prove the Cummingsmodel is accurate (or not), except possibly for Worth County.”

(ibid., page 2)

I do not understand why Worth County alone is relevant. In Exhibit A-17 of my report, I

present a comparison of my predicted versus actual results for a dozen facilities, all of which were

located in markets where distance and competition were critical in different ways. I believe this

record demonstrates the accuracy of my models in general. I would again dispute the contention that

the Worth County experience is “more parallel” to Sumner County than that of a dozen other

markets.


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“The distance relationship used by Cummings was created by market research (a survey) inMississippi. Additional analysis involved reviewing player’s club data.”

(ibid., page 2)

“The evidence that the State consultant uses to justify why the 38% rate of decline is applicable isbased on survey data it collected from Mississippi casinos and an analysis of players club data fromtwo anonymous casinos.”

(undated CBRE report “Disproving the Exit 33 Myth. . .,” page 7)(page 33 of the .pdf file which begins with Mr. Chang’s letter)

The latter statement, though presented in an undated report, appears to be source of the

former, as well as several similar statements regarding the bases for the distance relationships that I

use in my models. As I quoted above from the Appendix to my report, “I have analyzed such data

from a wide variety of markets, other examples being presented in Exhibits A-4 through A-11.”

(italics added)

Including the dozen cases cited in Exhibit A-17 of my report, I have conducted roughly 52

studies which used gravity models to assess existing performance and/or develop projections for

future gaming revenues. (Most of these were proprietary, and a few for facilities that did not get

built, and so do not appear in Exhibit A-17.) These 52 studies focused on roughly 76 markets of

interest, and involved analysis of hundreds of markets containing even more hundreds of gaming

facilities. In most of these studies, I obtained some type of data (survey, players’ club, or license

plate/bus count) regarding geographic origin of play for one or more facilities. While there are some

facilities that perform spectacularly well (Worth County, or L’Auberge du Lac in Lake Charles,

Louisiana) or poorly (numerous riverboats in the Midwest), I have not seen any data which imply that

distance matters very little.


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“Both of those approaches require a lot of interpretation, and have some clear shortcomings.”(Mr. Chang’s letter, page 2)

Agreed. I have spent fifteen years interpreting such data and applying it as described above.

I am confident in the results.

I would add at this point that my models are not alone in projecting a substantial difference in

likely revenues between Exit 19 and Exit 33. Wells Gaming Research, conducting a completely

independent analysis, projects a difference that is even more substantial. Though the Wells models

are proprietary, I believe that they are based upon analyses of other markets that are largely distinct

from those that I have used in developing mine. The Wells results argue that, in this particular case,

distance matters even more than I have found in my analyses.

“CBRE suggested that we get some direct market research through a poll of Wichita residents.While it isn’t perfect, any data provides information that is valuable . . . the local market researchprovides a reasonable measure of public attitude on the issue of distance and its impact on gamingrevenues. . .”

(ibid., page 2)

I would disagree as to the value of “any data:” some data is at best irrelevant, and at worst

misleading. I agree that survey data provides a reasonable measure of public attitudes, but disagree

strongly that such (survey-measured) attitudes form a reasonable basis upon which to quantify

economic behavior such as spending at casinos already in operation, let alone yet to be built. The gap

between consumers’ responses to surveys and their actual behavior is huge and highly variable.1

1 See, for example:

Rachel A. Volberg, W. Lamar Moore, Eugene M. Christiansen, Will E. Cummings and Steven M.Banks, “Unaffordable Losses: Estimating the Proportion of Gambling Revenues Derived from ProblemGamblers,” Gaming Law Review, Volume 2, Number 4, 1998, pp. 349-360, and


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As one illustration, let us take the results of the survey conducted by Jayhawk Consulting

Services on December 3. As described on page 3 of Mr. Chang’s letter, this found that 33% of

Wichita residents said they would visit a casino 30 minutes away an average of 4.65 times per year.

If we apply these results to the adult population of Sedgwick County, we get:

Adult population (21+) 322,694 (Cummings estimate)

Would visit . . . x 33% (survey result)

Times per year: x 4.65 (survey result)

----------Total visits 495,174

I believe this severely understates likely visitation. My gravity models indicate that the

residents of Sedgwick County would make roughly 1,020,000 visits to the WinSpirit casino, more

than twice the volume suggested by the survey.

