market .impact of a proposed tyre, new york casino on turning stone.final.10.27.2014

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________________________________________________________________________

THE REGIONAL MARKET IMPACT OF A

PROPOSED TYRE, NEW YORK CASINO:

ESTIMATED DISPLACEMENT OF EXISTING GAMING REVENUES &

EMPLOYMENT AT TURNING STONE CASINO, ONEIDA & ONONDAGA

COUNTIES

Prepared

by

Clyde W. Barrow, Ph.D.

Chair, Department of Political ScienceUniversity of Texas Pan American

d/b/a

PYRAMID ASSOCIATES, LCC

for

MOHAWK VALLEY ECONOMIC DEVELOPMENT

GROWTH ENTERPRISES CORPORATION

OCTOBER 2014
http://www.pbase.com/jimrob/turningstone



________________________________________________________________________



EXECUTIVE SUMMARY

The purpose of this report is to estimate the potential impact of regional gaming expansionin New Yorks Eastern Southern Tier on Turning Stone Resort Casino, Oneida County,and Onondaga County. The State of New York currently has nine (9) race track casinos

that operate approximately 29,000 video lottery terminals (VLTs) and five (5) Class IIIIndian casinos with approximately 10,000 slot machines and 325 table games (New YorkState Gaming Commission 2014; Meister 2014, 17). On November 5, 2013, the EmpireStates voters approved an amendment to the state constitution that authorized Las Vegasstyle commercial casino gaming in New York for the first time. The Upstate New YorkGaming and Economic Development Act (Chapters 174 and 175 of the Laws of 2013)outlines the procedure and process for siting destination gaming resorts in New York State.The Act authorizes up to four destination gaming resorts in Upstate New York with at leastone facility in each of three regions: Capital, Catskills/Hudson Valley, and EasternSouthern Tier

The stated purposes of the Upstate New York Gaming and Economic Development Act isto increase total employment in the leisure and hospitality sector, generate net newrevenues for state and local governments, and to recapture New York gaming dollars thatare currently leaving the state for Connecticut, Pennsylvania, and New Jersey (New YorkState Gaming Commission 2014).1However, the facilities siting process and the evaluationcriteria employed for selecting casino licensees raise three additional considerations for theResort Gaming Facility Location Board.

First, it is possible that some proposals for new gaming facilities could

potentially destabilize the states gaming market by displacing(cannibalizing) existing gaming revenues and, thereby, adversely affect

existing gaming facilities, employment, and state revenues. In this case, theeconomic benefits of new facilities may be overstated by developers if thedisplacement of existing jobs and revenues is not factored into the economicand fiscal impact analysis.

Second, the location of facilities near state borders will be an importantfactor in the ability of new gaming facilities to intercept gaming dollars thatare currently leaving the state and to attract new gaming and tourism dollarsfrom out-of-state regional residents.

Third, gaming officials will need to consider whether it is best to locategaming facilities in areas with high levels of economic distress, where thereis a tangible need for additional employment and revenue, or whether to

1The Consultant conducted a study in 2012, which found that New York residents spend approximately $3.8billion at out-of-state casinos in Connecticut, New Jersey, Pennsylvania, and Nevada. New York residentsaccount for 22% of all visits to Atlantic City casinos, 12% of all visits to Connecticut casinos, and 17% ofvisits to the four Pennsylvania casinos on New Yorks border. New York is also one of the top ten feedermarkets to Las Vegas (Harrahs 2006).

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locate the facilities in areas that bring additional benefits to generallyhealthy economies.

These considerations are especially pertinent in considering the proposal by Wilmorite, acommercial real estate company that operates Eastview Mall and other shopping centers in

the Rochester area. Wilmorite unveiled a proposal on December 12, 2013 to construct theWilmot Casino and Resort in Tyre, New York (Eastern Southern Tier) near Exit 41 off theNew York State Thruway. The proposed $300 to $350 million casino and resort wouldinclude a casino with 2,000 slot machines and 100 table games, a 200 room hotel andconvention center, as well as four restaurants, two entertainment venues, and a spa andfitness center. The proposed casinos developers claim that the new gaming venue willattract 3.3 million visitors annually an average of 9,000 daily -- and employ up to 1,800permanent casino and resort workers at full build out with an annual payroll of $50 million(Harding 2013; Shaw 2014; Wilmorite 2014). The proposed casinos developer also claimsthat the Tyre facility will draw visitors from well beyond the local markets of Syracuseand Rochester metro areas by working jointly with the already robust regional tourist

attractions to further establish Seneca County as a premier upstate destination.

The proposed casino in Tyre, New York will be a direct competitor with Finger LakesGaming and Racetrack, Tioga Downs Casino, Vernon Downs Casino, and Turning StoneResort Casino in their primary and secondary market areas. The proposed Wilmot Casinoand Resort will be competing for destination travelers (Vernon Downs and Turning Stone),as well as regional convenience gamblers (Tioga and Finger Lakes) residing in theproposed facilitys primary and secondary market areas, who are already served by adiverse array of gaming facilities.2

Methodology

The Consultant built a Master Database consisting of 3,591 communities in New York andPennsylvania to analyze the gaming market for the proposed Wilmot Casino and Resortand its existing competitors (i.e., Tioga Downs, Vernon Downs, Finger Lakes, and TurningStone). The Master Database includes data by town and city on total population, the adultpopulation (age 21+), per capita income, total income, disposable personal income (DPI),and drive-times to the nine race track casinos in New York, the five Class III Indian casinosin New York, and two casinos in Pennsylvania (i.e., Mohegan Sun at Pocono Downs andMt. Airy), with the drive-times based on geo-codes for the actual addresses of each facility.The Master Database contains 156,684 discrete data points that form the basis for thegravity model.

The initial gravity model developed from this database relies on empirically basedassumptions about the propensity to gamble at different functional distances, as well asgaming expenditures as a ratio of DPI at different functional distances, consistent with

2Mohawk Valley Economic Development Growth Enterprises Corporation retained Dr. Clyde W. Barrow,d/b/a Pyramid Associates, LLC to conduct a market impact analysis of expanded gaming proposals in NewYork. Dr. Clyde W. Barrow is Chair of the Department of Political Science at the University of Texas PanAmerican and Project Manager of the Northeastern Gaming Research Project (see Appendix A).

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other facilities in New York that are within or near the proposed Wilmot Casino & Resortsmarket area.

The direct, indirect, and induced employment impacts of the proposed Wilmot Casino &Resort have been specified using IMPLAN (IMpact Analysis for PLANing). IMPLAN is

an econometric modeling system developed by applied economists at the University ofMinnesota and the U.S. Forest Service. The IMPLAN modeling system has been in usesince 1979 and it is currently used by over 500 private consulting firms, university researchcenters, and government agencies. The Consultant has been a licensed and certifiedIMPLAN user since 1999 and regularly employs the software for conducting economicand fiscal impact analyses for a wide range of industries.3

Findings

The Wilmot Casino and Resort proposed for Tyre, New York will be a direct competitorwith Turning Stone Resort Casino, Finger Lakes Gaming and Racetrack, Tioga Downs

Casino, and Vernon Downs Casino due to overlapping primary and secondary marketareas. The proposed Wilmot Casino and Resort will be competing for destination travelers(Vernon Downs and Turning Stone), as well as regional convenience gamblers (Tioga andFinger Lakes) residing in the proposed facilitys primary and secondary market areas, whoare already served by existing facilities. Destination resort casinos can draw customersfrom as far as away as a four hour drive time, while they can also intercept business traffic(e.g., business travelers and long-haul trucks), regional conferences, and leisure travelers,who stop temporarily on their way to other destinations. Thus, to a certain extent, theproposed Wilmot Casino and Resort is indirectly competing against every other gamingfacility in New York, as well as destination casinos in Connecticut and New Jersey (andsoon Massachusetts), although the distribution of facilities and their proximity to

population centers makes it likely that the most direct competition will be with gamingfacilities located within 120 minutes of Tyre, New York. Beyond that distance theavailability of comparable resort casino hotels, and the availability of multiple conveniencegaming venues, makes it unlikely that casino gamblers will travel further than that distancesolely for the purpose of visiting a casino.

Revenue Displacment

The gravity model forecasts gross gaming revenue for the proposed Wilmot Casino &Resort of $84.4 million in CY 2016 (2013 dollars), the first year of operations, and grossgaming revenues of $158.1 million in CY 2018 after all construction is completed and the

facility is operating at full capacity (2013 dollars).

4

3In addition to the gaming industry, the Consultant has conducted similar market feasibility, economic, andfiscal impact analyses for business establishments in the retail, textile and apparel, marine science andtechnology, aviation, arts and crafts, tourism, and defense industries, among others.4For purposes of modeling the proposed Wilmot Casino & Resort, the Consultant has assumed a standardconstruction schedule for similar type and size facilities, which normally begin with limited gamingoperations and then build out over a two to three year period as they add more food and beverage outlets,retail outlets and finally, a hotel. A phased approached carries risk to the State of New York. Other states,such as Pennsylvania and Maine, have approved facilities with a phased approach, but once gaming

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However, the estimates of gross gaming revenue and annual visitations at full build outwarrant two caveats:

Despite being billed as a destination resort, sixty-nine percent (69%) of itsgross gaming revenue and eighty-seven percent (87%) of its annual visits

will be generated by residents living in the local area (0-60 minutes), whilefourteen percent (14%) of gross gaming revenues and three percent (3%) ofannual visits will originate at a drive time of 91 minutes or more from thefacility.

