Lottery and Gaming Study Commission Minutes – 10/08/14 Meeting 1
Minutes of the Lottery and Gaming Study Commission
Legislative Hall – 10/08/14
Attendance:
Member / PresentT. Cook, Chair / Yes
A. Levin / Yes
B. Hall-Long / Yes
B. Bushweller / Yes
B. Pettyjohn / Yes
V. Longhurst / Yes
C. Potter / Yes
T. Dukes / No
G. Forbes / Yes
Others Present: D. Gregor, V.Kirk, D. McGlynn, W. Rickman Jr., W. Fasy, T. Horn, L. Tranchitella, P. Key, S. DeMario
1. Call to Order
Mr. Cook called the meeting to order.
2. Approval of Minutes
The minutes from the previous meeting of the Commission on 09/11/14 were approved.
3. Presentations from the State’s Casinos
a. Delaware Park
Mr. Cook summarizes the value of the casino’s presentation as providing an updated historical picture and—to the extent possible—an indication of how changes made since July first have affected the casino’s revenues.
William Fasy, President of Delaware Park, presents seven years of historical data on gross and net slot revenues to Delaware Park. Mr. Fasy notes that it is too early to measure the effects of the opening of the Horseshoe casino in projected numbers listed, but also that the closing of various New Jersey casinos has been beneficial for Delaware Park slots. Mr. Fasy state that the Horseshoe brand is well known for its table gaming products and has had a negative impact on Delaware Park as a result.
Mr. Cook asks if the Horseshoe facility is complete and if not when might completion be expected.
Mr. Fasy states that the Horseshoe will have a major impact because northern Baltimore table gaming business that had been driving to Delaware Park now has a different nearby alternative. Mr. Fasy believes the Horseshoe will expand its tournament poker product which will erode Delaware Park’s poker product. Mr. Fasy states that poker is a very low margin product for Delaware Park before considering the effect of increased poker tables at the Horsehoe. Mr. Fasy notes a concern that Delaware Park could be a damaged bystander of any future marketing wars between the Horseshoe Casino and Maryland Live.
Mr. Fasy presents 4 years of table game revenues noting large quarterly erosion in table games revenue. Mr. Fasy notes that quarterly table game revenues understate the erosion seen in September partly due to bad luck and part due to the opening of the Horseshoe.
Mr. Levin asks if there is any data on the volume of people entering Delaware Park and the average wagers placed by customers.
Mr. Fasy states that Delaware Park stopped taking head counts in 1995, but since 2011 volume of customers has been stagnant. Mr. Fasy notes players in the immediate vicinity of Delaware Park are coming, but not spending as much. Mr. Fasy states that middle distance and outer markets have declined drastically.
Mr. Levin asks if the customers in the immediate vicinity are primarily focused on gambling as entertainment.
Mr. Fasy notes that the multiplier on marketing dollars for slots has decline dramatically, meaning local customers are spending less out of pocket once their promotional options have been exhausted.
Mr. Fasy presents 4 years of employment data for Delaware Park. Mr. Fasy notes that some employee change relates to regular turnover—which has declined—but notes that the drop in employees is not as drastic as the drops in revenues over the presented timeframe.
Mr. Fasy presents a detailed list of capital improvements that were enabled by revenue sharing changes made by the state in June. Mr. Fasy notes that $3.6 million in revenue comes to Delaware Park as a result of the legislation in June, but only $762,000 is available as net relief once projected revenue declines and debt service are taken into account. Mr. Fasy’s presentation suggests as much as $6 million in completed and planned capital investments for fiscal year 2015 to be made to the Delaware Park facility. Mr. Fasy details the import and necessity of completed IT and physical capital improvements and outlines planned investments including equipment upgrades and replacement of a variety of depreciated capital.
Mr. Cook solicits questions from the members.
Mr. Potter asks if there are plans for more entertainment or incentives to drive customer traffic.
Mr. Fasy states that richer marketing plans exist subject to the availability of funds, but that going into further detail would be a competitive disadvantage.
Mr. Potter states a concern about what is driving people to visit the Horseshoe over Delaware Park.
Mr. Fasy notes that gamers are always interested in new casinos seeking a comparison and the possibility of increased incentives. Mr. Fasy notes the benefit the Horseshoe receives being able to offer World Series of Poker entries and existing in a lower tax area.
Ms. Hall-Long asks if there is a payout rate difference between Maryland and Delaware casinos that is acting as an incentive.
Mr. Fasy states that Delaware’s table games tax rate is 29.4% while in Maryland that rate is 20% and in Pennsylvania the tax rate is 15%. Mr. Fasy notes that under current rates to break even requires $1700 per table while poker at Delaware Park currently makes $700 per table.
Ms. Hall-Long asks if there are things Delaware should be doing differently with horse racing facilities as well.
Mr. Fasy states that there are in market discussion with Maryland to ensure that thoroughbred races in the two states do not overlap. Mr. Fasy notes that as Maryland casinos open, Maryland thoroughbred purses are increasing while Delaware’s purses are shrinking.
William Rickman Jr., CEO of Delaware Park, state that Delaware’s success in horse racing is dependent upon larger purses to attract horses from other districts and better co-ordination with neighboring states.
Mr. Cook asks the year over year growth rate of slot revenues in the third quarter is related to positive effects from casino closures in New Jersey.
Mr. Fasy states that since the beginning of September there is a 12% growth with New Jersey market players. Mr. Fasy notes this is could be a case of luck as volume is down.
Mr. Cook restates that the downward trend in table games is a result of intrastate competition.
Mr. Fasy notes that Horseshoe related activity has led to a 12% decline since the Horseshoe’s opening.