“We have also provided data from our Riverwind Casino property located on I-35 highlighting themajority of customers travel in excess of 25 miles (or 30-minute travel time) from the metropolitanarea of Oklahoma City to this facility. This is despite the customers having closer alternatives.”

(ibid., page 4)

I do not recall seeing such data. The key parameter, however, is not “percentage of

customers” but rather rates of spending per unit of population. If 70% of their customers travel more

than 30 minutes, but provide only 50% of total (tracked) win (see below), while 80% of the total

population of the immediate market lives more than 30 minutes away, I believe this would support

my point, not theirs.

Rachel A. Volberg, Dean R. Gerstein, Eugene M. Christiansen and John Baldridge, “Assessing Self-


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With regard to “closer alternatives,” I believe that Riverwind is second only to Remington

Park in terms of accessibility to most of the Oklahoma City metropolitan area, far larger (2,000 slots

versus 750), and far more “attractive” (no table games at Remington Park, fewer amenities, and

casino on the second floor). My gravity models would therefore agree that Riverwind should obtain

substantial volumes of patronage from customers who live closer to Remington Park.

“Seventy percent of customers in our player tracking data base come to Riverwind Casino fromNorth of I-40 or farther away than 25 miles or a typical drive time of 30 minutes.”

(ibid., page 4)

Seventy percent of customers in a data base do not necessarily generate seventy percent of the

win. At my illustrative Casino Z, 56% of the customers in its data base reside more than 30 miles

away. These contribute only 24% of total tracked-player win. 76% of total tracked-player win

comes from the 44% who live within 30 miles.

A pattern that shows the reverse, or even little variation with distance, would in my

experience be truly unique.

“We also supplied CBRE’s analysis demonstrating that the relative attractiveness of NorthernOklahoma’s tribal gaming facilities was overestimated in the Gravity Model analysis, and if adjustedresults in a significant reduction in the revenue differential between Exit 33 and Exit 19. Theseadjustments were attributable to overestimating the Power Rating of slots and several otherfactors.”

(ibid., page 4)

CBRE made such an assertion. I have not seen any data which “demonstrate” that assertion.

Reported Expenditures on Gambling,” Managerial and Decision Economics, Volume 22 (2001), pp. 77-96.


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“Essentially, Mr. Cummings is saying in his assumptions on attractiveness that theOklahoma tribal casinos are better than ours.”

(ibid., page 5 – bold in the original)

Not true. I have estimated a slot power rating of 110 for the First Council casino at Chilocco,

105 for Native Lights (primarily due to their rural setting), and 95 for the Kaw Southwind at Newkirk

(despite its rural setting), versus roughly 111 for WinSpirit. The majority of other “typical” casinos

in Oklahoma I have rated at 90-100. I have estimated the Oklahoma casinos’ table power ratings at

50, versus 103 for WinSpirit. (And contrary to CBRE’s surmise, a one percentage point difference in

power rating generally results in roughly 3% difference in performance, location and size being

equal.)

With these power ratings, I estimate that the three nearest casinos currently win roughly $60

million per year as a group. This is consistent with my observations of rates of play when I visited

them – twice.

I would repeat my observation that physical attractiveness is only one element, and often a

minor one, in the performance of a gaming facility. First Council and Native Lights are right on the

highway, you can park right at the door, they are clean, well-lit, offer nearly the full range of modern

Class 3 slot product, and they are taxed at a rate roughly one-third of that which WinSpirit (or Kansas

Star) will pay. They can thus offer substantial player rewards programs. First Council will in

addition soon open a hotel, if it hasn’t already. I therefore believe they will indeed compete

effectively with the new Kansas casino in the geographic areas from which they are most accessible.

My models agree with Global Gaming that their share of the Wichita market will be miniscule.

CBRE’s assertions that my assumptions regarding their attractiveness are (a) wrong and (b)


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responsible for a significant portion of the difference in revenues between Exits 19 and 33 are

misplaced.

