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Special House Commission to Study Gaming State of Rhode Island January 23, 2003 Background Crowe, Chizek and Company LLP 8 th Largest Consulting & Accounting Firm Nationally Formed in 1942 in South Bend, IN 15 offices nationally, from Grand Rapids to Fort Lauderdale Work Experience

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Special House Commission to Study GamingState of Rhode IslandJanuary 23, 2003


Background l.jpg
Background

  • Crowe, Chizek and Company LLP

    8th Largest Consulting & Accounting Firm Nationally

    • Formed in 1942 in South Bend, IN

    • 15 offices nationally, from Grand Rapids to Fort Lauderdale

      Work Experience

    • Hospitality expertise extended into some gaming just as interest in gaming spread nationally (circa 1990)

    • Economic and Fiscal Impact Studies

    • Testimony before State and Local governments in

      • Indiana

      • Louisiana

      • Mississippi

      • Ohio

      • Wisconsin


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Ameristar

Argosy

Aztar

Binion/Horseshoe

Blue Chip

Caesars

Harrah’s

Hyatt

Pinnacle

Trump

Representative Clients

  • Boykin Lodging

  • Centaur

  • Churchill Downs

  • Keeneland

  • Scioto Downs

  • Turfway Park

  • Numerous Native American Indian tribes (e.g., Ho-Chunk, Pokegan, Grand Traverse Band, Big Cypress Seminole)


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Indiana? Yes! Ranks Third in FY 2001 Tax Revenue from Gaming

$688M

$529M

$493M

Source: State gaming regulators and associations


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Fastest Growing Gaming Markets: 2000-2001

Nationally: up 4.9%, to $25.7 Billion

+13.1%

+34.5%

+4.0%

+5.9%

+5.9%

+10.3%

Source: State gaming regulators and associations


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Industry Overview

  • As the commercial gaming industry has expanded throughout the United States, the gross annual revenue has steadily increased to over $140B in 2001.

  • Gaming revenues are generated from pari-mutuel wagering, lotteries, casinos, legal bookmaking, bingo and Indian reservations.

  • Over the past decade, spending on casino gaming has increased significantly, from 11.5B in 1990 to an estimated $47B in 2001 ($28.1B excluding unreported Native American gaming activity).


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Industry Overview

  • Nearly every state in the US offers some form of gambling:

    • Lotteries

    • Resorts like Las Vegas, Atlantic City, Biloxi

    • Riverboats in Illinois, Indiana, Louisiana, Missouri, Iowa, and throughout the nation’s heartland

    • Over 150 Indian reservations


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States with Lotteries


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States with Casinos (Riverboat or Land-based)


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States with Native American Casinos


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States with Lotteries, Casinos (Commercial or Native American) or Pari-mutuel


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Industry Overview – Beyond Nevada and New Jersey

  • Riverboat gaming was first established in the Midwest with the State of Iowa in 4/91; Illinois followed in 11/91 and Indiana in 12/95.

  • Riverboat gaming revenue for the year ended December 31, 2001 in Illinois and Indiana neared $2B:

    YE 12/31/01

    (in 000s)

    Illinois $1,783,958

    Indiana $1,841,841

    TOTAL $3,625,799


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Industry Overview – Beyond Nevada and New Jersey

  • Admission and wagering taxes levied by the states of Illinois and Indiana in 2001 amounted to $1.1 billion (not including the state income taxes on the profits).

  • Other states in the Midwest which conduct riverboat gaming and their related 2001 gaming revenues are noted below:

    YE 12/31/01

    (in 000’s)

    Iowa $886,996

    Missouri $1,049,216

  • Michigan has three commercial casinos operating in Detroit. These opened between 1999 and 2000 in temporary facilities. Combined casino revenues in 2001 were slightly over $1B.


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Native American Casinos

  • Throughout the US there are approximately 290 tribal gaming operations which generated $12.7B in revenues in 2001 (less than 10% of the total industry*).

* Source: National Indian Gaming Association


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States With Greatest Gaming Tax Revenues

$688M

$529M

$342M

$493M

$375M

Source: State gaming regulators and associations


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Central 30% (22%)

Northeast 27%(19%)

West 36%(23%)

South 20%(36%)

Northeast is Undersupplied

% of Nationwide Casino Visits in 2001

(% of U.S. Population in Parentheses)

Source: Harrah’s Entertainment, Inc./NFO WorldGroup, Inc.


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Demographics

Typical Casino Patron = “Typical American”

  • Patrons compared to U.S. Population:

    • Caucasian (76% vs. 76% of total population)

    • Married or engaged (61% vs. 59%)

    • Male (45% vs. 48%)

    • Median age over 21 (45 vs. 46)

    • At least some college (55% vs. 52%)

    • Median household income ($50k vs. $41k)

    • White collar (46% vs. 41%)

    • Homeowner (73% vs. 68%)

Sources: American Gaming Association, Harrah’s Entertainment, Inc. and Bear, Stearns & Co. Inc.


