Maryland Gambling Work Group Report - June 2012

7/31/2019 Maryland Gambling Work Group Report - June 2012

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Overview of the Impact of Video Lottery

Terminals in Prince Georges County and

Table Games in Maryland

Presentation by the Department of LegislativeServices in consultation with

PricewaterhouseCoopers

to the

Workgroup to Consider Gaming Expansion

June 12, 2012


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Overview

This presentation is primarily focused on the analysis of issues related to the expansionof video lottery terminals (VLT) at a sixth location in Prince Georges County and theintroduction of table games. These analyses include:

Whether the Maryland gaming market can support a sixth VLT facility

Drive Time Analysis of VLTs at a Prince Georges County Facility and the

Estimated Impact on Existing VLT Facility Revenues: This analysis wasconducted to estimate the revenues that a facility with 3,000 VLTs at National Harbor,including a facility that is considered a destination location, may generate in astabilized year of operations. In addition, this analysis also estimates the impacts of aPrince Georges County VLT facility on the revenues generated from existing andcurrently authorized VLT facility locations.

Impact of Table Games: This analysis was conducted to determine the potential

revenues that may be derived from adding table games at the five currently authorizedVLT locations, as well as from table games at a VLT facility at National Harbor inPrince Georges County.

Additional information on VLT program costs in Maryland and gaming in other states isalso provided.

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Gaming Revenue Benchmark

Jurisdiction

Total GamingRevenue

($ in Millions)

MSAPopulation(Millions)

Total GamingRevenue Per

CapitaNumber ofCasinos

Chicagoland $2,011 6.7 $300 9

Detroit 1,667 3.3 498 3

Lawrenceburg (IN)(Cincinnati area) 678 1.5 450 3

Kansas City 732 1.4 507 6

Philadelphia 1,118 4.3 260 3

St. Louis 1,122 2.0 553 6

Maryland :

Central Maryland 1,224 6.0 204 3

Central MarylandWith National Harbor 1,470 6.0 245 4


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Revenue Estimates for aPrince Georges County VLT Facility

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Drive Time Analysis Method

Drive time analysis is used to estimate the potential gaming revenueof a gaming facility on the basis of a set of assumed conditions. Ittakes into consideration the expected level of spending at theproposed facility by adults living in various zones around a proposedsite location, with the zones primarily defined in terms of the amount

of time it takes to drive to the proposed site and the assumedsurrounding competition.

It should be noted that the drive time analysis is an establishedmethod which has been used extensively over a number of years in

the major gaming markets. Player behavior observed in othergaming markets provides a foundation for this analysis.

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Drive Time Analysis Method (Cont.)

A drive time analysis was conducted to estimate thegaming revenues generated by a proposed facilitywith 3,000 VLTs at National Harbor inPrince Georges County in a stabilized year ofoperation.

The stabilized year takes place once the permanentfacility is open, has ramped up, and is moving into asteady operational state. It also takes into accountassumed competition.

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The visitation analyses were conducted by dividing the areasurrounding the proposed facility into various zones and analyzingthe following three critical factors for each zone.

Adult Gaming Propensity: An estimate of the likelihood of a resident

of an area to visit a particular facility in a given year. The gamingpropensity depends upon a number of factors including access and drivetime, proximity to existing and proposed competitive gaming facilities,availability of other leisure activities, and availability and type oftransportation to the proposed facility. Propensity is shown on apercentage basis and calculated by dividing the number of expected

patrons in a geographic area by the number of adults in the same area.Appropriate propensity estimates, when combined with estimates ofregional population, can provide a useful understanding of the marketopportunity for a given facility.


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Annual Frequency of Visits or Trips: An estimate of how often agamer living in a given area visits a particular facility in a year. Thosewho must travel a longer time to reach the facility are expected to visitless often; however, they are expected to spend more per trip onaverage, as explained below. Those who live closer are expected to visitmore frequently. For zones for which there is a greater variety ofalternative entertainment activities readily available, both the propensityto visit and trip frequency are estimated to be lower.