“As we have discussed in great detail, we operate travel plazas as an amenity targeted to anentirely different market which greatly enhances our total revenue picture. This causes Cummingsto make an attractiveness assumption that is inappropriately higher than justified in the market.”

(ibid., page 5)

I make my attractiveness assumptions independent of the philosophy by which Global

Gaming, or any other firm, operates its travel plazas. The “gasinos,” and some similar modest

casinos throughout Oklahoma, are packed because some customers like them. I believe that my point

is largely the same as Global Gaming’s: different strokes for different folks.

“Cummings attempts to equate customers of a travel plaza to the general population within thearea, which is an inaccurate association. As a result, he applies a higher than appropriateattraction factor to tribal casinos in Oklahoma, which skews his assumptions in his revenueprojections.”

(ibid., page 5)

I used the Eastern Shawnee Travel Center, Peoria Gaming Center, and Little Turtle facilities

to illustrate my contention that physical attractiveness does not a high-performing casino make.

None of these are, by my observation, what I understand Global Gaming’s characterization of its

travel plaza to be: a facility located on a high-volume thoroughfare with substantial amenities for

truckers (and other travelers) who are traveling long distances and would not otherwise gamble in the

area. The “gasinos,” by contrast, are gas stations with a slot room attached, situated on rather modest

highways which serve primarily local traffic. The distribution of license plates among Oklahoma,

Missouri and Kansas when I visited was almost exactly what my gravity models predict of local


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residents, and the promotions that they advertised were clearly targeted toward frequent customers.

Some other facilities without gas stations attached, such as the Osage Million Dollar Elm at Ponca

City, were indistinguishable. What does distinguish my examples is that there are “nicer” casinos

next door or just down the road. My point is that “nicer” casinos are not necessarily more

“attractive” to all comers.2

“Cummings appeared to assign a travel plaza revenue adjustment of $2.9 million and 20,000visitors. That adjustment, however, also included a deduction of $2.2 million because our project didnot include direct access. . . None of the previous exit 19 applicants proposed a travel plaza typedevelopment.”

(ibid., page 5)

My projections for WinSpirit “Frontage Traffic” are:

2012 (no travel plaza, no direct access, annual rate): $3.7mn win 34,000 visitors

2014 (with travel plaza, no direct access, annual rate): $6.6mn win 57,000 visitors-------------- ------------------

Effective “Travel plaza adjustment” $2.9mn win 23,000 visitors

Note, however, that a portion of the $2.9 million increment in win is due to inflation.

I do not fully understand the comment about “a deduction of $2.2 million.” I suspect it is

related to Global Gaming’s perception of “incremental value” discussed below.

2 To amplify this point further, there are many gaming facilities in the Northeast that look just fine andoffer all the usual amenities, but demonstrate (by my analyses) slot power ratings in the 80s. These arealmost all located in states that tax them quite heavily, leaving little for the operators to spend on playerrewards.


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“This was a change in the methodology used in the previous round. The methodology changemeans the actual incremental value Cummings placed on the travel plaza was actually $700,000 inrevenues.”

(ibid., page 5)

I did not change the methodology. I still include a contribution from “frontage traffic.” That

contribution changed only slightly from my projections for the facilities in 2008 that did not include a

travel plaza, resulting in what Global Gaming perceives as an “incremental value” of just $700,000.

I would rather characterize the incremental value as $2.35 million in 2010 dollars, or $2.9 million in

then-year dollars, which is the assumption that creates the projections presented above.

I reviewed the performance of facilities that I would consider comparable (see my final point

below), and decided that I had been overly generous at Exit 19 in 2008. As a result, despite the

addition of Global Gaming’s travel plaza, the resulting projection for the contribution from frontage

traffic is identical to that for the same exit in 2008. The $700,000 difference is due entirely to

inflation (in 2008, I presented results in 2007$. In my current report, I present them in then-year

dollars).

I would observe at this point that none of my projections for WinSpirit include direct access

from the Turnpike, with or without a travel plaza. None of the plans submitted by Global Gaming

prior to the Board Meeting on December 1 showed such direct access.

“This means approximately 8 million people in cars and trucks drive by Exit 19 every year.That population base is larger than Dallas-Fort Worth.”

