Gaming Revenue Projections for the

Southeast Gaming Zone of Kansas

Presentation to Lottery Gaming Facility Review Boardby Will Cummings / Cummings Associates

July 24, 2008

1

Will E. Cummings Cummings Associates

2

Questions, Please! ( at any time )

3

OverviewProcess (in brief)Cummings ProjectionsDifferences from Penn National

(Morowitz) ProjectionsKey Difference: Spending vs. DistanceThe Evidence My Conclusion: Distance Matters

4

Gravity Models –

Science?Theory?Facts?

5

Gravity Models –

Science?Theory?Facts?All of the Above

6

“Gravity Models” – Overview

LocationLocationSizeEverything Else

7

Gravity Model(s) Updated

Separate Slot / Table ModelsPrecise LocationsPrecise SizesEverything Else . . .

“Power Ratings”

8

Precise Locations and Sizes

9

10

11

Updated “Power Ratings”

12

“Everything Else” 1

Micro-AccessSpaciousnessSlot MixFit & FinishManagementMarketing / Player Rewards

13

“Everything Else” 2

HotelStructured ParkingVariety of Dining ChoicesRetailEntertainment“Brand”

14

Updated “Power Ratings”

15

16

Exhibit 2: Gaming-Device "Power Ratings"(Total Annual Spending versus benchmark of $700)

Large Smaller CitiesUrban Markets & Misc. Markets Rural Markets

Deadwood, SD 129.9S Dakota Indian avg. (8) 124.7 eUpstate Michigan avg. 120.0 eColorado (2) 120.0Kansas Natives avg. 116.9 e

Mississippi / Louisiana 115.5

Terribles Lakeside. IA 113.4Horseshoe / Bluffs Run, IA 113.0 Diamond Jo Worth, IA 113.0

Iowa Natives average 112.0 eAmeristar Council Bluffs, IA 111.3

Upstate Wisconsin avg. 110.0 eMt. Pleasant, MI 109.9 e

Albuquerque, NM avg. 107.4 Metropolis, IL/KY 107.6 o IOC Marquette, IA 107.1 oHarrahs Council Bluffs, IA 106.6 Dubuque Greyh Park, IA 106.9Harrahs Joliet, IL 106.4 o Emmetsburg, IA 106.3

Other New Mexico avg. 105.7IOC Boonville, MO 105.6 oAtlantic City, NJ 104.3Riverside, IA 104.1

Harrahs NKCMO 103.4Wisconsin Dells 102.1 e

Prairie Meadows, IA 99.6 Mohegan Sun, CT 100.0 oIOC Waterloo, IA 99.6

Ameristar KCMO 98.6Michigan City, IN 97.9 Dubuque Riverboat, IA 97.4 oHarrahs W St Louis 97.1Argosy Riverside, MO 97.1Elgin (Chicago) IL 96.0 o Argosy Sioux City, IA 96.3 oJoliet Empress, IL 95.3 o Foxwoods, CT 95.6 o

Niagara (NY) casino 94.6IOC Bettendorf, IA 94.0 o

East St Louis, IL 93.7 o Southern Delaware 93.7

Midwest Standard +10%

"Midwest Standard"

17

Exhibit 4: Table-Game "Power Ratings"(Total Annual Spending versus benchmark of $95)

Large Smaller CitiesUrban Markets & Misc. Markets Rural Markets

Metropolis, IL/KY 118.9 oHammond, IN 114.7 o

Iowa Natives average 113.7 eAlbuquerque, NM avg. 113.1 ±Resorts, E Chicago IN 112.6 o

Harrahs Joliet, IL 110.5 oElgin (Chicago) IL 110.5 o Kansas Natives avg. 110.5 e

Michigan City, IN 108.4Louisville, KY/IN 108.4 o

Upstate Wisconsin avg. 105.3 eAurora (Chicago), IL 104.2 o Diamond Jo Worth, IA 104.2

Joliet Empress, IL 102.1 o Caruthersville, MO 102.1Cincinnnati (avg), OH/IN 101.8 oMajestic Star, Gary IN 101.1 oDetroit (avg / 3 facils) 100.0 oHorseshoe / Bluffs Run, IA 100.0 Terribles Lakeside. IA 100.0