Average Trip Expenditure: An estimate of the typical spending of avisitor during a trip to a given facility. It is also referred to as win pervisitor. Under normal circumstances, trip expenditure and distance

traveled are positively correlated, such that a visitor who resides fartherfrom the gaming facility may be expected to visit less frequently but stayfor a longer period and spend more each visit than another visitor whoresides closer to the facility. On average, the more frequently a patronvisits the gaming facility, the less the patron is expected to spend at thefacility during each trip.

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The following graphic illustrates how the three critical factorsdiscussed previously were used to arrive at the total gamingrevenues for the proposed facility.

Adult Population

in Zones X

Adult Gaming

Propensity

Adult Gamers in

Zones=

Adult Gamers inZones X

Annual Frequencyof Visits

Annual Visitationin Zones

=

Annual Visitationin Zones X

Average TripExpenditure

GamingRevenues from

Zones

=

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Forty Minute Drive Time Zones for Maryland Live!,Proposed Baltimore City Facility, and Proposed

Facility at National Harbor

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Analyses were conducted for both a regular VLT facility and a destinationVLT facility at National Harbor, each with 3,000 VLTs.

For a destination VLT facility, it is assumed that a 400-room hotel, additionalfood and beverage outlets, retail outlets, and a larger primary entertainment

venue are built, and that the facility operates with a lower tax rate than thestandard 67%.

It is also assumed that the destination facility is operated by a licensee withthe ability to market to members of a player loyalty program with a regional ornational reach.

In determining the revenues generated by a Prince Georges County facility,the impacts of the facility on revenues generated by existing VLT facilitylocations were also estimated.

Analyses for a Prince Georges

County VLT Facility

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Revenue EstimatesPrince Georges County VLT Facility

The estimated revenue and win per unit per day (WPD) in the fullystabilized year for both a regular facility and a destination facility with3,000 VLTs at National Harbor in Prince Georges County are listedbelow.

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Regular FacilityDestination

Facility

Gross Revenues($ in Millions)

$374.6 $423.9

Win Per Day $342 $387


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Estimated Revenue Decreases forExisting VLT Facility Locations

The estimated annual revenue decreases for the Anne Arundel and BaltimoreCity VLT facility locations resulting from a 3,000 VLT facility at NationalHarbor in Prince Georges County are listed below.

VLT revenues generated by the other three existing VLT facility locations

would not be impacted by a Prince Georges County VLT facility.

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($ in Millions)RegularFacility

DestinationFacility

Anne Arundel -$112 (-23%) -$125 (-26%)

Baltimore City -63 (-16%) -65 (-17%)

Total Reduction -$175 -$190


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Revenue Sources for aPrince Georges County VLT Facility

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($ in Millions) Regular Facility Destination Facility

Revenues from existingzones otherwise going

to Anne Arundel andBaltimore City facilities

$175 (47%) $190 (45%)

Revenues from increasedpenetration in existingzones

118 (31%) 132 (31%)

Revenues from newzones and out-of-market visitors

82 (22%) 101 (24%)

Gross Revenues $375 $424

Net New Revenues $200 $234


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Revenue Estimates for Table Gamesat VLT Facilities

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Table Games

Based on a review of gaming facilities in otherstates, it is estimated that the introduction of tablegames would increase total annual gamingrevenues at a VLT facility in Maryland byapproximately 23%.

Any impact on VLT revenues from the introductionof table games is expected to be negligible.