(ibid., page 6 – emphasis in the original)

The traffic counts (see my final point below) indicate 14-15,000 vehicles cross the Kansas-

Oklahoma border each day. At 1.5 passengers per vehicle, this amounts to roughly 8 million passers-


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by. I would not, however, equate this to a “population.” On any given day, there are only 20,000±

more people in the area than the number that live there.3 If these people are all adults, and were to

visit and spend money gambling at the rate that local residents do (roughly $800 per year at

“Midwest Standard” rates with less than ten miles to a casino), they would add roughly $16 million

to total win.

In contrast, the roughly 4.5 million adults in the Dallas-Fort Worth metropolitan area (total

population = 6.5 million) would spend approximately $3.6 billion under the same conditions.

Annual counts of people (or vehicles) passing by do not equate to population.

“It is also a population base that the gravity model will never successfully predict.”(ibid., page 6 – emphasis in the original)

Agreed, though as described above I would characterize it as a “source of customers,” not as

a “population base.” That is why I add a contribution from drive-by traffic to the gravity-model

calculations which are based on location of residence. We disagree as to the likely magnitude of that

contribution.

3 This is an aggressive estimate because some of the 20,000± passers-by do live in the area, and aretherefore already represented in the gravity models’ projections for local residents.


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“. . . using our projected daily win per patron, the 300 trucks that are already stopping in theimmediate area would be the equivalent of $7 million in gaming revenues.”

(ibid., page 6)

I do not agree that each of these truckers will spend, on average, $64 each time they stop in

this area (300 x $64 x 365 = $7 million). While I concur that truckers are indeed a high-value

market, not all gamble, and those that do will not gamble at every stop.

“In addition, for each 100 cars representing 150 patrons (1.5 passengers per car) would account foran additional $3.5 million in gaming revenue in its own right.”

(ibid., page 6)

We agree on the proposition that 100 cars that stop to gamble represent substantial amounts

of gaming revenue. In Global Gaming’s view, this equates to roughly $9,600 in likely gaming win

per day, or $3.5 million over the course of a year. My number is somewhat higher, at roughly

$15,000 per day (in 2010$), or $5.6 million over the course of a year (those high-value truckers!)

Where we disagree more substantially is on the number that will stop and gamble. My

projection is for roughly 110 vehicles per day, or somewhat less than 1% of the passing traffic. To

obtain its projection of $10 million+, Global Gaming expects 3% or more to stop. I believe that

projection is aggressive.

“Difference (as predicted by Cummings’ Gravity Model): 27% (Reported as 22% in 2007/2008analysis with same assumptions. Why?)”

(ibid., within table on page 7)

As described on page 3, the underlying relationships that the gravity models embody are the

same in 2010 as they were in 2008. Many specific parameters, however, have changed, though most


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to a very minor degree. The demographics are different, travel times have changed, the sizes of the

facilities have changed (more with respect to tables than to slots), and the competition from

Oklahoma (and other) facilities has changed.

Despite these modest updates (or rather, due to the fact that they are indeed modest), I would

view my current projections as very similar to those I produced in 2008:

2008 Proj’ns (in 2016$) 2010 Proj’ns (in 2016$)(at Full Build)

Exit 33 Harrahs: $220 million Kansas Star: $213 million

Marvel: $165 millionExit 19 WinSpirit: $160 million

Penn: $156 million

“In effect, the Gravity Model says that gaming revenue declines by $3.6 million for eachmile, or $200,000 per 100 yards (the length of a football field). This prediction is notsupported by market research or by actual consumer behavior.”

(ibid., within table on page 7 – emphasis in the original)

I agree that $3.6 million per mile strikes us all as a high figure. It is, however, supported by

the market research and casino players’ club data that I have seen elsewhere, and by the performance

of my gravity models in the other applications that I have described. It will perhaps appear less

extreme when characterized as “2.6% per minute,” as I would prefer to view it, rather than in terms

of dollars per mile. In some other markets (admittedly with greater competition as a contributing

factor), I have observed gaming revenues to decline by as much as five percent per minute of travel

time.


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“First, we would note that about 1 in 5 (21%) residents of Wichita attended a casino to gamblewithin the past year. We have no frame of reference or recent past experience to know if that islow, high or about the average for a Kansas community.”