Riverside, IA 97.9 Wisconsin Dells 97.9 eOther New Mexico avg. 97.4 ± Emmetsburg, IA 97.9

Ameristar Council Bluffs, IA 96.8 French Lick, IN 96.8

Harrahs NKCMO 94.7 b

Harrahs W St Louis 91.6 b IOC Boonville, MO 91.6 b o

E S L i IL 88 4

Midwest Standard +10%

"Midwest Standard"

Midwest Standard -10%

18

Detroit (avg / 3 facils) 100.0 oHorseshoe / Bluffs Run, IA 100.0 Terribles Lakeside. IA 100.0

Riverside, IA 97.9 Wisconsin Dells 97.9 eOther New Mexico avg. 97.4 ± Emmetsburg, IA 97.9

Ameristar Council Bluffs, IA 96.8 French Lick, IN 96.8

Harrahs NKCMO 94.7 b

Harrahs W St Louis 91.6 b IOC Boonville, MO 91.6 b o

East St Louis, IL 88.4 oArgosy Riverside, MO 87.4 b Evansville, IN 87.4 o

Argosy Sioux City, IA 87.4 oAmeristar KCMO 86.3 bHarrahs Council Bluffs, IA 86.3

Dubuque Greyh Park, IA 85.3Prairie Meadows, IA 83.2IOC Waterloo, IA 83.2

IOC Marquette, IA 82.1 oAmeristar St Chas, MO 81.1 b Green Bay, WI 81.1 e

Catfish Bend Burlington, IA 78.9

St Jo MO 72.6 oAdmiral / downtown St Louis 71.6 b oMilwaukee, WI 71.6 e o Peoria, IL 71.6 o

Dubuque Riverboat, IA 70.5 oIOC KCMO 69.5 b o IOC Bettendorf, IA 67.4 o

Mark Twain, MO 67.4 b oClinton, IA 67.4 o

Deadwood, SD 64.2 bJumers Rock Island, IL 58.9 o S Dakota Indian avg. (8) 57.9 e

Rhythm City, IA 48.4 oColorado (2) 35.8 b

e = estimatedo = old boat or capacity-constrained marketb = betting limits

"Midwest Standard"

Midwest Standard -10%

19

Exhibit 5: Assumptions for Kansas Projections

Harrah's Marvel Penn Penn Kansas City Mulvane Wellington Wellington Cherokee Dodge

Slot PerformanceHigh 107.0 110.0 116.0 116.0 107.0 117.0

Baseline 102.0 104.0 110.0 110.0 102.0 112.0

Low 97.0 98.0 104.0 104.0 97.0 107.0

Table PerformanceHigh 107.0 106.0 108.0 103.0 95.0 105.0

Baseline 102.0 98.0 100.0 95.0 90.0 100.0

Low 97.0 90.0 92.0 87.0 85.0 95.0

Note: 100 = "Midwest Standard." Higher slot baseline here typical of new facilities.

Southeast Zone

20

21

Cummings Projections:900 slots

1,400 slots*

“High”

$39.0

x

Baseline $32.0

$45.3

“Low”

$23.2 x

(all in 2007 $ million for Penn National’s Hollywood Casino)* And hotel, etc.

22

Cummings Projections (2007$)900 slots

1,400 slots*

“High”

$39.0

x

Baseline $32.0

$45.3

“Low”

$23.2 x

(all in 2007 $ million for Penn National’s Hollywood Casino)* And hotel, etc.

23

Cummings Projections (2013$)900 slots

1,400 slots*

“High”

$45.3

x

Baseline $37.2

$52.5

“Low”

$27.0 x

(all in 2013 $ million for Penn National’s Hollywood Casino)* And hotel, etc.