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Estimated Number of Table Gamesby Facility

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WithoutPrince

Georges

Facility

With PrinceGeorges

RegularFacility

With PrinceGeorges

DestinationFacility

Anne Arundel 209 161 155

Baltimore City 168 141 140

Cecil 57 57 57

Worcester 24 24 24

Allegany 22 22 22

Prince Georges 164 185

Totals 480 569 583


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Combined Revenues from VLTs and Table

Games and Impact of Prince Georges Facility

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GrossRevenues from VLTs and Table GameswithoutPrince Georges Facility

($ in Millions)

VLTs Tables Total

Anne Arundel $479.2 $110.2 $589.5

Baltimore City 384.4 88.4 472.8

Cecil 131.3 30.2 161.6

Worcester 53.8 12.4 66.2

Allegany 49.6 11.4 61.0

Total $1,098.4 $252.6 $1,351.1


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GrossRevenues from VLTs and Table GameswithRegular Prince Georges Facility

($ in Millions)

VLTs Tables Total

Anne Arundel $367.5 $84.5 $452.1


Cecil 131.3 30.2 161.6

Worcester 53.8 12.4 66.2

Allegany 49.6 11.4 61.0

Prince George's 374.6 86.2 460.7

Total $1,298.5 $298.7 $1,597.2

Increase $200.1 $46.0 $246.1


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OperatorRevenues from VLTs and TableGames withoutPrince Georges Facility

($ in Millions)

VLTs(33% Share)

Tables(80% Share) Total

Anne Arundel $158.1 $88.2 $246.3


Cecil 43.3 24.2 67.5

Worcester 17.8 9.9 27.7

Allegany 24.8 * 9.1 33.9Total $370.9 $202.1 $573.0

*50% share under current law.


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OperatorRevenues from VLTs and TableGames withRegular Prince Georges Facility

($ in Millions)

VLT(33% Share)

Tables(80% Share) Total

Anne Arundel $121.3 $67.6 $188.9


Cecil 43.3 24.2 67.5

Worcester 17.8 9.9 27.7

Allegany 24.8 9.1 33.9Prince George's 123.6 68.9 192.5

Total $436.9 $238.9 $675.9


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NetNew Operator Revenues from TableGames withRegular Prince Georges Facility

($ in Millions)

% Increase

VLT TablesNew

RevenuesOver Current

Law

Anne Arundel -$36.9 $67.6 $30.8 19.5%

Baltimore City -20.7 59.2 38.5 30.3%

Cecil 0.0 24.2 24.2 55.8%

Worcester 0.0 9.9 9.9 55.8%

Allegany 0.0 9.1 9.1 36.8%

Prince George's 123.6 68.9 192.5

Total $66.0 $238.9 $305.0 82.2%

Note: Columns may not sum to total due to rounding.


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State and Other Revenues from a RegularPrince Georges Facility and Table Games

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($ in Millions)State Other

Education Trust Fund (48.5% of VLT revenues) $97

Horse Racing (9.5% of VLT revenues) $19Local Impact Grants (5.5% of VLT revenues) 11

State Lottery (2.0% of VLT revenues) 4

Small, Minority, and Women-owned

Businesses Account (1.5% of VLT revenues) 3Net Table Game Revenues (20% State share) 60

Total New Revenues Before AnyCompensation for Lost OperatorRevenues

$161 $33


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Additional VLT and Table GamesInformation

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Video Lottery Terminals Authorizedand Awarded/Requested to Date

Authorized Awarded/Requested Difference

Anne Arundel 4,750 4,750 0

Baltimore City 3,750 3,750 0

Cecil 2,500 1,500 1,000Worcester 2,500 800 1,700

Allegany 1,000* 850** 150

Additional Excess 500* 500

Totals 15,000 11,650 3,350

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*Chapter 240 of 2011 reduced the VLT allocation for Allegany County from 1,500 to 1,000.**Awardee plans to add another 150 VLTs in the second year of operations, for a total of 1,000 VLTs.


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VLT Program Costs($ in Millions)

Fiscal 2013 Fiscal 2016 (Est.)

