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Missouri Casino Revenue Sensitivity to Competing Casinos 51 st Southern Regional Science Association Meeting Charlotte, North Carolina March 23, 2012 Doug.

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Presentation on theme: "Missouri Casino Revenue Sensitivity to Competing Casinos 51 st Southern Regional Science Association Meeting Charlotte, North Carolina March 23, 2012 Doug."— Presentation transcript:

1 Missouri Casino Revenue Sensitivity to Competing Casinos 51 st Southern Regional Science Association Meeting Charlotte, North Carolina March 23, 2012 Doug Walker and Todd Nesbit College of Charleston

2 Motivation  Commercial casinos have either been recently legalized or are under consideration in a variety of states  NY, NH, KS, OH, FL, MA, KY  Renewed interest during recession  Recently states have been following a “regional” model  KS, OH, MA  More established markets are clustered: NV, NJ, MS  As casinos spread, “saturation” becomes a potential issue  Few (if any) studies have examined intra-industry competition for casinos Walker and Nesbit, "Missouri casinos..."2

3 Choice of Market  Tribal casinos present a problem in analyzing revenues,  Tribes are sovereign nations and do not publicize revenues  Racinos present a problem because different types of gambling are offered  Competition between racing and machine games may be difficult to control for  The ideal market would not have tribal casinos or racinos in the area  (unless great data were available…which they’re not)  Missouri and Illinois both look good  Well-established markets, no tribal casinos, no racinos Walker and Nesbit, "Missouri casinos..."3

4 Missouri Walker and Nesbit, "Missouri casinos..."4  6 th state to legalize casinos  12 riverboat casinos currently (13 legal max.)  Changing regulations  “Boats in moats” within 1,000 feet of Missouri/Mississippi rivers  1998 voters eliminated the “cruise to nowhere” requirement  2008 voters eliminated the $500 loss limit  2008 Illinois smoking ban affected MO casinos  See Garrett and Pakko (2010)  Basic information for casinos in 2011 on the next page…

5 Walker and Nesbit, "Missouri casinos..."5 MarketProperty NameOpening DateMajor Change (Date)2011 Fiscal Year Gross Revenues (millions nominal $) 2011 Casino Space (sq. ft.) 2011 Gaming Machines 2011 Gaming Tables St. JosephSt Jo Frontier6/1994Changed ownership (2/2005)$40.218, Kansas CityArgosy6/1994--$ ,0001,89439 Isle of Capri, KC 10/1996Changed ownership (7/2000)$83.645,3001,16322 Harrahs, N KC 9/1994--$ ,3001,58562 Ameristar, KC 1/1997Changed ownership (12/2000)$ ,0002,84074 Sam’s Town 9/1995Closed (7/1998)--28,000 a 1,117 a 45 a BoonvilleIsle of Capri, Boonville 12/ $82.028, LaGrangeMark Twain 7/2001Changed ownership (2/2005)$38.118, CaruthersvilleLady Luck 4/1995Changed ownership (3/2007)$33.321, St. LouisAmeristar, St L 5/1994Changed ownership (12/2000)$ ,0002,73872 Harrahs, MH 3/1997Bought neighboring Players Casino (4/2000) $ ,0002,50386 Lumière 12/2007--$ ,0002,01167 Players3/1997Bought by Harrahs, MH (4/2000) --52,000 b 1,586 b 48 b President 5/1994Closed (6/2010)--53,800 c 674 c 7c7c River City 3/2010--$ ,0002,03459 Total values for casinos open in 2011$1, ,00019,560538

6 Missouri casino markets Walker and Nesbit, "Missouri casinos..."6  Kansas City  4 casinos, plus 1 in St. Joseph (N of KC)  New casino at Kansas Speedway opened in Feb  Too new to be included in our analysis  Several small tribal casinos in KS within 100 miles  St. Louis  4 casinos  2 competing casinos in Illinois (Alton; E. St. Louis)  Boonville; LaGrange; Caruthersville  Map of Missouri and competing casinos on next page…

7 Walker and Nesbit, "Missouri casinos..."7

8 Literature review Walker and Nesbit, "Missouri casinos..."8  No study has examined intra-industry competition within a state  Gallagher studies Illinois, in another session here  Several studies have examined inter-industry relationships for gaming industries  Walker & Jackson (PFR 2008), look at casinos, lotteries, grey- hound and horse racing  Included a variable for adjacent-state gambling availability  Cite most relevant studies as of 2008:  Davis, Filer, & Moak (1992); Thalheimer, & Ali (1995); Ray (2001), Siegel & Anders (2001), Elliott & Navin (2002), Fink & Rork (2003), Kearney (2005)  Cross-border shopping literature: Knight & Schiff