Mr. Cooks asks about the 2016 opening date on the National Harbor casino.
Mr. Potter asks about the expected return on investment the casinos forecast for any revenue redistribution the state can provide.
Mr. Fasy state that the listed capital investments have no return on investment
Mr. Potter asks if that fact implies the casino would be asking for further redistribution in the future.
Mr. Fasy states that the casino industry is a capital intensive one and that capital depreciation requires significant investment just to maintain competitiveness. Mr. Fasy notes that marketing, technology, and new customer attraction are the sorts of investments that are judged on a return to investment basis.
Mr. Potter states a concern that if revenue redistribution from the state isn’t focused on increasing profits via marketing, then not much will change for the casinos’ profit long term future.
Mr. Fasy notes that revenue has declined dramatically because necessary capital investments have been made at a time when revenues were not available. Mr. Fasy states that without changes to revenue sharing on the table games side it is likely this revenue stream with go away in the face of stiff regional competition.
Mr. Levin asks if the state will, at best, maintain the current revenue stream or if growth in the market is possible.
Mr. Fasy states that stability and certainty in the casino market are unlikely in the near future regionally. Mr. Fasy notes that capital and marketing investments are projected to increase revenue, but not enough to project growth in the face of rising costs.
Mr. Levin restates that maintenance is the best case outcome.
Mr. Rickman states that Delaware is in the most competitive gaming region in the country. Mr. Rickman notes that tolls have significant influence on customer decisions. Mr. Rickman notes that leveling off in revenues similar to that in Europe is a realistic outcome at some point.
Mr. Potter asks if the casinos have considered selling the business.
Mr. Rickman states that there are offers for Delaware Park consistently, but that no one wants to be involved in the horseracing aspects.
Mr. Potter asks if horseracing is dragging down the casinos.
Mr. Rickman states that Delaware Park is doing its duty with respect to the Horseracing Redevelopment Act. Mr. Rickman notes he has no complaints about the duty, but that there are not a lot of individuals who would take this duty upon themselves.
Mr. Potter states that Delaware is selling itself short if it does not consider bringing on new casinos as a means to defend against the potential failure of the current casinos.
Mr. Rickman states that race tracks cannot compete with a free standing casino and would result in the end of horseracing in the state.
b. Dover Downs
Denis McGlynn, CEO Dover Downs Gaming & Entertainment Inc., presents a ten year history of slot revenues with strong growth through 2007, then smaller declines each year as regional competition expanded, and large declines beginning in 2012 with the opening of Maryland Live. Presenting the four year history of table games showed growth in the early years with an immediate decline again in 2012 as a result of Maryland Live adding table games. Mr. McGlyyn notes that employment has been relatively consistent, but with a shift from full time to part time employment. Mr. McGlynn states that slot revenues are down both for the first six months of 2014 and for the first two months of fiscal year 2015.
Mr. McGlynn states an appreciation for the revenue redistribution that occurred during the last legislative session which enabled maintenance of employee levels and the extension of Dover Downs bank loans through September 30 of 2015.
Mr. McGlynn presents plans for any revenue redistribution the state provides concerning capital spending, marketing, customer service, and debt reduction. Mr. McGlynn states the capital spending will focus on new amenities such as refreshed dining options and more efficient slot software, renovations to the hotel and casino, and infrastructure upgrades. Mr. McGlynn states that the hotel was a $100 million initial investment and demonstrates with pictures the sort of renovations necessary. Mr. McGlynn states Dover Down projects $40 million in possible investments. Mr. McGlynn notes that marketing plans are of competitive importance but that Dover Downs has plans to expand their market.
McGlynn presents two years of table game revenues noting that various distributions to other entities approximate 40% of table game revenue and the various expenses related to operating table games cost nearly 70% of table game revenues. Mr. McGlynn demonstrates the various distributions to the state, horsemen, and slot vendors for the past 18 months in comparison with the losses faced by Dover Downs.
Mr. McGlynn presents several possible long term solutions to the revenue concerns being discussed and offers to answer any of the committee members’ questions.
Mr. Cook clarifies how slot promotional dollars formulations works and asks if free play is adequate.
Mr. McGlynn states that promo dollars are adequate and might have been too generous in recent months. Mr. McGlynn notes that some of the software investments discussed would allow more targeted promo dollars levels for individual players.
Mr. Potter commends Dover Downs for their work with the hotel and states that other casinos could do more with their properties.
Mr. Levin asks if the Firefly concert series has an effect on Dover Downs.
Mr. McGlynn states that Firefly is not a lift to the casino.
Mr. Levin states that the merger between Coachella and Firefly and the expectation of additional days or events will then not likely improve Dover Downs position.
Mr. McGlynn states that Dover Downs would like to do a better job of ushering casino regulars during Firefly as the traffic generated tends to keep customers away similar to the situation seen when NASCAR events began in Dover. Mr. McGlynn notes that people who come to Firefly are much like beach goers who travel for the specific event and not to gamble.
Mr. Forbes restates Mr. Fasy’s opinion that a leveling off in revenue is on the horizon.
Mr. McGlynn states that Dover has likely seen the worst of the impact from Maryland competition. Mr. McGlynn states a hope that National Harbor will not be as bad as Maryland Live.
Mr. Levin asks about Dover Downs plans to grow given we’ve seen the worst of competition.
Mr. McGlynn states that development of the conference and business meeting traffic and the ability to build a beautiful resort that attracts high roller customers is the basis of Dover Downs strategy for making a return to growing revenues.
Mr. Cook asks if contraction in Atlantic City has been caused by lack of investment or if contraction occurred for some other reason.