With a maximum hotel capacity of 73,000 room nights, the facility willsimply not have the capacity to generate a significant number of destinationresort or out-of-market casino customers, who generally prefer to stay at thefacility for a full casino entertainment experience.

The proposed Wilmot Casino & Resort will capture approximately $105.4

million in gross gaming revenue from director competitors, which currentlyserve its primary and secondary market areas. Thus, approximately 67.0%of the proposed facilitys gross gaming revenues will displace existinggaming activity and merely transfer gaming expenditures and employmentfrom existing gaming facilities to the proposed facility.

Negative Fiscal Impacts

The Upstate New York Gaming and Economic Development Act establishes a statutorytax rate for Region 5 of thirty-seven percent (37%) of gross gaming revenue on slotmachines and ten percent (10%) of gross gaming revenue from all other sources. Based onthese tax rates, the proposed Wilmot Casino & Resort will nominally generate $28.4

operations commence, the more capital intensive and labor intensive phases of the original proposal (e.g.,hotel) are abandoned by the developer.

Gaming Facility CY 2018

Finger Lakes Gaming & Race Track -$25,980,759

Tioga Downs Casino -$6,908,381

Vernon Downs Casino -$17,131,026

Turning Stone Resort Casino -$55,402,184

Total Market Impact -$105,422,350

Wilmot Casino & Resort GGR $158,097,966

Percent Displacement -66.7%

Competitive Impact of Wilmot Casino Resort on Gross

Gaming Revenue (Net Win), CY 2018

Notes: 1. Revenue in 2013 cons tant dollars. 2. Assumes January 1, 2016 st art

date for Wilmot Casino & Resort.

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million in gaming taxes in its first calendar year of operations (CY 2016) and $49.1 millionat operational maturity (CY 2018). However:

The proposed Wilmot Casino & Resorts impact on existing facilities grossgaming revenues will therefore reduce the amount of tax revenue and shared

revenue collected by the State of New York from those gaming facilities.

Based on current revenue sharing percentages (2013-2014) with the racetrack casinos and Turning Stone Resort Casino, it is estimated that staterevenue collection from those gaming facilities will be $35.0 million less(CY 2018) than would have been the case without the proposed WilmotCasino & Resort.

If this revenue reduction is subtracted from the estimated gaming taxpayment by the proposed Wilmot Casino & Resort, then the proposedcasinos net impact on gaming tax revenues will be $14.5 million annually.

The Oneida Indian Nations (2013, 5) Settlement Agreement with the State of New York(Section III.B.) stipulates that twenty-five percent (25%) of the revenue collected fromTurning Stone Casino Resort by the State shall be allocated to the County of Oneida. By2018, this would result in Oneida County receiving $2.4 million less annually in revenuethan would be the case without the proposed Wilmot Casino & Resort and this loss willresult in less local economic activity than would otherwise have been the case.

As a part of the New York Gaming Economic Development Act of 2013, the State of NewYork is required to distribute ten percent (10%) of the funds its receives under the tribal-state compacts to counties within the exclusivity zones that do not already receive a share

Gaming Facility CY 2018

Finger Lakes Gaming & Race Track -$14,317,996

Tioga Downs Casino -$3,246,939

Vernon Downs Casino -$7,708,962

Turning Stone Resort Casino -$9,695,382

Total Market Impact -$34,969,279

Wilmot Casino & Resort GGR $49,105,228

Tioga Downs Adjustment -$345,419

Net Gaming Tax Change $14,481,368

Competitive Impact of Wilmot Casino Resort on State Gaming

Tax Gaming Revenues (Net Win), CY 2018

Notes: 1. Revenues in 2013 cons tant do llars. 2. Assumes January 1, 2016 start date for

Wilmot Casino & Resort. 3. Gaming tax for VLT facilities based on percent allocated to

Education A llowance and Marketing Allowance. 4. Tax rate for Tioga Downs will be

reduced from 37% to 32% as a result of new facility in its market area.

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of these funds under provisions in the tribal-state compacts.5 These funds are to bedistributed on a per capita basis and it is estimated that Onondaga County will receiveapproximately $2.5 million per year under this legislation and based on Turning StoneCasino Resorts current and projected performance.

The $2.5 million distribution to Onondaga County is scheduled to fund municipal bondsfor the construction of an Onondaga Lake amphitheater in the county (Weaver 2014).Consequently, the potential loss or reduction of these funds may place those bonds injeopardy, but also jeopardize the construction jobs and permanent operations jobs that willbe generated by the amphitheater, as well as the jobs dependent on ancillary tourismexpenditures generated by the amphitheater.

Negative Economic Impacts

The IMPLAN model predicts that the proposed Wilmot Casino & Resort operations with$158.1 million in gross gaming revenue and $18.9 million in non-gaming revenue will

generate 1,227 jobs and $32.3 million in direct employee compensation. Thus, IMPLANgenerated estimates of direct employment and earnings that are considerably lower (-573jobs) than the estimates provided by the developers of the proposed Wilmot Casino &Resort.6

Moreover, after subtracting job losses due to the displacement of gaming and non-gamingrevenue at existing New York gaming facilities, including Turning Stone Resort Casino,the proposed Wilmot Casino & Resort will have a net impact of only 122 direct jobs and$6.7 million in employee earnings in the Eastern Southern Tier.

5For example, the Settlement Agreement with the Oneida Indian Nation stipulates that Oneida County willreceive twenty-five percent (25%) of the Nation Payment to the State of New York and an additional sum of$2.5 million annually for 19.5 years. Under the same Settlement Agreement, Madison County will receive$3.5 million annually. Consequently, neither county is eligible to receive funds from the ten percentdistribution mandated by state legislation.6Wilmorite (2013) predicts 1,800 direct jobs in its initial press release.

Gaming Facili ty

Gross Gaming

Revenue

Non-Gaming

Revenue

Direct

Employment

Employee

Earnings

Turning Stone Resort Casino -$55,402,184 -$10,974,104 -510 -$12,631,381

Finger Lakes Gaming & Race Track -$25,980,759 -$1,298,960 -375 -$8,507,594

Tioga Downs Casino -$6,908,381 -$345,419 -104 -$2,091,249

Vernon Downs Casino -$17,131,026 -$1,370,482 -116 -$2,389,904

Total Market Impact -$105,422,350 -$13,988,965 -1105 -$25,620,128

Wilmot Casino & Resort $158,097,966 $18,891,442 1,227 $32,343,309

Percent Displacement -66.7% -74.0% -90.1% -79.2%

Competit ive Impact of Wil mot Casino Resort on Gross Gaming Revenue (Net Win), Non-Gaming Revenue,

Employment & Earnings, CY 2018

Notes: 1. Revenue in 2013 constant do llars. 2. As sumes January 1, 2016 sta rt date for Wilmot Casino & Resort and first year of stablized operations in

CY 2018.

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The IMPLAN model predicts that the operations of the proposed Wilmot Casino & Resortwill support an additional 154 jobs in the Eastern Southern Tier through indirect impacts(i.e., casino-related purchases) and 95 jobs through induced impacts (i.e., casino employeepurchases) by CY 2018. The employment generated by indirect and induced impacts willsupport an additional $10.2 million in employee compensation in the Eastern Southern

Tier.

However, as a result of reduced employment and purchases by the four existing gamingfacilities that will be its direct competitors, the proposed Wilmot Resort & Casino willactually generate a net decline of 2 indirect jobs and a net decline of 57 induced jobs, witha corresponding loss of employee earnings in these other sectors of the regional economy.

Most of this net job loss will be concentrated in Oneida County and Onondaga County asa result of the significant loss of jobs at Turning Stone Resort Casino and the correspondingloss of consumer purchasing power by its former employees.

Comparable Case Studies: Displacement is Real

The levels of displacement and cannibalization forecast in this report are already beingrealized in comparable venues in the Northeast:

From FY 2006 to FY 2013, the combined gross gaming revenue for AtlanticCity casinos declined from $5.2 billion to $2.8 billion (-46.2%). Declines ingross gaming revenue exceeded 50% -- and even 60% -- at some of theAtlantic City casinos resulting in the shuttering of four gaming facilities inthe last twelve months (NJ Office of the Attorney General 2014a).

