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Best of Ken Adams

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Quick-takes: The month's trends in a glance – November 2007

1 December 2007

TAKE ONE

There is a growing belief that all casino licenses are very valuable and the best way to award them is through a bidding process; the highest bidder is then awarded the coveted and exclusive license for a specified location. That is a belief that the gaming industry does not need. Gaming is still suffering from the license bidding process from a couple of years ago in Illinois; the final round of bids had Harrah's and Isle of Capri bidding against each other for what at the time appeared to be the last license in the state. The winning bid was half a billion dollars. The casino still has not opened and the governor, the mayor of Chicago, and the legislature are working industriously to add more licenses and additional slot machines. It is certain that Isle of Capri never had to put up the cash; for once it is in the state kitty, it is gone, just like the promise to make it the last license in the state.

Since that fateful bidding war, every state that has debated the expansion of gaming has looked at that bid and thought that a license in their state should be worth more. The latest state to look at the Illinois process and think about the value of a license is Massachusetts; the governor initially thought about $200 million. But, now one of the pundits hanging around the edges of the debate in Massachusetts has doubled that bid in his estimate of the value of a license in Massachusetts.

Governor Deval Patrick suggested the state should authorize three casino licenses, each for a specific area; he thought $200 million was a reasonable license fee. The state released a report to support the proposal, estimating the potential revenue for casinos in the state and the possible tax revenues they would generate. The proposal and the report have sparked a very intense and polarized debate. The revenue numbers have been challenged, as have the tax revenues; on the other side, supporters of the proposal think the governor is short-changing the state and leaving too much on the table. They think the license and tax rates need to be higher, much higher. One of the "experts" weighing in on the debate thinks an exclusive license for Boston should be worth, hold your breath, $1.2 billion.

Massachusetts could lose out on a casino licensing windfall that might bring in billions even before the first gambling resort is built, an expert warns. Gov. Deval Patrick last week unveiled detailed plans to sell the rights to develop three resort casinos in different parts of the state. Patrick's plan, which may be a tough sell to legislators on Beacon Hill, calls for a minimum bid price of $200 million per license. The three licenses could fetch a total of $600 million to $900 million, administration officials have estimated. But Jeff Hooke, a Maryland-based investment banker and frequent critic of how states have sold gambling licenses, said Patrick is setting expectations too low for gaming companies interested in cracking the Massachusetts market. Over the past few years, Hooke, through op-ed pieces in local newspapers and testimony at legislative hearings across the country, has pushed states to charge more…The Boston license alone could bring in as much as $1.2 billion, Hooke contends, pointing to predictions that a casino proposed for Chicago could reap a $1 billion upfront fee. Hooke pegs the value of the Southeastern Massachusetts casino license at $500 million. The license to build and operate a Western Massachusetts casino is worth about $400 million, he says. (Scott Van Voorhis, Boston Herald, 10-18-07)

Those who always think casinos can and should pay more rarely understand casino economics. However, when the shoe is on the other foot, even career politicians seem to understand the numbers. In Chicago, Mayor Daley has said his city could not afford to pay $800 million, the number that seemed reasonable to the politicians drafting the enabling legislation.

New York is seeing something similar. Mayor Bloomberg wants to close the off-track betting parlors in the city, not because the OTBs don't generate lots of cash – they generate about $250 million a year – but because by the time the city pays the operating expenses, gives to the racing industry, and pays the state fees, there is nothing left for the state. Bloomberg doesn't want to work that hard to be a cash cow for the State of New York when the City of New York gets nothing. The comments of the two mayors bear noting by the politicians, critics, and others in Massachusetts who would kill the golden goose before it even begins to lay the golden eggs.

"The city will only go forward with a casino that is profitable," Volpe told the House Gaming Committee at the Thompson Center. "Eight hundred million dollars, quite simply, does not work." Mayor Daley would love to have a casino in Chicago, but the $800 million it would cost for a license makes it all but impossible, the city's finance chief said Wednesday. Pending legislation would require the city to pay the $800 million to the state for a gambling license. But Chief Financial Officer Paul Volpe said the price would prevent a Chicago casino from turning enough of a profit…The Grand Victoria Casino in Elgin, currently the most profitable casino in the state, makes nearly $400 million a year in gross revenue. The lavish Bellagio casino in Las Vegas takes in around $450 million…Because of the nearly $500 million in tax revenue Volpe projects a casino would generate for state coffers -- and the city's pledge to use 70 percent of all profits to fund schools, parks and other infrastructure -- Volpe said the state should simply give Chicago the license for free. "Even one dollar is too much," Volpe said at the hearing. "Because every dollar paid for a license fee is less funding available for what we envision as a substantial capital program to improve our city." (Ben Goldberger, Chicago Sun-Times, 10-18-07)

