Missouri Casino Revenue Sensitivity to Competing

Casinos

51st Southern Regional Science Association MeetingCharlotte, North Carolina

March 23, 2012

Doug Walker and Todd Nesbit

College of Charleston

Walker and Nesbit, "Missouri casinos..."

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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

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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

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Missouri 6th 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…

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 Market Property Name Opening Date Major Change (Date) 2011 Fiscal Year Gross Revenues(millions nominal $)

2011 Casino Space 

(sq. ft.)

2011Gaming Machines

2011Gaming Tables

St. Joseph St Jo Frontier 6/1994 Changed ownership (2/2005) $40.2 18,000 550 11

Kansas City Argosy 6/1994 -- $193.1 62,000 1,894 39Isle of Capri, KC

10/1996 Changed ownership (7/2000) $83.6 45,300 1,163 22

Harrahs, N KC

9/1994 -- $193.3 63,300 1,585 62

Ameristar, KC

1/1997 Changed ownership (12/2000) $241.1 140,000 2,840 74

Sam’s Town

9/1995 Closed (7/1998) -- 28,000 a 1,117a 45a

Boonville Isle of Capri, Boonville

12/ 2001 -- $82.0 28,000 991 19

LaGrange Mark Twain

7/2001 Changed ownership (2/2005) $38.1 18,000 656 13

Caruthersville Lady Luck

4/1995 Changed ownership (3/2007) $33.3 21,400 595 14

St. Louis Ameristar, St L

5/1994 Changed ownership (12/2000) $278.3 130,000 2,738 72

Harrahs, MH

3/1997 Bought neighboring Players Casino (4/2000)

$269.3 120,000 2,503 86

Lumière

12/2007 -- $173.2 75,000 2,011 67

Players 3/1997 Bought by Harrahs, MH (4/2000)

-- 52,000b 1,586 b 48 b

President

5/1994 Closed (6/2010) -- 53,800c 674c 7c

River City

3/2010 -- $180.9 90,000 2,034 59

     Total values for casinos open in 2011 $1,806.4 811,000 19,560 538

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Missouri casino markets Kansas City

4 casinos, plus 1 in St. Joseph (N of KC) New casino at Kansas Speedway opened in Feb. 2012

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…

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Literature review 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

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Literature review, cont. Casino adoption literature

Wenz (2008, Cityscape) studies 1990-2000 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 13th casino would create Assumed in best case there was no negative impact on

existing casino revenues No direct economic studies of intra-industry

competition

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Data Sample period is 1997.1 through 2010.2 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

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Data, cont. 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

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Model Regional competition model: “Distance Scaled

Competition” (DSC) For each MO casino i we collect…

Size, table, machine data for all other j casinos within 100 miles

Distancei,j is “as the crow flies”

Scale each measure by , and sum the scaled measures:

for all i = 1…n

(As size of a competing casino increases, or distance decreases, DSC increases: an increase in regional competition)

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Model, cont.

We use the log of each variable, except Urate, for easier interpretation as elasticities

Since Sq Ft is highly correlated with Tables and Machines, we estimate two separate specifications (1) casino size is Sq Ft, and DSC is Distance Scaled Sq Ft (2) casino size is Tables and Machines, so DSC is

Distance Scaled Tables and Distance scaled Machines (two separate variables)

Pooled model without annual or quarter fixed effects Period fixed effects were estimated but didn’t add

explanatory power and didn’t change qualitative results

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Preliminary Results 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 Q1 - 2010 Q2

[1] [2] [3] [4]

Variable Coefficient t-statCoefficien

t t-stat

Constant -5.789-

1.420 5.300 *** 1.829

log(Square Footage) 0.750 ***

21.026

log(Machines) 0.970 ***14.71

8

log(Tables) 0.087 *** 1.448

log(DS_SqFt) -0.159 ***-

4.339

log(DS_Machines) 0.199 *** 2.783

log(DS_Tables)-

0.303 ***-

4.307

Population 0.410 4.009 0.353 *** 5.839

PCPI 1.021 *** 1.933-

0.166 ***-

0.457

Unemployment Rate -0.030 ***

-3.079

-0.012 ***

-1.786

Observations 486 486R-square 0.817     0.918    

Results corrected for heteroskedasticity using White's Matrix.Statistical significance of 1%, 5%, & 10% denoted by ***, **, & * respectively.

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Results, cont. Next we posit a Spatial Durbin Model (SDM)

WX is the weighted average of the explanatory variables of neighboring casinos e.g., weighted average of PCPI of neighboring casinos

Wy is the spatial lag of the dependent variable i.e., the weighted average of neighboring MO casino

revenues Interpretation of Wy requires direct and indirect effects

Direct effects are interpreted as “own effects,” including feedback

Indirect effects are interpreted as combined spillover effects on all other casinos.

Total effects are the sum of the above two.

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Results, cont. 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

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Results, cont. 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 Q1 - 2010 Q2 

[1] [2] [3] [4]

VariableCoefficient

t-stat

Coefficient

t-stat

Direct Effectslog(Square Footage) 0.478***

13.726

log(Machines) 0.541*** 8.597

log(tables 0.226*** 4.844

log(DS_SqFt) -0.163*** -7.696

log(DS_Machines) -0.182**-2.526

log(DS_Tables) 0.059 0.856

Population 0.665*** 9.509 0.558*** 8.582

PCPI 1.098** 2.280 -0.226-0.520

Unemployment Rate

0.134

***

3.704

0.057 *

1.915

Statistical significance of 1%, 5%, & 10% denoted by ***, **, & * respectively.

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Other Issues & Conclusion 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@cofc.edu walkerd.people.cofc.edu