While some of this decline is attributable to the onset of the GreatRecession, it should be noted that the revenue decline accelerated in

Gaming Facili ty

Indirect

Employment

Indirect

Employee

Earnings

Induced

Employment

Induced

Employee

Earnings

Finger Lakes Gaming & Race Track -50 -$2,100,343 -50 -$1,775,354

Tioga Downs Casino -9 -$354,103 -6 -$193,050

Vernon Downs Casino -26 -$986,950 -16 -$564,101

Turning Stone Resort Casino -71 -$3,749,666 -80 -$3,430,506

Total Market Impact -156 -$7,191,062 -152 -$5,963,011

Wilmot Casino & Resort 154 $6,946,808 95 $3,322,904

Percent Displacement -101.3% -103.5% -160.0% -179.5%

Competitive Impact of Wilmot Casino Resorton Indirect and Induced Employment and Employee Earnings, CY 2018

Notes: 1. Revenue in 2013 cons tant dollars. 2. Assumes January 1, 2016 start date for Wilmot Casino & Resort and first year of

stablized operations in CY 2018.

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http:///reader/full/market-impact-of-a-proposed-tyre-new-york-casino-on-turning-ston

Atlantic City as soon as Pennsylvania opened new casinos in the easternpart of that state from 2007 onward. This decline was compoundedfollowing the introduction of table games at the slot parlors and racinos inDelaware, Pennsylvania, and Rhode Island, and then again by theintroduction of racetrack casinos in New York.

The result is that six of Atlantic Citys twelve casinos have filed forbankruptcy since 2006, while four of those casinos the Atlantic Club,Showboat, Trump Plaza, and Revel have closed their doors perhapspermanently. The number of casino employees in Atlantic Citys hascorrespondingly dropped to less than 26,000 in 2014 (-38.6%) (New JerseyOffice of the Attorney General 2014b).7

Similarly, at Foxwoods Resort Casino, slot machine revenue fell from$805.5 million in FY 2007 to $507.9 in FY 2014 (-36.9%). Slot machinerevenue at Mohegan Sun Casino fell from $916.4 million in FY 2007 to

$587.7 in FY 2014 (-35.9%). These revenue declines forced Connecticutstwo mega-casinos to reduce their combined number of employees from23,300 in 2006 to about 16,400 in 2012 (-29.6%). Furthermore, the twocasinos collectively defaulted on more than $3 billion in debt, whichresulted in hundreds of millions of dollars in write-offs, haircuts, anddeferred interest payments by bond investors and bank lenders. 8

Likewise, on June 23, 2009, UTGR, Inc., the former owner of Twin River

Casino in Lincoln, Rhode Island filed for Chapter 11 bankruptcy. The filingstated that As successful as [Twin Rivers] operations have been, theirrevenues cannot support the substantial demands imposed by the state tax

rate and the debtors debt services obligations on $589 million in loans.The consensual agreement with Twin Rivers investors, led by MerrillLynch Capital, wrote off $290 million in debt owed to the investors, andeliminated $153 million in owner equity. The state also effectively reducedits share of net terminal income by agreeing to reimburse the facility for upto $20 million annually in marketing costs.9

Net terminal income at Newport Grand Slots in Rhode Island has declinedin seven of the last eight years.

7Lisa Selin Davis, Plan B for Atlantic City: Casinos Can Take a City Only So Far, Planning(December2013): 40-43; Craig Anderson, Delaware Casinos Face Tough Odds Against Competition, see,http://delaware.newszap.com/home/117853-84/delaware-casinos-face-tough-odds-against-competition.8Brian Hallenbeck, Debt Deal Lifts Veil on Foxwoods Finances, New London Day, October 14, 2012;Matthew Sturdevant, Foxwoods Report Details Revenue Erosion, Debt Details, Risks of IncreasedCompetition,Hartford Courant, January 7, 2014.9In 2013, the State of Delaware also agreed to pick up $10 million in gaming machine vendor fee costs thatwere previously paid by the casinos, see, Delaware Public Media (NPR News) athttp://www.wdde.org/64035-casino-aid-bills-clear-state-senate.

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Finally, despite spectacular growth in revenues at the Pennsylvanias newcasinos from $0 in FY 2006 to $3.2 billion in FY 2013, even that statesgaming revenues have reached a plateau and flattened despite theintroduction of new casino venues in the last year.10

The introduction of new casinos may increase the size of the overall gaming market up toa point, if they are strategically located in underserved markets, but even when this occursmuch of the new casinos growth occurs at the expense of existing gaming facilities,which see their operating margins driven so low that they are forced into bankruptcy anddefault with a corresponding loss of employment in the industry. There is simply noquestion that if given the green light by state legislators, voters, or regulators marginaloperators will continue to join the casino arms race to the point of mutual assureddestruction.

For example, the addition of new gaming supply has not generated net new gamingrevenues across the Mid-West gaming market, which includes Illinois, Indian, Iowa, and

Missouri. One of the most dramatic illustrations of this intra-state displacementeffect ina nearly saturated market is the opening of the Rivers Casino in Des Plaines, Illinois. TheRivers Casino has a 43,000 square foot gaming floor with 1,000 slot machines and 48 tablegames. The property also has five restaurants, including a buffet.

The Rivers Casino, which opened in July 2011, has had a significantnegative impact on other Chicago area casinos. According to the IllinoisCommission on Government Forecasting & Accountability (2013, 18, 36):As expected Des Plaines success has been at the expense of otherriverboats in Illinois, especially those near the new casino in the Chicagometropolitan area. When looking at the four older casinos in the Chicago

area since Des Plaines July 2011 opening, their combined adjusted grossreceipts (AGR) have fallen $216.7 million or 25.5% (comparing FY 2011totals to FY 2014). This level of cannibalization of existing facilities meansthat with FY 2014 AGR of $421.5 million that only 48.6% of Des PlainesAGR is new growth in the Chicago market.

Likewise, the opening of Oxford Casino in Maine as a direct competitor to HollywoodCasino Bangor provides another illustration of the intra-state cannibalization effect thatoccur when even a comparatively small gaming facility without a hotel or extensive non-gaming amenities opens in a location where each facilitys secondary market areapenetrates the other facilitys primary market area:

Oxford Casino cannibalized approximately 19% of Hollywood Casinos netslot machine revenue in its first year of operation despite there being a 165minute drive time distance between the two facilities.

10 Associated Press, Pennsylvania Reports First Annual Slots Revenue Decrease, July 3, 2013, see,http://triblive.com/news/adminpage/4302000-74/machines-pennsylvania-percent#axzz2qO3egQfO.

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After the opening of Oxford Casino, year-to-year monthly net slot machinerevenue immediately turned negative and had not recovered from this trendas of December 2013 (Barrow 2013; Maine Gambling Control Board 2014).

Analysis and Conclusions

The proposed Wilmot Casino & Resort will have a significant negative impact on theTurning Stone Casino Resort, Vernon Downs Casino & Hotel, Finger Lakes Gaming, andto a lesser extent on Tioga Downs. Much of the economic activity generated by theproposed Wilmot Casino & Resort will merely be displacement transfers from OneidaCounty and Onondaga County to Seneca County. This will result in net negativeemployment and earnings impacts on the two affected counties.

The proposed Wilmot Casino & Resort will primarily serve a local and regional market,with only a small percentage of its revenues and visitors coming from beyond a 90 minutedrive time or from out of state. It is estimated that 67.0% of the proposed Wilmot Casino

& Resorts gross gaming revenues will be displacement and cannibalization of existingcasino gaming revenues in New York, with almost half of the total negative impactaccruing to Turning Stone Casino Resort and its employees.

Thus, when one incorporates Wilmot Casino & Resorts negative impact on existing NewYork gaming facilities it will generate far fewer jobs and less tax revenue than claimed bythe facilitys developers. Furthermore, these negative impacts will not only affect TurningStones employees, but will be distributed across 152 sectors of the regional economy,including the existing gaming facilitys suppliers and vendors and consumer relatedbusinesses that provide goods and services to casino employees. Since most of the positiveimpacts of Wilmot Casino & Resort will accrue to Seneca County, the opening of the new

facility will not offset the negative impacts on Oneida and Onondaga Counties.

The cannibalizing of gaming revenues from existing gaming facilities may be viewed as arational and beneficial policy choice for state decision makers when they are recapturinggaming revenues that would otherwise be spent by a states residents at casinos in adjacentstates, because the displacement of gaming revenues in neighboring states becomes newgrowth in gaming and tax revenues for states that are just entering the market or expandingtheir existing gaming portfolio. However, the cost-benefits calculus of displacementchanges when revenue displacement comes at the expense of a states own gamingfacilities.