24

25

Exhibit 4: Penn's Cherokee Projections vs. Cummings's (2.5% escalation)

$0

$20

$40

$60

$80

$100

$120

2010 2011 2012 2013 2014 2015 2016

Note: Cummings projections for 2011 are for Phase One 900-slot facility -- for 2013 and later years, for Phase N 1400-slot facility (for 2012, intermediate)

Slot

+ T

able

Win

(no

poke

r pl

anne

d) ($

mn)

Penn C

C Low

C Base

C High

26

Exhibit 5: Penn's Cherokee Projections vs. Cummings's (5% escalation)

$0

$20

$40

$60

$80

$100

$120

2010 2011 2012 2013 2014 2015 2016

Note: Cummings projections for 2011 are for Phase One 900-slot facility --for 2013 and later years, for Phase N 1400-slot facility (for 2012, intermediate)

Slot

+ T

able

Win

(no

poke

r pl

anne

d) ($

mn)

Penn C

C Low

C Base

C High

Sources of Difference (2013$)Cummings Morowitz

Diff.

0-100 miles $30.1

$74.3

$44.2

100+ miles

$4.3 $13.2

$8.9

Drive-Bys

$2.8 $2.9 $0.1Area Hotels $0.0

$0.7

$0.7

Total $37.2 $91.0 $53.8(all $ million)

27

“Gravity Models” – Overview

LocationLocationSizeEverything Else

28

“Gravity Models” – Overview

Location ILocation IISizeEverything Else

29

Location II: Reilly’s Law

30

Reilly’s Law:

ms ~ S/d2

Where

ms :

market shareS :

casino size (capacity)

d : distance

31

Newton’s Law:

F = m/d2

Where

F : gravitational force

m : mass (of each body)

d : distance

32

Reilly’s Law:

ms ~ S/d2

Where

ms :

market shareS :

casino size (capacity)

d : distance

33

34

Little Difference in Projections for Market Share

0%

5%

10%

15%

20%

25%

30%

35%

Cheroke

e, KS

Jasp

er, M

OLa

wrence

, MO

Dade, M

OLa

bette

, KS

Barton

, MO

Barry,

MONew

ton, M

ONeo

sho,

KSMcD

onald

, MO

Craig,

OKNow

ata, O

KBento

n, AR

Crawfor

d, KS

Delaware, O

KOtta

wa, OK

Mayes

, OK

Penn

Che

roke

e M

arke

t Sha

re

CummingsMorowitz

Location I: The Closer, the Better

35

36

Substantial Differences in Spending per Adult

$0

$50

$100

$150

$200

$250

0 20 40 60 80 100 120

Distance from Penn Cherokee (miles)

Proj

ecte

d A

nnua

l Spe

ndin

g/A

dult

at P

enn

Che

roke

e

CummingsMorowitz

37

Projected Spending (Oklahoma Counties Omitted)

$0

$50

$100

$150

$200

$250

0 20 40 60 80 100 120

Distance from Penn Cherokee (miles)

Proj

ect A

nnua

l Spe

ndin

g/A

dult

at P

enn

Che

roke

e

CummingsMorowitz

Similar Divergence of Opinion in the South-Central Zone

38

39

Marvel: Modest Difference in Projections for Market Share -- in Kansas

0%

20%

40%

60%

80%

100%

0 20 40 60 80 100 120 140

Distance from Marvel Wellington (miles)

Mar

vel W

ellin

gton

Mar

ket S

hare

CummingsMarvel

40

Marvel: Substantial Differences in Market Share in Oklahoma

0%

20%

40%

60%

80%

100%

20 40 60 80 100 120 140 160

Distance from Marvel Wellington (miles)

Mar

vel W

ellin

gton

Mar

ket S

hare

CummingsMarvel

41

Marvel: More Significant Differences in Projected Spending Per Adult (Kansas)

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

0 20 40 60 80 100 120 140

Distance from Marvel Wellington (miles)

Proj

ecte

d A

nnua

l Spe

ndin

g/A

dult

at M

arve

l Wel

lingt

on

CummingsMarvel

42

Marvel: Very Large Difference in Projected Spending from Oklahoma

$0

$50

$100

$150

$200

$250

$300

$350

$400

20 40 60 80 100 120 140 160

Distance from Marvel Wellington (miles)