(Jayhawk “Report of Public Opinion Survey: August 27 and 28, 2010,” page 3)(page 13 of the .pdf file which begins with Mr. Chang’s letter)

“First, we found that, among the general public, about 18% had been to a casino within the lastyear. In other casino polling we have done around the state of Kansas, we would note that aparticipation rate of about 20% is very typical of a Kansas community.”

(Jayhawk “Report of Public Opinion Survey: December 3, 2010,” page 3)(page 18 of the .pdf file which begins with Mr. Chang’s letter)

I am curious as to the experience that Jayhawk obtained between August and December

which enabled that firm to characterize 20% as “very typical of a Kansas community” in its second

report.

I would moreover contrast these findings of 18-21% “within the past year” with those from

other jurisdictions. The American Gaming Association’s “2010 State of the States: the AGA Survey

of Casino Entertainment” reports that across the U.S. as a whole, 28% of adults had visited a casino

to gamble within the past year. For counties in which casinos were located, 42% had done so.

(These findings are essentially identical to those of all recent-past such surveys of which I am aware.)

These results speak clearly to me that distance matters, and Wichita is currently on the far end of the

spectrum.


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“. . . the Worth County casino competes with 19 tribal casinos across the border in neighboringMinnesota.”

(“CBRE’s Analysis of: Cummings & Associates Track Record . . .,”page 22 of the .pdf file which begins with Mr. Chang’s letter)

I disagree with this characterization. The map presented on page 25 of the .pdf file shows

only 11 casinos in the (large) portion of Minnesota that it depicts (the rest are in the far Northwest),

and two of these are irrelevant (Canterbury Park and the “Riverboat Bingo Hall” offer no slot

machines). The vast majority of Minneapolis-Saint Paul casino patronage goes to just four gaming

facilities: Mystic Lake (just south of Minneapolis, with 4,000 slots), Treasure Island in Red Wing,

and the Grand Casinos at Hinckley and Mille Lacs.

On the other hand, the map does not show many casinos in Wisconsin nor a few in Iowa with

which the Diamond Jo Worth competes. All this competition is at some distance, however, so I

ultimately agree with CBRE (and Global Gaming) that this market shares significant similarities with

South-Central Kansas in that there is essentially a monopoly of the central “core” with greater

competition at a distance. Where South-Central Kansas differs is in the presence of roughly 322,000

adults at 20± versus 30± miles, where my data indicate that distance matters very substantially.

“After speaking with experts familiar with the situation in Iowa, it is likely that much of the revenuedisparity between Cummings’ projections and the actual result is due to significantly greateramounts of gaming spend from residents of Minneapolis-St. Paul and neighboring cities inMinnesota and those driving by the facility on I-35. Spending from these customer groups were notfully accounted for in the Cummings’ projection.”

(ibid., same page)

I agree that spending from Minneapolis-St. Paul and drive-bys were not fully accounted for in

my projections for Worth County. In particular, my projections at that time did not include a


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significant contribution from drive-by traffic. (They now do, though Global Gaming argues that they

are overly conservative.)

After speaking with other experts, however, and re-analyzing the market myself, I believe

that these elements make only modest contributions to the exceptional performance of the Diamond

Jo Worth casino. Peninsula testified at the October 28 hearing, for example, that the Twin Cities area

contributed on the order of ten percent of its gaming revenues. My understanding is that nearby rural

areas and middle-sized towns contribute substantially higher volumes of business than I (or anyone

else) initially projected, as well as the nearest “major” city, Rochester, from which the Diamond Jo is

nearly equal in terms of travel time as its two closest competitors.

My current analyses of Iowa markets indicate that the Diamond Jo Worth demonstrates a slot

power rating of 113, which is only slightly higher than that which I estimate for the WinSpirit casino

at Exit 19 (111). I therefore believe that the defects of my 2005 projection for Worth County, Iowa

have been rectified as they might apply to Sumner County, Kansas.

“The State consultant’s assumption is that a facility of the kind proposed in Sumner County wasnext door to one of the Oklahoma Border Casinos (with the same number of slots) that the SumnerCasino would only generate 22.2% more revenue than the typical Oklahoma Border Casino.”