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TABLE OF CONTENTS___________________________________________________________________________________________________________

Page

EXECUTIVE SUMMARY................................................................................................... i

FIGURES............................................................................................................................... xiv

TABLES................................................................................................................................ xv

1.00 PURPOSE OF THE STUDY...................................................................................... 1

1.10 STRUCTURE OF THE U.S. CASINO INDUSTRY

1.20 THE NORTHEASTERN CASINO INDUSTRY

1.30 NEW YORK GAMING FACILITIES

1.31 NEW YORK RACE TRACK CASINOS

1.31a Batavia Downs1.31b Empire City Casino at Yonkers Raceway1.31c Hamburg Casino at the Fairgrounds1.31d Finger Lakes Gaming and Race Track1.31e Monticello Casino and Raceway1.31f Resorts World at Aqueduct1.31g Saratoga Gaming & Raceway1.31h Tioga Downs Casino1.31i Vernon Downs Casino and Hotel

1.32 NEW YORK INDIAN CASINOS

1.32a Akwesasne Mohawk Casino1.32b Seneca Allegany Casino1.32c Seneca Buffalo Creek Casino1.32d Seneca Niagra Casino1.32e Turning Stone Casino Resort

2.00 METHODOLOGY................................................................................................... 19

2.10 DEFINITIONS

2.20 GRAVITY MODEL

xi




Page

3.00 THE COMPETITIVE SET.......... 25

3.10 TURNING STONE RESORT CASINO

3.20 FINGER LAKES GAMING & RACE TRACK

3.30 TIOGA DOWNS CASINO

3.40 VERNON DOWNS CASINO

4.00 COMPETITIVENESS OF PROPOSED WILMOT CASINO & RESORT. 29

4.10 MARKET AND FACILITY ASSUMPTIONS

4.20 DESIGNATED MARKET AREA

4.30 MARKET BREAK POINTS

4.31 TURNING STONE RESORT CASINO4.32 FINGER LAKES GAMING AND RACE TRACK4.33 TIOGA DOWNS CASINO4.34 VERNON DOWNS CASINO

4.40 MARKET POTENTIAL OF THE PROPOSED WILMOT CASINO& RESORT

4.50 IMPACT ON FINGER LAKES GAMING & RACE TRACK GROSSGAMING REVENUES

4.60 IMPACT ON TIOGA DOWNS CASINO GROSS GAMING REVENUES

4.70 IMPACT ON VERNON DOWNS CASINO GROSS GAMING REVENUES

4.80 IMPACT ON TURNING STONE RESORT CASINO GROSS GAMINGREVENUES

4.90 SUMMARY: MARKET IMPACT & DISPLACEMENT

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Page

5.00 ECONOMIC IMPACTS OF A PROPOSED WILMOT CASINO & RESORT... 47

5.10 DEFINITIONS

5.20 PARAMETERS FOR ECONOMIC IMPACT ANALYSIS

5.30 METHODOLOGY: THE IMPLAN MODELING SYSTEM

5.40 DATA SOURCES

5.41 Assignment to IMPlan Industry Sectors5.42 Regional Purchase Coefficient5.43 Trade and Freight Margins

5.50 CASINO OPERATIONS IMPACTS

5.51 Direct Economic Impacts5.52 Indirect and Induced Economic Impacts

6.00 FISCAL IMPACT ANALYSIS..... 57

SOURCES CONSULTED 59

APPENDIX A: DESCRIPTION OF THE CONSULTANT.. 67

APPENDIX B: GRAVITY MODELING.. 69

APPENDIX C: MARKET AREA GROSS GAMING REVENUES, FY 2009 THROUGHFY 2014... 79

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FIGURES

________________________________________________________________________

Page

Figure 1. Regions for Casino Gaming Development.................................... 1Figure 2. Casino Zones..................... 2

Figure 3. Market Areas for Finger Lakes, Tioga Downs, Turning Stone, and

Proposed Wilmot Casino....................................................................... 4

Figure 4. US GDP, 1990 to 2012 (Q4): Percent Change by Quarter

(Real Dollars).......... 7

Figure 5. Class II Casinos & Racinos in the Northeast, 2014. 9

Figure 6. Architectural Rendering of the Proposed Wilmot Casino & Resort... 30

Figure 7. Proposed Wilmot Casino & Resort Designated Market Areas... 32

Figure 8. Class III Casinos & Racinos in the Northeast, 2004... 41

Figure 9. Class III Casinos & Racinos in the Northeast, 2014... 41

Figure 10. Northeast Gaming Market Percentage Point Change in Shareof Total Gross Gaming Revenues, CY08-CY13. 42

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TABLES________________________________________________________________________

Page

Table 1. North American Classification System.................................................. 6

Table 2. Total Casino Expenditures in the Northeast, CY 2013.......................... 9

Table 3. New York Racinos and Indian Casinos, CY 2013..................... 13

Table 4. Finger Lakes Designated Market Area: Demographic and Market

Summary, FY 2013 (est.)... 26

Table 5. Tioga Downs Casino Designated Market Area: Demographic and

Market Summary, FY 2013 (est.).. 27

Table 6. Vernon Downs Casino Designated Market Area: Demographic and

Market Summary, FY 2013 (est.).... 28

Table 7. Gravity Factor: Ratio of Wilmot Casino & Resort to Finger Lakes

Gaming & Race Track.............. 33

Table 8. Gravity Factor: Ratio of Wilmot Casino & Resort to Tioga Downs

& Casino............... 34

Table 9. Gravity Factor: Ratio of Wilmot Casino & Resort to Vernon Downs

& Casino................................... 35

Table 10. Estimated Revenue for Wilmot Casino & Resort, CY 2016Thru CY 2020.................. 37

Table 11. Estimated Revenue for Turning Stone Resort Casino, CY 2014

Thru CY 2020: Competitive Impact of Wilmot Casino & Resort... 38

Table 12. Estimated Revenue for Finger Lakes Gaming & Race Track,

CY 2014 Thru CY 2020: Competitive Impact of Wilmot

Casino & Resort............... 39

Table 13. Estimated Revenue for Tioga Downs Casino, CY 2014

Thru CY 2020: Competitive Impact of Proposed Wilmot

Casino & Resort...... 39

Table 14. Estimated Revenue for Vernon Downs Casino, CY 2014 Thru

CY 2020: Competitive Impact of Wilmot Casino & Resort....... 40

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TABLES________________________________________________________________________

Page

Table 15. Competitive Impact of Wilmot Casino Resort on Gross Gaming

Revenues (Net Win), CY 2018.... 40

Table 16. U.S. Casino Employment & Wages by State, 2012. 48

Table 17. Casino Gaming Tax Revenues, Effective Tax Rates, & Employment

Ratios by State, 2012. 49

Table 18. Competitive Impact of Wilmot Casino & Resort on Gross Gaming

Revenue (Net Win), Non-Gaming Revenue, & Employment,

CY 2018. 54

Table 19. Competitive Impact of Wilmot Casino & Resort on Indirect and

Induced Employment and Employee Earnings, CY 2018. 55

Table 20. Turning Stone Impact: Non-Casino Employment Losses in Oneida and

Onondaga Counties.... 56

Table 21. Competitive Impact of Wilmot Resort & Casino on State Gaming Tax

Revenues (Net Win), CY 2018...... 57

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Displacement Impacts of Proposed Wilmot Casino & Resort

1.00 PURPOSE OF THE STUDY

The purpose of this study is to estimate the potential impact on existing gaming facilities ofregional gaming expansion in New Yorks Eastern Southern Tier. The State of New York currentlyhas nine (9) race track casinos that operate approximately 29,000 video lottery terminals (VLTs)and five (5) Class III Indian casinos with approximately 10,000 slot machines and 325 table games(New York State Gaming Commission 2014; Meister 2014, 17). On November 5, 2013, the EmpireStates voters approved an amendment to the state constitution that authorized Las Vegas stylecommercial casino gaming in New York for the first time. The Upstate New York Gaming andEconomic Development Act (Chapters174 and175 of the Laws of 2013) outlines the procedureand process for siting destination gaming resorts in New York State. At the present time, the Actauthorizes up to four destination gaming resorts in Upstate New with at least one facility in eachof three regions: Capital, Catskills/Hudson Valley, and Eastern Southern Tier (see Figure 1).11

Figure 1

However, the Act retains designated zones of geographical exclusivity for the states five Indiancasinos (see Figure 2) so the three regions established for commercial resort casinos are essentiallythe residual territories that remain outside the tribal exclusivity zones. Nevertheless, the creationof exclusivity zones does not mean that Turning Stone (owned by the Oneida Tribe of New York)will not face competition from any of the proposed commercial casinos, particularly since theproposed new casinos will be competing for resort casino customers.

11No more than two of the four facilities can be located in any of the three regions.

1
http://www.gaming.ny.gov/pdf/Chapter%20174,%20Laws%20of%202013.pdfhttp://www.gaming.ny.gov/pdf/Chapter%20175,%20Laws%20of%202013.pdfhttp://www.gaming.ny.gov/pdf/Chapter%20175,%20Laws%20of%202013.pdfhttp://www.gaming.ny.gov/pdf/Chapter%20174,%20Laws%20of%202013.pdf




Figure 2

Note:Seneca exclusivity zone is now confirmed.

The proposed destination resorts can be entirely new resorts or conversions and expansions ofracinos. The proposed facilities will also retain their geographical exclusivity for at least seven (7)years after the first gaming license is issued by the New York Gaming Commission. The NewYork Gaming Commission issued a formal Request for Applications (RFA) on April 7, 2014.

The applications for a casino license are being reviewed and evaluated by the Resort GamingFacility Location Board, which is required to evaluate applications on the following scale:

70 percent: Economic activity and business development factors,

20 percent: Local impact and siting factors,and

10 percent: Workforce enhancement factors.