VLT Ownership $76.3 $133.0

Central Monitor and Control

System

3.5 3.6

Lottery Administrative Costs 4.6 6.2

Total $84.5 $142.8

Less 2% of VLT Revenues -11.6 -22.0

Remainder as General FundRevenues

$72.9 $120.8

General Fund Revenues as a% of VLT Revenues

14% 11%

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VLT Revenue Distributions inMaryland and Surrounding States

MD DE PA WV*

Licensee 33.0% 40.5% 45.0% 46.5%

State 48.5% 43.5% 34.0% 30.0%

Horse Racing 9.5% 10.0% 12.0% 10.5%Local 5.5% 4.0% 2.0%

Admin/MachineCosts

2.0% 6.0% *

Economic

Devt/Tourism

1.5% 5.0% 3.0%

Other 8.0%

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*Revenue distributions are made after a deduction of up to 4% for state administrative costs.


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Table Games Revenue Distributionsin Surrounding States

DE PA WV

Licensee 66.0% 88.0%* 65.0%

State 29.4% 12.0%* 35.0%

Local *

Horse Racing 4.5%

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*In the first two years of table game operations, the licensee receives 86% and the State 14%. Of thelicensees share, 2% is distributed to local jurisdictions.


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Summary of Impact of Prince Georges

Facility on Gross Revenues

A Prince Georges VLT facility with 3,000 VLTs would generateadditional gross VLT revenues of approximately $200 million from aregular facility and $234 million from a destination location, net of theimpact on other facilities.

Adding table games would increase gross revenues byapproximately $252 million at the five currently authorized VLTfacilities and $299 million with a regular Prince Georges facility($304 million for a destination location).

Based on these estimates, the Maryland market could sustain a sixthVLT facility in Prince Georges County.

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Summary of Impact of Prince Georges

Facility on Operator Revenues

Lost VLT operator revenues from a Prince Georges facility are anestimated $37 million for Anne Arundel and $21 million for BaltimoreCity, which equates to approximately 10% of Anne Arundels grossVLT revenues and 6% for Baltimore City.

Estimated table game revenues for operators would also be lowerwith a Prince Georges facility $21 million from Anne Arundel and$12 million from Baltimore City (at a 20% tax rate).

Overall, however, net VLT and table game operator revenues would

increase at each facility

$31 million or 20% at Anne Arundel and$38 million or 30% at Baltimore City before any compensation forlost revenues.

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Summary of State Impact

The benefit to the State depends on the distribution of revenues froma Prince Georges facility, net of any compensation to Anne Arundeland Baltimore City VLT licensees, and the tax rate on table games.

Assuming the VLT distributions under current law and no additionalcompensation to operators beyond new table game revenues, theState could receive approximately $101 million in additionalEducation Trust Fund and Lottery revenue from a regular PrinceGeorges facility.

Assuming a 20% tax rate on table games, the State could receive anadditional $50 million annually from the five currently authorizedfacilities and $60 million annually with a regular Prince Georgesfacility.

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Impact of Shifting VLT Ownership

Additional revenues could be generated for the State byshifting ownership of the VLTs to the operators. The State willspend an estimated $133 million on VLT leases when all fivecurrently authorized locations are operational.

This equates to approximately 11.0% of gross VLT revenues.

Operators could purchase/lease VLTs more cost effectively,ranging anywhere from 2.5 to 8.0% of gross VLT revenues.

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Issues for Workgroup Discussion

Can the Maryland gaming market support a sixth facility with 3,000 VLTs?

If expanding to a Prince Georges County location and/or authorizing tablegames at VLT facilities:

the appropriate net benefit to the State (Education Trust Fund/General Fund);

the appropriate distribution of VLT proceeds from a Prince Georges County facility,including the appropriate licensee share;

the appropriate compensation, if any, to VLT facility licensees in Anne ArundelCounty and Baltimore City for lost revenues; and

the appropriate tax rate for table game proceeds and how those tax revenues

should be distributed.

Shifting VLT ownership from the State to the VLT facility licensees, includingthe percentage share of proceeds necessary to compensate licensees andthe anticipated savings to the State.

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Documents

Maryland Gambling Work Group Report - June 2012