Proj

ecte

d A

nnua

l Spe

ndin

g/A

dult

at M

arve

l Wel

lingt

on

CummingsMarvel

43

Harrah's Projected Gaming Revenue by Time/Distance Zone ($ million)

$65

$95

$27

$15$10 $9

$4

$14

$35

$0

$20

$40

$60

$80

$100

$120

0 to 20minutes

21 to 40minutes

41 to 60minutes

61 to 80minutes

81 to 100minutes

101 to 140minutes

(impeded)

101 to 140minutes

Out of market Overnight

Tota

l Gam

ing

Rev

enue

(Yea

r 3)

44

Cummings Projections for Harrah's by Time/Distance Zone ($ million)

$82

$90

$8 $6$2 $5

$9

$0

$20

$40

$60

$80

$100

$120

0 to 20minutes

21 to 40minutes

41 to 60minutes

61 to 80minutes

81 to 100minutes

101 to 140minutes

(impeded)

101 to 140minutes

Out of market Overnight

Tota

l Gam

ing

Rev

enue

(Yea

r 3)

45

Penn Wellington: Differences in Spending per Adult (Kansas only)

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

0 20 40 60 80 100 120 140

Distance from Penn Wellington (miles)

Proj

ecte

d A

nnua

l Spe

ndin

g/A

dult

at P

enn

Wel

lingt

on

CummingsMorowitz

46

Penn Wellington: Differences in Projected Spending per Adult (Kansas only)

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

0 200

( data sorted not by distance but by Cummings projection )

Proj

ecte

d A

nnua

l Spe

ndin

g/A

dult

at P

enn

Wel

lingt

on

CummingsMorowitz

47

Penn Wellington: Differences in Projected Spending per Adult (Oklahoma)

$0

$20

$40

$60

$80

$100

0 25

( data sorted not by distance but by Cummings projection )

Proj

ecte

d A

nnua

l Spe

ndin

g/A

dult

at P

enn

Wel

lingt

on

CummingsMorowitz

Location I: The Closer, the Better

=“Friction”

48

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5

ln(distance)

ln(L

as V

egas

vis

itors

/000

0)

49

Las Vegas Visitation/Distance

Las Vegas: slope of the curve

y = -1.0082x + 10.75R2 = 0.9631

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5

ln(distance)

ln(L

as V

egas

vis

itors

/000

0)

50

Mississippi: steeper slope

y = -1.4088x + 11.25R2 = 0.9353

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0

ln(distance)

ln(M

issi

ssip

pi v

isito

rs/d

ay/0

000)

51

Laughlin: much steeper slope

y = -1.9121x + 16.299R2 = 0.9552

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5

ln(distance)

ln(L

augh

lin v

isito

rs/0

000)

52

Casino X: isolated market

y = -0.8982x + 7.8944R2 = 0.6804

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5

ln(distance from Casino X)

ln(a

djus

ted

annu

al s

pend

ing/

adul

t

53

Casino Y: competition afar

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5

ln(distance from Casino Y)

ln(a

nnua

l spe

ndin

g/ad

ult)

54

Casino Y: less competition close

y = -0.886x + 8.0919R2 = 0.8505

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5

ln(distance from Casino Y)

ln(a

nnua

l spe

ndin

g/ad

ult)

55

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5

ln(distance)

ln(L

as V

egas

vis

itors

/000

0)

56

Las Vegas Visitation [ log-log ]

Las Vegas Visitation/Distance

0.0

5.0

10.0

15.0

20.0

25.0

0 500 1,000 1,500 2,000 2,500

Distance (miles)

Las

Veg

as V

isito

rs /

000

adul

ts

Mississippi Visitors/Day/000

0.0

4.0

8.0

12.0

16.0

20.0

0 100 200 300 400 500 600 700

Distance (miles)

Mis

siss

ippi

Vis

itors

/Day

/000

adu

lts

Casino X / players’ club data

$0

$200

$400

$600

$800

$1,000

0 50 100 150 200 250 300 350 400

Distance from Casino X (miles)

Ave

rage

Ann

ual S

pend

ing/

Adu

l

Casino Y: players’ club data

$0

$100

$200

$300

$400

$500

0 20 40 60 80 100 120

Distance from Casino Y (miles)