(undated CBRE report “Disproving the Exit 33 Myth. . .,” page 9)(page 35 of the .pdf file which begins with Mr. Chang’s letter)

This is approximately correct, although CBRE’s understanding of the way in which my

power ratings work is rudimentary. I would emphasize again: physical appearance often makes only

a small contribution to the performance of a casino.


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“The newer, $370 million L’Auberge du Lac generates nearly three times the win per slot machinethan the older Isle of Capri . . . Quite clearly, the estimated 22.1% difference in revenue (assumingno difference in location) between a new destination casino with excellent access in Sumner Countyand the typical Oklahoma border casino is at odds with numerous real world situations.”

(ibid., pages 9-11)(page 36 of the .pdf file)

The Lake Charles market in which L’Auberge du Lac and the Isle of Capri are located

provides the most extreme example of divergence between two comparably-situated facilities of

which I am aware. I have not had occasion to conduct a gravity-model analysis of this market, but

would guess that if I did so, Isle’s power rating at Lake Charles would be far worse than its facility in

Kansas City (86), and that of L’Auberge du Lac somewhat superior to those of the “Big Three” in

Kansas City (101-106). (The resulting range in slot win per day in Kansas City is from $169 to $262,

a factor of 1.55. In Lake Charles, it is roughly 2.8.)

I would nevertheless dispute CBRE’s conclusion. The “excellent access” for the new

destination casino in Sumner County is irrelevant – the gravity model adjusts for such access. I

would argue that neither WinSpirit nor Kansas Star is likely to duplicate the truly exceptional success

of L’Auberge du Lac, which has a grossly underserved market 2.5 hours away in Houston that the

Isle facility evidently has great difficulty tapping into. On the other side of the coin, I do not believe

that the relevant Oklahoma border casinos are nearly as “bad” as the Isle property in Lake Charles – it

consists of two old-style riverboats, which quite commonly have miserable power ratings. The

difference between the facilities in South-Central Kansas and those on the Oklahoma border will in

my opinion be much less extreme than L’Auberge du Lac versus the Isle Lake Charles.

And varying the relative “attractiveness” of the Oklahoma border casinos, as measured by

power ratings or otherwise, has little impact on my results. With the Kansas Star casino at Exit 33,


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the border casinos’ share of Sedgwick County slot spending is projected at roughly 5%. With

WinSpirit at Exit 19, that share is projected at roughly 8%. (With either alternative in Kansas, table

spending in Oklahoma would be negligible.) If you were to reduce these estimates to zero, the

difference that my models project in total revenues for Exit 19 versus Exit 33 would decline by only

a few percentage points.

“Traffic Volume Map,” provided by Wilson & Company(page 62 of the .pdf file which begins with Mr. Chang’s letter)

The data on this map are consistent with those I obtained from the Kansas and Oklahoma

Departments of Transportation and used to develop my estimates for frontage visitation. The traffic

counts of 14,000-15,000 per day on the Turnpike are very similar to those on I-35 in Iowa where it

passes by the casinos at Lakeside and Northwood (Worth County). Lakeside has a full-scale travel

plaza; the Diamond Jo Worth has a gas station plus parking for truckers. I am very familiar with

these casinos (as well as the one at Prairie Meadows, where traffic counts are higher due to local

commuters, and several travel plazas are slightly down the road) and have factored my assessment of

their capture of drive-by traffic into my projections for Sumner County.

I am also familiar with the Acoma and Laguna casinos in New Mexico on I-40, and the San

Felipe casino on I-25 between Albuquerque and Santa Fe, and have analyzed New Mexico markets

in detail. The Acoma and Laguna facilities attract very high volumes of drive-by traffic; the San

Felipe casino relatively little. I believe that the success of the Acoma and Laguna casinos is due to

the fact that there is no competition for such business for long stretches of I-40 to the east (Texas)

and west (only the new Navaho casino near Gallup, then nothing on I-40 in Arizona). They are


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therefore not appropriate parallels for South-Central Kansas, where long-distance traffic will pass

numerous casinos in Oklahoma to the south, and in Kansas City and Iowa to the north.

Documents

Cummings response to global gaming