"The state uses it as a cash cow, and the city has been subsidizing the state, and we are not going to continue to do that," Mr. Bloomberg said at a news conference on Roosevelt Island. OTB revenues exceed operating expenses, he said, but OTB has to turn so much of its profit over to the state that the city cannot reap a benefit. The operation in New York City opened 36 years ago to generate revenue and diminish the influence of organized crime on gambling. OTB now brings in about $250 million in revenue, with operating expenses of about $125 million, but because of obligations exceeding those profits, including providing financial support for the state's racing industry and other payments to the state, it has not had enough left over to pay what it owes the city. (Diane Cardwell, New York Times, 10-18-07)

A national presidential campaign that lasts nearly two years is confusing enough on its own without the media intentionally or foolishly (you pick the adverb) adding to the confusion. All of the major candidates have been on the road for months, and in every jurisdiction they find ways to make local issue planks in their national platform. Mostly, that does not affect gaming, but there is one issue, unions, that is a gaming issue. All of the Democratic candidates have been to Atlantic City, Detroit, Las Vegas, and Reno and all expressed sympathy and support for unions in ongoing negotiations with casinos. Some, Clinton and Obama among them, even offered to march in a strike. Democratic candidates and unions are not news; they have been together since World War II. It is simply new that casino workers have become important enough to be courted by the candidates.

However, the latest entry of a candidate into a local casino discussion is news and is new; it makes no sense, except that it introduced into the national dialogue a subject all casinos oppose – a national casino tax. Bill Richardson, while campaigning in Nevada and touting his education plan, was asked where he stood on increasing Nevada's gaming tax to pay for teachers' salaries. Instead of saying that issue was local and of no concern of the President of the United States or the Congress, he said he had not yet determined his stance – but he would be studying the idea of casino taxes. Just what the industry needs, a president who wants to tax casino revenue. And possibly, someone could explain to the reporter who asked the question that the federal government has no role or standing in state legislation or voter initiatives. Presidents cannot vote in state legislatures, or in state elections, unless of course they are residents of that state – and the last time I looked, Bill Richardson did not live in Nevada.

"Bill Richardson really doesn't have a position on it yet," McNeil said. "We don't need to raise federal taxes, but he needs to learn more about this gaming tax." Democratic presidential candidate Bill Richardson said Thursday he would oppose a teacher-backed effort to raise the Nevada gaming tax for education but supports increasing federal funding for universal access to full-day kindergarten and preschool. "I don't think we need to raise taxes," Richardson said when asked about the Nevada State Education Association's bid to increase gaming taxes by 3 percent. "I'm a tax cutter. I believe you've got to reorder priorities." After he spoke, the New Mexico governor's Nevada spokesman, Josh McNeil, said the candidate wants to learn more about the initiative and was reacting to what he thought was a question about raising federal taxes…Richardson is campaigning Saturday in Reno and Las Vegas and plans to investigate the initiative further, McNeil said…Richardson's comments came as he announced his $60 billion education platform, which focuses on early-childhood education, math and science advances and making college more affordable. (Anjeanette Damon, Reno Gazette-Journal, 10-12-07)

Moving away from the politics of interference and into an area that receives little attention from anyone outside the industry, is the importance of gaming to many non-gaming businesses and industries. Symbiotic is a commonly used term to describe the importance of seemingly different life forms to each other and their individual survival. It is not a term we often see applied to business and even less to gaming. But it does apply at times, and some forms of musical performances are a case in point. Celine Dion is a prime example. What would her career have been like without a Las Vegas stage? Or Cirque du Soleil and its offspring? Would it have grown to have the incredible international success that it has had without Vegas? Or magicians? How important has Vegas been to the growth and the increasing sophistication of stage magic? And what about country music? In a recently published story the Washington Post concluded that casinos are critical in providing venues and revenue to country singers, and without that opportunity many of the singers might not be able to continue to perform. Of course, there is the other side of the symbiotic relationship: the casinos gain a way to generate large numbers of customers coming to their property – customers who, in many cases, might never have visited the property. The relationship between the two, entertainment and casinos, demonstrates something that is rarely brought up in anti-casino rhetoric – the benefits to a community, and indeed to some industries, that far surpass simple tax revenue, employment, or even additional addicted gamblers.

As casino venues target concertgoers from all walks of life through creative artist bookings, the effort hasn't gone unnoticed by those in the business. "If you're an agent, you love casinos," says Greg Oswald, a William Morris agent for such acts as Big & Rich, Hank Williams Jr. and Lynyrd Skynyrd. As new casinos boomed in the past 15 years, "it's found money," he adds. Most casinos are proactive in booking top-selling rock and pop acts, with the specific intent of drawing younger gamblers. But, as Oswald says, casinos appeal to a broad base of fans, therefore allowing booking opportunities for multiple genres. For some country acts in particular, casino venues have proved to be a beneficial asset when routing a tour. "Frankly, for a lot of artists in the country business and other genres, it has saved their bacon," Oswald says, adding that many casinos still draw older crowds. In 2007, Kenny Rogers, whom Oswald books, will play 30 casino dates nationwide. Tom Cantone, VP of sports and entertainment at the Mohegan Sun casino in Uncasville, Conn., says live music is a major component in modern-day casinos…This summer alone, Mohegan Sun hosted 164 events across its three venues -- the 10,000-seat Mohegan Sun Arena, the 400-seat Wolf Den club and the 330-seat Cabaret Theatre. In 2006, 51 shows at the arena grossed $15 million and drew more than 387,000 fans. (Mitchell Peters, Reuters, Washington Post, 10-12-07)