9 Literature review, cont. Walker and Nesbit, "Missouri casinos..."9  Casino adoption literature  Wenz (2008, Cityscape) studies in a county-level analysis  Considers bordering counties and tribal vs commercial decisions  Richard (2010, JGS) looks at the decision to adopt at an international level  Calcagno, Walker, and Jackson (2010, PC) focus on fiscal stress and desire by states to maximize tax revenues  Missouri Gaming Commission invited study  Focused on competition a 13 th casino would create  Assumed in best case there was no negative impact on existing casino revenues  No direct economic studies of intra-industry competition

10 Data Walker and Nesbit, "Missouri casinos..."10  Sample period is through  Missouri casino data:  Quarterly adjusted gross revenues (AGR; real)  Dependent variable  Missouri casino size  Annual number of table games  Annual number of machine games  Annual square footage of casino floor space  Competing casino size  Above size variables for any casinos within 100 miles of a MO casino  Includes casinos in Illinois, Iowa, and Kansas  Distances between casinos

11 Data, cont. Walker and Nesbit, "Missouri casinos..."11  Demographic (demand) data  Collected for MSA within which the casino is located, except…  Boonville, adjacent to Columbia MSA  Caruthersville, near Dyersburg, TN micropolitan statistical area  LaGrange, near Quincy, IL micropolitan statistical area  Annual population estimate  Annual unemployment rate  Annual per capita personal income (real)  Data sources: States’ gaming regulatory agencies; Census, BLS, BEA; Casinocity.com and Arc GIS 9.3

12 Model Walker and Nesbit, "Missouri casinos..."12

13 Model, cont. Walker and Nesbit, "Missouri casinos..."13

14 Preliminary Results Walker and Nesbit, "Missouri casinos..."14  Columns 1&2:  10% incr in casino size 7.5% incr in own revenue  10% incr in DS_SqFt 1.6% decr in casino revenue  Columns 3&4  10% incr in machine count 9.7% incr in own revenue  10% incr in table count 0.9% incr in own revenue  10% incr in DS_Mach 2% incr in casino rev  10% incr in DS_Tables 3% decr in casino rev Table 2: Pooled OLS results for log(Casino Revenue): 1997 Q Q2 [1][2][3][4] VariableCoefficientt-statCoefficientt-stat Constant ***1.829 log(Square Footage)0.750*** log(Machines)0.970*** log(Tables)0.087***1.448 log(DS_SqFt)-0.159*** log(DS_Machines)0.199***2.783 log(DS_Tables)-0.303*** Population ***5.839 PCPI1.021*** *** Unemployment Rate-0.030*** *** Observations486 R-square Results corrected for heteroskedasticity using White's Matrix. Statistical significance of 1%, 5%, & 10% denoted by ***, **, & * respectively.

15 Results, cont. Walker and Nesbit, "Missouri casinos..."15

16 Results, cont. Walker and Nesbit, "Missouri casinos..."16  We are particularly interested in the direct results because our goal is to measure the impact of indep. variables on a given Missouri casino’s revenues  Table 3b (in the paper) presents the direct results

17 Results, cont. Walker and Nesbit, "Missouri casinos..."17  Columns 1&2:  10% incr in casino sq ft 4.8% incr in own revenue  10% incr DS_SqFt 1.6% decr in casino revenue  Columns 3&4:  10% incr in machine count 5.4% incr in own revenue  10% incr in table count 2.3% incr in own revenue  10% incr DS_Machines 1.8% decr in casino rev  10% incr DS_Tables 0.6% incr in casino rev (insignificant) Table 3b: Pooled SDM results for log(Casino Revenue): 1997 Q Q2 [1][2][3][4] VariableCoefficientt-statCoefficientt-stat Direct Effects log(Square Footage)0.478*** log(Machines)0.541***8.597 log(tables0.226***4.844 log(DS_SqFt)-0.163*** log(DS_Machines)-0.182** log(DS_Tables) Population0.665*** ***8.582 PCPI1.098** Unemployment Rate0.134*** *1.915 Statistical significance of 1%, 5%, & 10% denoted by ***, **, & * respectively.

18 Other Issues & Conclusion Walker and Nesbit, "Missouri casinos..."18  Interpretation of tables (5-15 gaming positions per table) vs machines (1 gaming position per machine)  Policy change variables to include in subsequent analysis…  1998 voters relax sailing requirement, allowing “boats in moats” within 1000 ft of river main channel  Jan 2008 smoking ban implemented in IL significantly decreased IL casino revenues (Garrett & Pakko 2010)  Nov 2008 repeal of $500 loss limit at MO casinos  Robustness checks  Use visitor count as dependent variable  Include Tunica casino market, just outside 100 mile distance from Caruthersville, MO casino  Model could be adapted to other states/markets  Contact info: Doug Walker, College of Charleston walkerd.people.cofc.edu


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