The economic activity and business development factors include:

Realizing maximum capital investment exclusive of land acquisition andinfrastructure improvements,

Maximizing revenues received by the state and localities,

Providing the highest number of quality jobs in the gaming facility,

Building a gaming facility of the highest caliber with a variety of quality amenitiesto be included as part of the gaming facility,

Offering the highest and best value to patrons to create a secure and robust gamingmarket in the region and the state,

2
http://www.gaming.ny.gov/gaming/casinos.php?ID=3%23economichttp://www.gaming.ny.gov/gaming/casinos.php?ID=3%23localhttp://www.gaming.ny.gov/gaming/casinos.php?ID=3%23workforcehttp://www.gaming.ny.gov/gaming/casinos.php?ID=3%23workforcehttp://www.gaming.ny.gov/gaming/casinos.php?ID=3%23localhttp://www.gaming.ny.gov/gaming/casinos.php?ID=3%23economic




Providing a market analysis detailing the benefits of the site location of the gamingfacility and the estimated recapture rate of gaming-related spending by residentstravelling to an out-of-state gaming facility,

Offering the fastest time to completion of the full gaming facility,

Demonstrating the ability to fully finance the gaming facility, and Demonstrating experience in the development and operation of a quality gaming

facility.

The stated purposes of the Upstate New York Gaming and Economic Development Act are toincrease total employment in the leisure and hospitality sector, generate net new revenues for stateand local governments, and to recapture New York gaming dollars that are currently leaving thestate for Connecticut, Pennsylvania, and New Jersey (New York State Gaming Commission2014).12

However, the facilities siting process and the evaluation criteria employed for selecting casino

licensees raise three additional considerations for the Resort Gaming Facility Location Board.First, it is possible that some proposals for new gaming facilities could potentially destabilize thestates gaming market by displacing (cannibalizing) existing gaming revenues and, thereby,adversely affect existing gaming facilities, employment, and state revenues. In this case, theeconomic benefits of such facilities will be overstated by developers if the displacement of existingjobs and revenues is not factored into the economic impact analysis. Second, the location offacilities near borders will be an important factor in their ability to intercept gaming dollars thatare leaving the state or attract gaming and tourism dollars from out-of-state regional residents.Third, gaming officials will need to consider whether it is best to locate gaming facilities in areaswith high levels of economic distress, where there is a tangible need for additional employmentand revenue, or whether to locate the facilities in areas that bring additional benefits to generally

healthy economies.

Wilmorite, a commercial real estate company that operates Eastview Mall and other shoppingcenters in the Rochester area unveiled a proposal on December 12, 2013 to construct the WilmotCasino & Resort in Tyre, New York (Eastern Southern Tier) near Exit 41 off the New York StateThruway. The proposed $300 to $350 million casino and resort would include a casino with 2,000slot machines and 100 table games, a 200 room hotel and convention center, as well as fourrestaurants, two entertainment venues, and a spa and fitness center. The proposed casinosdevelopers claim that the new gaming venue will attract 3.3 million visitors annually an averageof 9,000 daily -- and employ up to 1,800 permanent casino and resort workers at full build out withan annual payroll of $50 million (Harding 2013; Shaw 2014; Wilmorite 2014). The proposed

casinos developer also claims that the Tyre facility will draw visitors from well beyond the localmarkets of Syracuse and Rochester metro areas by working jointly with the already robustregional tourist attractions to further establish Seneca County as a premier upstate destination.

12The Consultant conducted a study in 2012, which found that New York residents spend approximately $3.8 billionat out-of-state casinos in Connecticut, New Jersey, Pennsylvania, and Nevada. New York residents account for 22%of all visits to Atlantic City casinos, 12% of all visits to Connecticut casinos, and 17% of visits to the four Pennsylvaniacasinos on New Yorks border. New York is also one of the top ten feeder markets to Las Vegas (Harrahs 2006).

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The proposed casino in Tyre, New York will be a direct competitor with Finger Lakes Gamingand Racetrack, Tioga Downs Casino, Vernon Downs Casino, and Turning Stone Resort Casino intheir primary and secondary market areas. The proposed Wilmot Casino and Resort will becompeting for destination travelers (Vernon Downs and Turning Stone), as well as regionalconvenience gamblers (Tioga and Finger Lakes) residing in the proposed facilitys primary and

secondary market areas, who are already served by existing facilities (see Figure 3).

Figure 3Market Areas for Finger Lakes, Tioga Downs, Turning Stone, and Proposed Wilmot Casino

Note: Finger Lakes market areas outlined in white. Tioga Downs market areas outlined in black. Turning Stone marketarea outline in orange. Wilmot Casino market area illustrated with red, green, purple, and blue rings. Market areasconsist of 30 minute drive time bands.

1.10 STRUCTURE OF THE U.S. CASINO INDUSTRY

Casino gaming is a significant component of the leisure, hospitality, and entertainment industry inthe United States with 39 states (2013) now hosting some type of Class III casino gaming. Thereare 940 casino gaming venues in the United States, including 448 Indian casinos and 492commercial casinos (including race track casinos). Nearly half (46%) of all commercial casinosare now located in non-traditional jurisdictions (i.e., outside Nevada and New Jersey) and, if oneincludes Indian casinos, then seventy-two percent (72%) of all U.S. casinos are now located innon-traditional jurisdictions (AGA 2013, 12-22; Meister 2014, 15, 73). All types of Class IIIcasinos combined generated $64.7 billion in gross gaming revenues in 2012 with $50.8 billion(78.6%) of that amount accruing to venues outside the traditional jurisdictions of Nevada and NewJersey. It is estimated that total industry revenues (gaming and non-gaming) were approximately$74 billion in 2012. The casino industry as a whole employed more than 670,000 people

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nationwide and made approximately $10.2 billion in direct payments to state and localgovernments.13 The percentage of adults who gambled at a casino at least once in theprevious year has climbed from 17 percent in 1990 to 32 percent in 2012, when 76.1 millionAmericans made more than 400 million visits to casinos (Harrahs 2006; AGA 2013, p. 3).

Moreover, since the late 1980s, when new casinos began opening in non-traditional jurisdictions,

nearly 82 percent of the increase in casino visitations has occurred in non-traditional casinojurisdictions.

The significance of casino gaming within the leisure and hospitality sector is now recognized inthe industrial classification system used by the United States Government to collect data onemployment, wages, and business establishments. In 1997, the United States began phasing outthe old Standard Industrial Classification (SIC) System, which had been designed mainly forclassifying business establishments in an industrial economy. The North American IndustryClassification System (NAICS), which replaced the SIC system, was designed specifically toidentify trends in new and emerging industries and to capture the growing importance of serviceindustries in general in the new economy (Executive Office of the President 1997, 3).

NAICS classifies business establishments into twenty major Sectors with gaming establishmentsassigned to Sector 71 Arts, Entertainment, and Recreation and Sector 72 -Accommodation andFood Services:

Subsector 711. Performing Arts, Spectator Sports, and Related IndustriesSubsector 712. Museums, Historical Sites, and Similar InstitutionsSubsector 713. Amusement, Gambling, & RecreationSubsector 721120. Casino Hotels

Spectator sports, art museums, and casinos are classified in the same major sector, because each

industry group provides a comparable service in the form of amusement or entertainment. Acustomer can be amused or entertained by a sporting event, an art exhibit, or a slot machine, andone can be equally disappointed if ones favorite sports team loses a game, if an art exhibit isuninspiring, or if a gambler has a bad day at the blackjack table. Each industry provides a servicecalled amusement or entertainment.

Casinos and other gaming establishments were assigned their own six-digit NAICS Codes for thefirst time in 1997 and the new coding system explicitly differentiates between types ofestablishments by assigning different codes to Casinos (713210), Other Gambling Industries(713290, i.e., slot parlor/racinos), and Casino Hotels (721120) (see Table 1). Casinoestablishments include land-based casinos, riverboat casinos, dockside casinos, and cruise ships,which offer a wide range of slot machine games and table games. Resort casinos with hotels

typically offer the same gambling options, but also offer non-gambling amenities, such as high-end designer retail outlets, gourmet dining establishments, dance clubs, comedy clubs, cabarets,concert and sporting arenas, spas, golf courses, and meeting and conference facilities. OtherGambling Industries consists primarily of so-called racinos or slot parlors, where slot machines or

13Calculated from data in Alan Meister,Indian Gaming Industry Report(Newton, MA: Casino City Press, 2014) andAmerican Gaming Association, State of the States, 2013(Washington, D.C., 2013). The reported tax payments andrevenue sharing do not include corporate income taxes, sales, meals, and lodging taxes, property taxes, and otherlicense and fee payments.

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video lottery terminals (VLTs) are installed at an existing pari-mutuel facility, such as a dog track,horse track, or jai-alai fronton.

Table 1

NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM

711212 RacetracksComprises establishments primarily engaged in operating racetracks. Theseestablishments may also present and/or promote the events, such as auto, dog, and horseraces, held in these facilities.