Gaming performance was mixed in September. The most notable is still Atlantic City, which recorded another month of decline. The slot machines in Pennsylvania continue to apply pressure to Atlantic City and possibly to Connecticut as the casinos there are also experiencing declines. Nevada was also down (for August), but it is harder to pinpoint one specific cause in Nevada's case. The price of gasoline, the downturn in the housing market, and continued growth and expansion in California are all possible contributors.

Atlantic City casinos won $419.3 million in September, compared to $468.8 million in September 2006. (New York Newsday, 10-10-07)

Colorado casinos posted a 4.6 percent increase in revenue in September. The state's casinos recorded AGP of $73 million last month, up from $69.8 million in September 2006.. (Denver Post, 10-18-07)

Detroit July casino revenues rose 2.7%. (Gaming Industry Weekly Report, 10-5-07)

In September, Foxwoods took in $67.2 million dollars a decrease of 2.6 % over 2006. The Mohegan Sun slot revenue totaled $77.3 million down 1.2 percent. (New London Day, 10-15-07)

Florida racinos took in $18.8 million of slot revenue in September, up 3% from August with a win per day per unit average of $158. (Gaming Industry Weekly Report, 10-5-07)

Illinois September gaming revenue rose 4.5% to $167.3 million. (Gaming Industry Weekly Report, 10-15-07)

Indiana September gaming revenue was down 1.1% to $211.2 million. (Gaming Industry Weekly Report, 10-15-07)

Iowa September gaming revenue rose 4.2% to $117.4 million but was down 1.2%. (Gaming Industry Weekly Report, 10-15-07)

Louisiana's casinos won $210.7 million, the 13 riverboats won $145.6 million, Harrah's New Orleans Casino won $35.2 million and the slot casinos at the state's four race tracks took in $29.9 million. (Alan Sayre, Associated Press, 10-17-07)

September casino revenue in Mississippi fell 0.7% to $239.1 million but Gulf Coast revenue set a new record, up 1.9% to $111.7 million. (Gaming Industry Weekly Report, 10-15-07)

Missouri September gaming revenue fell 2.9% to $129.2 million. (Gaming Industry Weekly Report, 10-15-07)

Nevada August gaming revenue fell 4.4% to $1 billion. (Brendan Riley, Associated Press, 10-10-07)

Pennsylvania September gaming win was down 1.5% from August to $101.6 million with an average slot win per day of $388. (Gaming Industry Weekly Report, 10-5-07)

Ken Adams

Ken Adams is the principal in the gaming consulting firm, Ken Adams and Associates. Formed in 1990, Ken Adams and Associates specializes in information, analysis, and strategic planning for Indian tribes, casino operations and gaming manufacturers.

Ken spent over 20 years in the hotel-casino industry, prior to founding Ken Adams and Associates. He held the positions of: Director of Casino Operations, Casino Manager, and Keno Department Manager. During this time, he developed numerous innovative marketing and customer development programs and systems for evaluating casino performance. Some of those programs, such as slot clubs and tournaments, have become industry standards.

Ken is also actively involved in gathering and disseminating information that is important to the gaming industry. He is editor and publisher of and the Adams' Report, a monthly newsletter specializing in identifying trends in casino gaming, regulation and manufacturing, the Adams Daily Report, an electronic newsletter that provides electronic links to the key gaming stories of the day, and the Adams Review, a special report distributed by Compton Dancer Consulting that provides editorial commentary on gaming trends.
Ken Adams
Ken Adams is the principal in the gaming consulting firm, Ken Adams and Associates. Formed in 1990, Ken Adams and Associates specializes in information, analysis, and strategic planning for Indian tribes, casino operations and gaming manufacturers.

Ken spent over 20 years in the hotel-casino industry, prior to founding Ken Adams and Associates. He held the positions of: Director of Casino Operations, Casino Manager, and Keno Department Manager. During this time, he developed numerous innovative marketing and customer development programs and systems for evaluating casino performance. Some of those programs, such as slot clubs and tournaments, have become industry standards.

Ken is also actively involved in gathering and disseminating information that is important to the gaming industry. He is editor and publisher of and the Adams' Report, a monthly newsletter specializing in identifying trends in casino gaming, regulation and manufacturing, the Adams Daily Report, an electronic newsletter that provides electronic links to the key gaming stories of the day, and the Adams Review, a special report distributed by Compton Dancer Consulting that provides editorial commentary on gaming trends.