Ave

rage

Ann

ual S

pend

ing/

Adu

l

Casino Y: less competition close

y = -0.886x + 8.0919R2 = 0.8505

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5

ln(distance from Casino Y)

ln(a

nnua

l spe

ndin

g/ad

ult)

61

Casino Y: players’ club data

$0

$100

$200

$300

$400

$500

0 20 40 60 80 100 120

Distance from Casino Y (miles)

Ave

rage

Ann

ual S

pend

ing/

Adu

l

Model vs. Real World

63

64

Exhibit 12: Recent Projections Compared to Actual Results(Annual Slot Win / $million)

Projection / Source Actual / Source

Facility / Market:

Zia Park / New Mexico $53.7 (1) $68.9 (2)

Emmetsburg / Iowa $23.4 (3) $26.4 (4)

Worth County / Iowa $34.2 (3) $67.5 (4)

Riverside / Iowa $82.0 (3) $85.8 (4)

IOC Waterloo / Iowa $96.8 (3) $76.9 (4)

$30.2$49.9

Tioga Downs NY (5) (6)$42.2

The Gaming Markets of Iowa:

Analyses and ProjectionsPresentation to the

Iowa Racing and Gaming Commission

Will E. CummingsCummings Associates

April 21, 2005

Testing the Models: What Happens With and Without Tama?

30

Gaming Revenues in 2004

25

68

69

70

With Tama,Market

Projection

Actual Change

Marquette -8.4%

-6.9%

Dubuque -5.3% -9.3%Clinton -4.1% -3.0%

Quad Cities

-3.4% -3.4%Catfish Bend

-5.7% -4.8%Prairie Meadows -9.5% -10.9%*

Lakeside -12.3% -7.0%*Bluffs/Omaha -0.5% +0.8%Sioux City -0.7% +10.4%*

31

If You Build It, They Will Come -- But How Far?

The “Distance Factor” in Regional Gaming Markets

Presentation to the 12th International Conference on Gambling & Risk-Taking

Will E. CummingsCummings Associates

May 30, 2003

Estimation ProceduresImpacts of distance relationships highly nonlinearEstablish reasonable values for “all other” parameters

demographicfacility, etc.

Vary the aggregate distance coefficientMeasure the (absolute) “error”

Results:

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1

Aggregate (negative) Distance Coefficient

Sum

of A

bsol

ute

Erro

rs ($

milli

on)

Casinos’ “Gravity” According to Reilly --

Amended

Presentation to the 13th International Conference on Gambling & Risk-Taking

Will E. CummingsCummings Associates

May 25, 2006[ With notes added May 30, 2006 ]

Segmentation by Distance

$106

$26

$79

$424

$0

$100

$200

$300

$400

$500

$600

10 20 30 40 50 60 70 80 90 100 110 120 130 140 150

Distance from Population in New Market (miles)

Ave

rage

Ann

ual S

pend

ing

/ Adu

lt

newdiv.old

Recent Work

77

Hoosier Park & Indiana Downs

78

79

80

Win/Slot/Day:Cummings June 2008Projection* Actual

Hoosier Park $376 $267

Indiana Downs $357 $245

* From “Projections for . . . ,”

September 8, 2007.

81

82

Downstream, Okla.

83

Projections for Downstream:

Cummings

Merrill Lynch *

$60 mn

$140 mn

* For FY09, in Note “Initiating Coverage,”

June 13, 2008.

84

Conclusion:

85

Spending Declines With Distance

12

Casino Y: players’ club data

$0

$100

$200

$300

$400

$500

0 20 40 60 80 100 120

Distance from Casino Y (miles)

Ave

rage

Ann

ual S

pend

ing/

Adu

l

Will E. Cummings Cummings Associates

135 Jason StreetArlington, MA 02476

(781) 641-1215cummingsw@aol.com

88

Gaming Revenue Projections for the

Southeast Gaming Zone of Kansas

Presentations to Lottery Gaming Facility Review Boardby Will Cummings / Cummings Associates

July 24, 2008

89