713210 Casinos (except Casino Hotels)Comprises establishments primarily engaged in operating gambling facilities that offertable wagering games along with other gambling activities, such as slot machines andsports betting. These establishments often provide food and beverage services. Includedin this industry are floating casinos (i.e., gambling cruises, riverboat casinos).

713290 Other Gambling IndustriesComprises establishments primarily engaged in operating gambling facilities (exceptcasinos or casino hotels) or providing gambling services. Included in this industry arebingo, off-track betting, card rooms, and slot machine parlors.

721120 Casino HotelsComprises establishments primarily engaged in providing short-term lodging in hotelfacilities with a casino on the premises. The casino on premises includes table wageringgames and may include other gambling activities, such as slot machines and sportsbetting. These establishments generally offer a range of services and amenities, such asfood and beverage services, entertainment, valet parking, swimming pools, andconference and convention facilities.

Thus, the casino industry is actually differentiated into many niche markets that are distinguishedby the type of facility, size of facility, consumer demographics, and customer motivation.Consequently, the economic and fiscal impacts of the industry vary widely from state to statedepending on the particular configuration of casino establishments and whether a states gamingpolicy allows essentially unrestricted market entry (subject to licensing), such as Nevada, NewJersey, and Mississippi, or whether a state limits market entry to a fixed number of establishmentsat pre-determined locations (e.g., Michigan). The economic and fiscal impacts of the industry canalso vary depending on whether a state hosts state-licensed and regulated commercial casinos orIndian casinos that operate under federal laws and tribal ordinances.

1.20 THE NORTHEASTERN CASINO INDUSTRY

The Northeastern casino gaming market must currently be assessed within the larger context oftwo trends: (1) the lingering impact of the Great Recession (December 2007-June 2009), whichwas the longest and deepest recession since the Great Depression and (2) the emergence of anincreasingly competitive Northeastern gaming market that encompasses both the New England14

14Connecticut, Maine, Massachusetts, Rhode Island, New Hampshire, and Vermont.

6




and the Mid-Atlantic15states. As noted earlier, casino gaming is classified as part of the U.S.economys arts, amusement, and recreation sector (NAICS Code 71) and as part of its hospitalitysector (NAICS Code 72 -- Accommodation and Food Services).

Casino gaming in all its forms depends on discretionary consumer spending, which is one of the

first types of spending that is restrained by consumers when they are uncertain about their jobsand income and it is also the last type of spending to be restored once an economic recovery isunderway. However, based largely on the previous experience of Las Vegas and Atlantic City,many analysts viewed the casino industry as recession proof or at least as recession resistant.Until 2008, Las Vegas and Atlantic City had seen gambling revenues fall only once since 1970 -- in the aftermath of the September 11, 2001 terrorist attacks -- when gaming revenues dropped 1percent in 2002 as compared to 2001. However, in 2008, gaming revenues began declining on ayear-to-year basis in most casinojurisdictions, including Nevada and New Jersey, although somenew jurisdictions such as Maine, Pennsylvania, New York, and Rhode Island, have seen gamingrevenues increase on a year-to-year basis during this time.

Figure 4

Source: Bureau of Economic Analysis (2014).

The United States economy essentially dropped off a cliff in calendar year 2008 to begin thelongest and deepest recession since the Great Depression of the 1930s. The National Bureau ofEconomic Research (NBER) Business Cycle Dating Committee defines a recession as asignificant decline in economic activity spread across the economy, lasting more than a fewmonths, normally visible in production, employment, real income, and other indicators. Arecession begins when the economy reaches a peak of activity and ends when the economyreaches its trough.16 The Business Cycle Dating Committee has determined that a peak in

15Delaware, New Jersey, New York, Pennsylvania, and West Virginia.16NBER Business Cycle Memo(December 11, 2008): The committee believes that the two most reliable comprehensiveestimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product andthe quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis. Inconcept, the two should be the same, because sales of products generate income for producers and workers equal tothe value of the sales.

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economic activity occurred in the United States in December 2007.17 The NBER recentlydetermined that the Great Recession ended in June 2009. However, in making this determination,the NBERs Business Cycle Dating Committee observed that in determining that a troughoccurred in June 2009, the committee did not conclude that economic conditions since that monthhave been favorable or that the economy has returned to operating at normal capacity. Rather, the

committee determined only that the recession ended and a recovery began in that month.18

The simple lesson of the Great Recession is that casino gaming is no longer recession proof, butdue to increased reliance on non-gaming amenities (i.e., diversification) and an increased supplyof gaming nationally, it is now subject to the same macro-economic factors as any other consumerretail or service industry. The Northeastern gaming market is still being buffeted by the laggingeffects of the Great Recession and this setback will not be reversed until the economy enters astronger growth phase and unemployment rates in the region decline to lower levels.

Yet, the Great Recession (December 2007-June 2009) and its aftermath has paradoxically been atime of rapid expansion in the Northeastern casino gaming industry. The Northeastern gaming

market, which includes the New England and Mid-Atlantic states, has expanded from 28 Class IIIgaming facilities in 2004 to 61 Class III gaming facilities in 2013. This number includes 45 full-fledged casinos with slot machines and table games19and 16 racetrack casinos or slot parlors withvideo lottery terminals or slot machines (see Figure 5). 20 Thus, it is important to note that theNortheastern gaming market has continued adding capacity despite the lingering effects of theGreat Recession and the emergence of an increasingly competitive gaming market.

In 2007, there were 39 Class III commercial and Indian gaming venues in the Northeast, includingmajor destination resort casinos, local casinos, race track casinos, and slot parlors. By 2013, therewere 61 Class III casinos in the Northeast generating $16.9 billion in gross revenues withadditional facilities proposed or planned for Maryland, Massachusetts, New York, and

Pennsylvania (see Table 2).

17NBER Business Cycle Memo(Nov. 28, 2008): The [dating] committee determined that a peak in economic activityoccurred in the U.S. economy in December 2007.18NBER Business Cycle Memo(September 20, 2010) at http://www.nber.org/cycles/sept2010.html.19Seven (7) of the casinos are owned and operated by Indian tribes in New York (5) and Connecticut (2).20Four (4) Class III facilities have been authorized in Massachusetts, one (1) in Pennsylvania, two (2) facilities inMaryland, and four (4) facilities in New York so there will likely be at least 72 Class III gaming venues in the Northeastby 2016 or 2017.

8




Figure 5

Table 2

Atlantic City now has 8 resort casinos that compete directly against Mohegan Sun and Foxwoods.New Jersey Governor Chris Christie signed an Atlantic City rescue package into law on February1, 2011 at the previously abandoned Revel Casino project and simultaneously announced a $1.15billion loan package that allowed the projects owners to complete what was then Atlantic Citys

Slot Win Other Gaming Total Gaming NonGaming Gross Revenue

Connecticut $1,144,936,706 $502,118,862 $1,647,055,568 $415,090,944 $2,062,146,512

Rhode Island $516,742,324 $41,322,389 $516,742,324 $48,573,778 $565,316,102

Maine $105,623,657 $20,650,716 $126,274,373 $10,607,047 $136,881,420

Delaware $373,996,300 $58,062,142 $432,058,442 $40,613,494 $472,671,936

Maryland $580,762,201 $169,609,665 $750,371,866 $71,285,327 $821,657,193

New Jersey $2,063,826,000 $798,243,000 $2,862,069,000 $1,021,758,633 $3,883,827,633

New York (VLTS) $1,925,565,097 $0 $1,925,565,097 $146,342,947 $2,071,908,044

New York (Indian) N/A N/A $921,400,000 $124,200,000 $1,045,600,000

Ohio $818,725,477 $251,884,381 $1,070,609,858 $100,637,327 $1,171,247,185

Pennsylvania $2,384,098,225 $729,830,366 $3,113,928,591 $292,709,288 $3,406,637,879

West Virginia $1,018,692,997 $179,489,189 $1,198,182,186 $101,845,486 $1,300,027,672

GRAND TOTAL $10,932,968,984 $2,751,210,710 $14,564,257,305 $2,373,66 4,271 $1 6,937,921,576

TOTAL CASINO EXPENDITURES IN THE NORTHEAST, CY 2013

Sources: Sta te gaming regulatory commissions; Meister, Indian Gaming Indusry Report, 2011-2013 ; U.S. SEC 10-K Filings; Pyramid Associates, LLC (2014).

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twelfth casino.21The Revel opened on April 2, 2012 and while the Revel mega-project recentlyfiled for an orderly bankruptcy, the New Jersey rescue package also encourages the constructionof smaller boutique casinos (with less than 600 room hotels).22

Pennsylvania also has 12 full-fledged casinos with slot machines and table games, and some such

as the Sands Bethlehem, Mt. Airy, and Valley Forge have a hotel.23

Pennsylvania expects to addanother two casinos within the next two years, including a second casino in Philadelphia. NewYork now has 17,666 video lottery terminals, an increase of 4,296 from 2011. Much of the VLTincrease is due to the opening of Resorts World New York at Aqueduct Raceway in Queens, NewYork.24With the addition of Resorts World, the State of New York now has nine racinos, withnearly 10,000 VLTs strategically located at Empire State Raceway in Yonkers and Resorts Worldin Queens, which are currently the largest race track casinos in the world based on the number ofVLTs and gaming revenues, respectively. There are also five Class III Indian casinos operating inwestern and upstate New York, which generate more than $1 billion annually in gross gamingrevenues.25New York has also authorized up to four commercial casinos in the CatskillsMountains, the Albany area, and the Southern Tier region along the border with Pennsylvania.