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How to Get There - Our Market Study of West Warwick

Methodology:

Demand-driven/Market-driven

  • Bottom-up approach

  • Don’t subscribe to “IYBITWC” philosophy

  • Back-testing shows we’re conservative

    • Example (from our 2000 forecast of Indiana’s 2001 market):



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Market 2000 Adult 2001 Census Geography Adult Adult % % Who Visits perCounty Census Pop’n Estimate Factor Pop’n of Pop’n Game Year (33.2%) (6.0) Bristol, RI 50,648 36,334 51,173 100% 36,711 71.7% 12,188 73,128Kent, RI 167,090 123,109 169,224 100% 124,681 73.7% 41,394 248,365Newport, RI 85,433 62,870 85,218 100% 62,712 73.6% 20,820 124,922Providence, RI 621,602 438,952 627,314 100% 442,986 70.6% 147,071 882,427Washington, RI 123,456 87,180 125,991 100% 88,970 70.6% 29,538 177,228New London, CT 259,088 185,834 259,065 5% 9,291 71.7% 3,085 18,507Windham, CT 109,091 76,567 110,162 30% 23,196 70.2% 7,701 46,206Norfolk, MA 650,308 478,556 653,232 100% 480,708 73.6% 159,595 957,570Middlesex, MA 1,465,396 1,080,509 1,463,454 100% 1,079,077 73.7% 358,254 2,149,522Plymouth, MA 472,822 330,414 481,059 80% 268,936 69.9% 89,287 535,721Suffolk, MA 689,807 550,466 682,062 100% 544,285 79.8% 180,703 1,084,217Worcester, MA 750,963 528,847 762,207 50% 268,383 70.4% 89,103 534,618 Total Market 5,445,704 3,979,638 5,470,161 3,429,935 1,138,738 6,832,430

Note that less than one-fourth (22.0%) of the market visitation might be derived from Rhode Island residents.

How to Get There - Potential West Warwick Gaming Market


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Annual Visitation 6,832,430 Who Visits per

Win per Visit $100.00 (Note 1)

Adjusted Gross Gaming Revenue $683,243,000

State Fiscal Impact (at 25% Tax Rate) $170,810,750

Note 1:

Indiana - 11/02 average $89.22Argosy riverboat - 11/02 $108.97Illinois - 12/02 average $102.00Illinois - FYTD 12/02 average $97.00Elgin riverboat - FYTD 12/02 $136.00

How to Get There - Potential West Warwick Fiscal Impact


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A Regulatory Framework for Rhode Island Gaming Who Visits per

Overview:

  • Enabling Legislation

  • Regulatory Body

  • Regulatory Standards

  • Enforcement and Penalties


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A Regulatory Framework for Rhode Island Gaming Who Visits per

Enabling Legislation

  • Local Developer Agreements

    • Provide for direct, local “compacts” with developer:

      • Local taxes/fees

      • Local hiring/purchasing requirements

      • Infrastructure funding

      • Community involvement

      • Charitable activities

  • Licensing requirements

    • Owner/operator

    • Suppliers

    • Occupations


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A Regulatory Framework for Rhode Island Gaming Who Visits per

Enabling Legislation (cont.)

  • Create regulatory body

    • Number of commissioners/directors

    • Powers and duties of the body

  • Address political contributions by licensees

  • Set operating parameters

    • Minimum legal age

    • Permissible games/wager amounts

    • Cash or cashless wagering?

    • Operating hours/calendar


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A Regulatory Framework for Rhode Island Gaming Who Visits per

Regulatory Body

  • Commission appointments

    • Commissioner criteria

      • Geographic representation

      • Professional skills – accounting/finance, law, government, social services

      • Political party affiliation balance

    • Appointment power

      • Governor, Legislature, combination

  • Commission staff


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A Regulatory Framework for Rhode Island Gaming Who Visits per

Regulatory Body (cont.)

  • Funding Sources

    • Fees and assessments

      • e.g., licensing and related investigations

    • Wagering tax revenue

      • First cut (“off the top”)

        • e.g., investigations and general costs of regulation

      • Fixed amount

    • Activity-based levies

      • Licensee pays actual costs as/when incurred

        • e.g., all enforcement and disciplinary proceedings


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A Regulatory Framework for Rhode Island Gaming Who Visits per

Regulatory Body Example: Indiana Gaming Commission

  • Seven Commissioners

    • Three-year staggered terms

    • Three from Lake Michigan counties, three from Ohio River counties, one from neither

    • Up to four from same political party

    • At least one from law enforcement, one CPA, one attorney

  • Executive Director and staff of 36

    • 15 associated with Field Audit function

  • SFY 2001 budget of $15 million

    • 56% funded through licensee reimbursements

    • 18% funded from fees and fines

    • 26% funded from wagering tax appropriations


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A Regulatory Framework for Rhode Island Gaming Who Visits per

Regulatory Standards/Duties

  • Conduct licensing/renewal process

  • Investigate applicants/licensees for suitability

  • Investigate alleged rule violations

  • Administer enforcement/disciplinary actions

  • Collect reimbursement by licensee of all administrative or enforcement costs

  • Report

    • Illinois offers an example of good monthly reporting (Appendix)


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A Regulatory Framework for Rhode Island Gaming Who Visits per

Enforcement and Penalties

  • Cash business = need for tight controls

    • Regulatory agents on-site during all operating hours

    • Continual audit/testing of security and reporting controls

  • Need for swift, effective investigations and penalties

    • Fines must be properly scaled to have force

      • Example: $95k fine for failure to disclose a contract (Illinois)

      • Example: $8k fine for granting access to a minor (Indiana)

      • Example: 3-day quasi-shutdown for improper advertising (Indiana)

        • Casino operator was required to “make good” to employees and its host community so the shutdown was revenue-neutral to them


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Appendices Who Visits per

  • A: Illinois Gaming Board Monthly Riverboat Casino Report (December, 2002)

  • B: Useful References


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Appendix A Who Visits per: Illinois Gaming Board

Monthly Riverboat Casino Report

December 2002


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Appendix B Who Visits per: Useful References

  • Indiana Riverboat Gaming Laws (IC §4-33)

    • http://www.ai.org/legislative/ic/code/title4/ar33/index.html

  • Illinois Riverboat Gaming Laws (230 ILCS 10)

    • http://www.legis.state.il.us/ilcs/ch230/ch230act10.htm

  • Indiana Gaming Commission

    • http://www.state.in.us/gaming/

  • Illinois Gaming Board

    • http://www.igb.state.il.us/


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