Moreover, additional capacity has been added elsewhere in the Northeast. On November 4, 2008,Maryland voters approved a constitutional amendment to legalize slot-machine gambling in thatstate. The constitutional amendment allows 15,000 slot machines distributed among five locationsin the state. Although initial efforts to introduce slot parlors and racinos to Maryland fell short ofthe legislatures original expectations,26two racinos opened in September 2010 and January 2011that currently operate more than 2,200 slot machines (Sharrow 2011). A third slot venue openedin Hanover, Maryland in 2012 with approximately 4,700 slot machines and Horseshoe Baltimoreopened in August 2014. Another major resort casino is planned for National Harbor (MGM).

To counter competition from Pennsylvania, and the anticipated competition from Maryland, West

Virginia has completed its sixth full calendar year of table games at its four racinos. Delawareslegislature also authorized the reintroduction of a sports betting lottery (Darrow 2008). Finally,several major expanded gaming initiatives are in various phases of approval or implementation.On November 22, 2011, Governor Deval Patrick signed a bill legalizing casinos in Massachusettsthat authorizes three full-scale casinos and one slot parlor in the state. Massachusetts has alreadylicensed a slot parlor, which will open in the spring of 2015, and it has licensed two resort casinosin Everett and Springfield, Massachusetts. The Rhode Island General Assembly scheduled aNovember 6, 2012 statewide and local referenda to allow table games at its two gaming venues.The referendum passed in Lincoln, but failed in Newport, Rhode Island. Twin River began offering

21See,http://www.myfoxphilly.com/dpp/news/politics/local_politics/Atlantic_City_Tourism_District_Bill_020111; Also,http://online.wsj.com/article/SB10001424052748703313304576132511718912484.html.22The Atlantic Club, which was previously Atlantic Citys 12thcasino, recently filed for bankruptcy. It was purchasedby Tropicana Entertainment and Caesars Entertainment and is no longer open for business. Its slot machines and tablegames were claimed by Tropicana, while its hotel furnishings were claimed by Caesars.23The Mt. Airy casino already has a resort hotel and other non-gaming amenities.24See, http://www.gentingcasino.com/genting-casino-news/september-2010/genting-ny-set-for-green-light-for-aqueduct-racino-deal/.25Alan Meister, Indian Gaming Industry Report2014 (Newton, MA: Casino City Press, 2014), p. 19.26In February 2009, Maryland received six proposals for its five gaming sites, which collectively proposed to installonly 10,550 of the 15,000 authorized slot machines (Wagner and Helderman 2009).

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live table games on June 19, 2013 and another referenda is on the ballot to allow tables games atNewport Slots.

Maines voters also narrowly approved a casino for Oxford, Maine in a statewide referendum onNovember 2, 2010. Oxford Casino became the Pine States second Class III gaming venue when

it opened on June 5, 2012 with 500 slot machines, 12 table games, a restaurant, and bar. The casinoexpanded its offering in September 2012 to include 812 slot machines and 22 table games. OnMarch 29, 2013, it was announced that Oxford Casino was being sold to Churchill Downs for $160million in cash. Meanwhile, on November 8, 2011, the residents of Penobscot County voted toauthorize table games at the former Hollywood Slots and Raceway. On March 16, 2012, therenamed Hollywood Casino Bangor opened its first 14 table games, which was increased to 16tables by the end of 2012.27

Elsewhere in the Northeast, Ohio voters passed the Four Casinos Initiative onNovember 3, 2009,which amended the state constitution to allow casinos in Cincinnati, Cleveland, Columbus andToledo, which are all now fully operational. Caesars Entertainment has now opened Horseshoe

branded Casinos in Cleveland and Cincinnati, while Penn National has opened Hollywood brandedcasinos in Toledo and Columbus. Racetrack casinos were also opened in Ohio at Scioto Downs,Thistle Downs, Hard Rock Northfield Park with others scheduled for opening in the near future.

This rapid and continuing proliferation of casino gaming has led many scholars, industry analysts,and media outlets to question how much more casino gaming can be introduced in the regionbefore the impacts of oversaturation start to negatively impact the overall industry through self-cannibalization, over-building, and a general deterioration in the quality and competitiveness ofthe product within the leisure, entertainment, and hospitality industry.28In assessing this question,it is important to emphasize that the potential problem is not saturation, but oversaturation inparticular local markets.

The economic definition of saturation is the point of a product life cycle where the market hasbeen completely filled so that no more sales for goods and services can be taken up.29In otherwords, saturation is a state of market equilibrium where the existing demand for a good or serviceis fully supplied by the existing suppliers of a good or service. The problem for any industry, inthis respect, occurs when new suppliers enter a saturated market through over-building or over-production, which eventually lowers prices, quality, and operating margins to the point that theentire industry is placed in jeopardy.

27In a statewide referendum on November 2, 2010, Maines voters narrowly approved a small ($160 million) resortcasino for Oxford, Maine, which became the states second Class III gaming venue when it opened in the early summerof 2012. On November 1, 2011, Maine voters rejected referenda questions that would have allowed up to threeadditional racinos and casinos, but in this same election Penobscott County voters authorized table games at the formerHollywood Slots & Raceway.28Donald Wittkowski, New Casinos Divide Smaller Revenues In Saturated Market, Press of Atlantic City, July27, 2013;Richard N. Velotta, Gaming Execs Say Casino Industry Has Reached Saturation Point, September 26,2013, see, http://www.vegasinc.com/business/gaming/2013/sep/26/gaming-execs-say-casino-industry-has-reached-satur/.29 Shim and Siegel (1995, 306).

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http://ballotpedia.org/wiki/index.php/BC2009%23Novemberhttp://ballotpedia.org/wiki/index.php/BC2009%23November




There are signs that the Northeastern gaming market is reaching a saturation in specific areasand,consequently, the location of any new facilities is becoming a more important consideration thanpreviously. A decade ago (2004), Connecticut, Delaware, West Virginia, New Jersey, and RhodeIsland were the only five states in the Northeast to have Class III gaming. The peak of casinogaming industry revenues was in 2006 and since that time gross gaming revenues in Atlantic City

have plummeted from $5.2 billion in FY 2006 to $3.0 billion in FY 2012 (-42%) with GGR atsome facilities falling by more than sixty percent (60%) during this time. While some of thisdecline is attributable to the onset of the Great Recession, it should be noted that the revenuedecline accelerated in Atlantic City as soon as Pennsylvania opened new casinos in the eastern partof the state from 2007 onward. This decline was compounded following the introduction of tablegames at the slot parlors and racinos in Delaware, Pennsylvania, and Rhode Island, and then againby the introduction of racetrack casinos in New York. The result is that six (6) of Atlantic Citysprevious twelve (12) casinos have filed for bankruptcy since 2006, while four of those casinos the Atlantic Club, Showboat, Trump Plaza, and Revel may have closed their doorspermanently.30The number of casino employees in Atlantic City correspondingly dropped to lessthan 32,000 in 2012 (-23.8%).31

Similarly, Connecticuts two mega-casinos have seen their gross revenues decline from acombined peak of $3.2 billion in CY 2006 to $2.2 billion in CY 2012 (-31.3%), which resulted inthose two casinos reducing the number of employees from 23,300 in 2006 to about 16,400 in 2012(-29.6%). The two casinos collectively defaulted on more than $3 billion in debt, which resultedin hundreds of millions of dollars in loan write-offs, bond swaps, and deferred interest paymentsby bond investors and bank lenders.32

Likewise, on June 23, 2009, UTGR, Inc., the former owner of Twin River Casino in Lincoln,Rhode Island filed for Chapter 11 bankruptcy. The filing stated that As successful as [TwinRivers] operations have been, their revenues cannot support the substantial demands imposed by

the state tax rate and the debtors debt services obligations on $589 million in loans. Theconsensual agreement with Twin Rivers investors, led by Merrill Lynch Capital, wrote off $290million in debt owed to the investors, and eliminated $153 million in owner equity. The state alsoeffectively reduced its share of net terminal income by agreeing to reimburse the facility for up to$20 million annually in marketing costs. Net terminal income at Newport Grand Slots in RhodeIsland have declined in seven of the last eight years. Finally, despite spectacular growth in revenuesat the Pennsylvanias new casinos from $0 in FY 2006 to $3.2 billion in FY 2013, even thatstates gaming revenues have reached a plateau and flattened despite the introduction of new casinovenues in the last year.33Thus, the recent history of the Northeastern gaming market demonstratesthat the introduction of new casino gaming venues may increase the size of the overall market upto a point, but even where this occurs, much of that growth occurs at the expense of existing

30The Trump Taj Mahal may become the fifth Atlantic City casino to close its doors in the near future.31Lisa Selin Davis, Plan B for Atlantic City: Casinos Can Take a City Only So Far, Planning(December 2013):40-43; Craig Anderson, Delaware Casinos Face Tough Odds Against Competition, see,http://delaware.newszap.com/home/117853-84/delaware-casinos-face-tough-odds-against-competition.32Brian Hallenbeck, Debt Deal Lifts Veil on Foxwoods Finances,New London Day, October 14, 2012; MatthewSturdevant, Foxwoods Report Details Revenue Erosion, Debt Details, Risks of Increased Competition, HartfordCourant, January 7, 2014.33 Associated Press, Pennsylvania Reports First Annual Slots Revenue Decrease, July 3, 2013, see,http://triblive.com/news/adminpage/4302000-74/machines-pennsylvania-percent#axzz2qO3egQfO.

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facilities, who see their operating margins driven so low that they are forced into bankruptcy anddefault with a corresponding loss of employment in the local area.

1.30 NEW YORK GAMING FACILITIES

The State of New York currently has nine race track casinos with 17,666 electronic gamingmachines that generate $1.9 billion in annual gross gaming revenues (see Table 3). It is estimatedthat these facilities generate an additional $146.3 million in annual non-gaming revenues forcombined annual gross revenues of nearly $2.1 billion (See Table 2). The State of New York alsohas five (5) Class III Indian casinos and three (3) Class II Indian gaming venues that generatenearly $1.1 billion in annual gross gaming revenues. These facilities generate an additional $124.2million in non-gaming revenues for annual gross revenues of nearly $1.2 billion (See Table 3).Both types of casinos combined constitute a $3.2 billion industry in the State of New York.

Table 3

Name City/Town County

# VLTs

(Weighted) FY 13 GGR (Win)

Batavia Downs Casino Batavia Genesee 666 46,492,312$

Empire City Casino at Yonkers Raceway Yonkers Westchester 5,327 559,946,387$

Hamburg at the Fairgrounds Hamburg Erie 940 76,820,976$

Finger Lakes Gaming and Race Track Farmington Ontario 1,268 131,461,308$

Monticello Gaming & Raceway Monticello Sullivan 1,110 62,821,386$

Resorts World Casino New York Ozone Park Queens 5,004 785,128,863$

Saratoga Casino and Raceway Saratoga Springs Saratoga 1,782 159,594,798$

Tioga Downs & Casino Nichols Tioga 802 59,591,749$

Vernon Downs & Casino Vernon Oneida 767 43,707,318$

Sub-Total: 17,666 1,925,565,097$

Indian Casinos 11,204 1,056,600,000$

Total: 28,870 2,982,165,097$

New York Racinos & Indian Casinos, CY 2013

Sources:New York State Gaming Commission; Meister,Indian Gaming Industry Report, 2014.

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1.31 NEW YORK RACE TRACK CASINOS

1.31a Batavia Downs

Opened in 1940, Batavia Downs is located inBatavia, New York, approximately halfwaybetween Buffalo and Rochester. It is the oldestlighted harness racetrack in the United States. VLTswere introduced in 2005 and the facility now housesapproximately 650 electronic gaming machines.Gross gaming revenue in CY 2013 was over $46million.

1.31b Empire City Casino at Yonkers

Raceway

Yonkers Raceway wasfounded in 1899 as the EmpireCity Trotting Club. YonkersRaceway closed its doors inJune 2005 to construct its VLTgaming operation. Afterseveral expansions, EmpireCity Casino at Yonkers

Racewaynow offers more than5,300 electronic gaming machines, electronic roulette, and electronic craps. The property has fiverestaurants, two bars and one lounge, live entertainment, and year-round live harness racing and

simulcast. Empire City Casino is New Yorks second largest facility in terms of gross gamingrevenue with approximately $600 million dollars in GGR in CY 2013.

1.31c Hamburg Casino at the Fairgrounds

Hamburg Casino at the Fairgrounds is aracino located in Hamburg, New York thatfeatures harness racing, simulcast wagering, anda 55,000 square feet gaming space with 940electronic gaming machines. The propertyincludes three restaurants and one bar and offers

live entertainment on the weekends. Grossgaming revenue in CY 2013 was over $76million.

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1.31d Finger Lakes Gaming and Race Track

Finger Lakes Gaming & Racetrack, first opened in 1962,is a one mile thoroughbred horse racing track and racinolocated in Farmington, New York. VLTs, new dining

options, and entertainment venues were added in 2004, andthe facility once again expanded in 2006 with the additionof a 280-seat buffet restaurant and space for additionalvideo gaming machines. The racinos 44,000 square footgaming space currently features over 1,500 electronicgaming machines. Gross gaming revenue in CY 2013 was

over $131 million.

1.31e Monticello Casino and Raceway

Monticello Casino and Raceway is aracino located in Monticello, New York.The racino features year round harnessracing on one of the largest all-weathertracks in the country and it offers 40,000square feet of gaming space with over1,100 electronic gaming machines. Theproperty has three restaurants that include

a buffet and a food court. Gross gaming revenue in CY 2013 was over $62 million.

1.31f Resorts World at Aqueduct

Resorts World New Yorkis located at the AqueductRaceway in Queens. The facility offers more than5,000 slot and table game machines in its two casinosas well as a high slot limit area. The casino also hastwo restaurants, a buffet, food court, bar, andnightclub. Gross gaming revenue in CY 2013 wasover $785 million. The facility continues to offerthoroughbred racing at its Aqueduct Racetrack fromOctober through May.

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1.31g Saratoga Gaming and Raceway

Saratoga Casino and Raceway is located inSaratoga Springs, New York and includes a halfmile harness racing track. In 2004, the property

became the first racing facility in New York to openvideo lottery games. The racinos 55,000 square footgaming space features over 1,700 electronic gamingmachines. The property also includes multiplerestaurants, three bars and a nightclub. Grossgaming revenue in CY 2013 was over $159 million.

1.31h Tioga Downs Casino

Tioga Downsis a 138 acre racino locatedin Nichols, New York. First called TiogaPark and opened in 1976, the facilityclosed after only three years of racing.The facility was renamed Tioga Downsand re-opened in 2006 with two tracksthat feature harness racing and 19,000square feet of gaming space, which

includes year round simulcast betting and approximately 800 electronic gaming machines. Theproperty also has three restaurants, a buffet, and two bars and a stage area that hosts concerts.

Gross gaming revenue in CY 2013 was over $59 million.

1.31i Vernon Downs Casino & Hotel

Vernon Downs Casino & Hotel,originallyopened in 1956, is located in Vernon, NewYork and features seasonal harness racing,year-round daily live simulcasting, and liveentertainment on weekends. The racinofeatures 767 electronic gaming machines in34,500 square foot of gaming space. The

property also includes six restaurants, one bar,and a hotel with 150 guestrooms and suites.Gross gaming revenue in CY 2013 was nearly$44 million.

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1.32 NEW YORK INDIAN CASINOS

1.32a Akwesasne Mohawk Casino

The Akwesasne Mohawk Casino, located in theSaint Regis Mohawk Tribes territory in Hogansburg,New York, opened with Class III gaming in April1999. The casino includes 140,000 square feet ofgaming space with more than 1,800 slot machinesand 30 table games. The casino has four diningoptions, including a buffet, bar & grill and a foodcourt.

1.32b Seneca Allegany Casino

Seneca Allegany Casinoopened in May of 2004 and islocated on the Seneca Nations Territory in the City ofSalamanca, New York. The facility occupiesapproximately 120,460 square feet, with 68,300 squarefoot gaming space featuring nearly 2,000 gamingmachines and over 30 table games. The property has fiverestaurants and a hotel with 212 guest rooms.

1.32c Seneca Buffalo Creek Casino

Seneca Buffalo Creek Casinois located in Buffalo,New Yorks Inner Harbor area. Opened in 2007, thename Seneca Buffalo Creek Casino refers to theSeneca Nation of Indians original Buffalo CreekTerritory, which occupied lands surrounding thecurrent 9-acre casino site. The casino recentlycompleted a $130 million renovation and currently

features a 147,000 square foot casino with 18 tablegames and approximately 800 slot machines. The facility also includes 6 dining outlets and a sportsbar.

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1.32d Seneca Niagara Casino

Seneca Niagara Casino & Hotel is located onapproximately 24 acres on the Seneca NationsTerritory in the City of Niagara Falls, New York. The

casino features over 4,000 electronic gamingmachines and over 95 table and poker games in147,000 square feet of gaming space. The propertyhas a multitude of restaurants, a caf, a snack bar, anda night club. The Seneca Niagara Casino & Hotel isone of the largest hotels in Western New York and islocated just blocks from Niagara Falls. The hotelincludes 594 rooms as well as a spa, workout facility,indoor pool, and 30,000 square feet of meeting andconference space.

1.32e Turning Stone Resort Casino

Turning Stone Resort Casino, located on the OneidaNations Territory in Ve

market .impact of a proposed tyre, new york casino on turning stone.final.10.27.2014

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