New England Casino Gaming:  Update 2009

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The Center for Policy Analysis at the University of Massachusetts Dartmouth has updated its New England casino patron origin and fiscal impact analysis for calendar year 2008. The update includes new patron origin and financial data for Foxwoods Resort Casino and Mohegan Sun Casino in Connecticut; Twin River and Newport Grand Slots in Rhode Island; and Hollywood Slots Hotel & Raceway in Bangor, Maine.

Overview of the New England Gaming Market 2008

Foxwoods Resort and Mohegan Sun suffered from their second consecutive year-to-year decline in gross gaming revenues, although there was continued strength in table games revenues and non-gaming revenues during the first half of the year.1 Newport Grand Slots reported its fourth consecutive year-to-year decline in net terminal income. On the other hand, the region's two racinos -- Twin River and Hollywood Slots -- reported year-to-year increases in net terminal income or gross gaming revenues. Twin River appears to have benefited from longer hours of operation (24 hours on weekends), the introduction of virtual table games, and higher gasoline prices that kept Rhode Island and Massachusetts residents closer to home, although its revenues flattened out in the last quarter of the year. In the summer of 2008, Hollywood Slots Hotel & Raceway moved from a temporary facility to its new upscale permanent facility and more than doubled the number of slot machines from 475 to 1,000, which produced a brief surge in visitations, although visitations and revenues returned to their previous levels in the final quarter of the year.

Current trends in the New England casino gaming market should be assessed within the larger context of two recent developments: (1) the onset of what is now the longest and deepest recession in U.S. history, since the Great Depression and (2) theemergence of an increasingly competitive Northeastern gaming market that encompasses both the New England2 and the Mid-Atlantic 3 states.

First, there is no question at this point that the United States economy essentially dropped off a cliff in calendar year 2008. The United States is now experiencing the longest and deepest recession since the Great Depression of the 1930s. The National Bureau of Economic Research Business Cycle Dating Committee defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough."4 The Business Cycle Dating Committee has determined that a peak in economic activity occurred in the U.S. in December 2007, which means that the economy has been in recession since that time.

In the fourth quarter of 2007, gross domestic product (GDP) grew by only 0.6% nationally,5 which signaled the onset of a recession that deepened over the course of CY 2008. Indeed, another "textbook" definition of recession is two consecutive quarters of declining gross domestic product (GDP). In the 3rd quarter of 2008, GDP shrank by 3.8%, while in the fourth quarter of 2008, GDP declined at an accelerating rate of 6.2% annually -- the largest quarterly decline since 1982.6

The Conference Board's Consumer Confidence Index steadily declined during CY 2008 to the lowest levels ever recorded and, coincident with that decline, overall retail pending fell in four of the last five months of 2008. Consumer spending dropped the most in almost three decades during the last quarter of 2008.7 At the same time, the U.S. unemployment rate had risen to 8.1 percent by February 2009 as employers reduced payrolls by 651,000 in that month alone. Job losses in the United States have now exceeded 600,000 for three straight months, which is the first time monthly job losses have reached this level since collection of the data began in 1939. The current February restrained by consumers, who are uncertain about their jobs and income. However, based largely on the previous experience of Las Vegas, many analysts viewed the casino industry as "recession proof." Until last year, Las Vegas had seen gambling revenues fall only once since 1970 in the aftermath of the September 11, 2001 terror attacks, when gaming revenues dropped 1 percent in 2002 as compared to 2001 (Freiss 2008). However, in 2008, gaming revenues have declined on a year-to-year basis in most casino jurisdictions, including Las Vegas and Atlantic City, although some new jurisdictions such as Pennsylvania have seen revenues increase on a year-to-year basis.

The simple lesson of 2008 is that casino gaming is not recession proof, but due to increased reliance on non-gambling amenities (i.e., diversification) and an increased supply of gaming nationally, it is now subject to the same macro-economic factors as any other consumer retail or service industry. There is no question that the New England (and the Northeastern) gaming market is being buffeted by the current recession, but this is a temporary setback that is reversible once the economy enters a new growth phase.

However, the New England gaming market is also being reshaped at the margins by its integration into a larger Northeastern gaming market that includes New England and the Mid-Atlantic states, such as New Jersey, New York, and Pennsylvania. Atlantic City currently has 11 resort casinos that compete directly against Mohegan Sun and Foxwoods. Pennsylvania has six slot parlors/racinos and one resort casino now operating, with the expectation that it will add another six upscale slot parlors and an additional resort casino within the next few years. New York now has more than 13,000 video lottery terminals (VLTs) at eight racinos, with 5,300 of its VLTs strategically located at Empire State Raceway in Yonkers, New York. There are also three Indian casinos operating in upstate and western New York.

Moreover, additional capacity is being added elsewhere in the Northeast. On November 4, 2008, Maryland voters approved a constitutional amendment to legalize slot-machine gambling in that state. The constitutional amendment allows 15,000 slot machines distributed among five locations around the state, although initial efforts to introduce slot parlors and racinos to Maryland has fallen short of the legislature's original expectations.8 To counter competition from Pennsylvania, and the anticipated competition from Maryland, West Virginia has completed its first full calendar year of allowing table games at three of its four racinos. Delaware's legislature is considering the reintroduction of a sports betting lottery (Darrow 2008). The Massachusetts, New Hampshire, and Rhode Island legislatures will likely renew their perennial debates on expanded gambling in those states.

The growing competition in the Northeastern gaming market is restructuring that market geographically, but it is also leading to an overall increase in the size of the gaming market, new capital investment in new facilities, and the improvement of existing facilities. Former racetracks are being upgraded into upscale racinos with moderate-sized hotels, gourmet dining, and new entertainment options following a model pioneered in the previous decade by Dover Downs in Delaware. Mohegan Sun is still planning the addition of luxury hotel space, new entertainment options, and more resort amenities. There are still proposals for additional gaming facilities in Massachusetts, New Hampshire, and Maine, while Rhode Island legislators will consider a constitutional amendment that would allow is two racinos to evolve into casinos. Massachusetts, New Hampshire, and Vermont are now the only three states among the eleven Northeastern states with no presence in the casino/racino gaming industry, although their residents continue to patronize gaming establishments in other states.

Amid economic turmoil and new competition, there were major developments at all of New England's five casino gaming establishments during the past year. In early March of 2008, Twin River's owner, UTGR, Inc., missed a loan payment on outstanding loans tied to Twin River's expansion and renovation.9 UTGR, Inc. spent most of the year operating under a forbearance agreement with its chief lender, Merrill Lynch Capital Corporation, that delayed legal action on $577 million in outstanding loans tied to Twin River's renovation and operation (Public Gaming International 2008). The forbearance agreement initially had a June 30 expiration date, with options for two additional 30-day extensions. The agreement was extended several times during 2008, but January 30, 2009, Merrill Lynch spokesman Bill Halldin announced that January 31, 2009 would have been the expiration date on UTGR's latest forbearance agreement "had certain milestones been reached, but the agreement actually expired on January 5" (quoted in Gregg 2009)Paradoxically, Twin River continued to report year-to-year increases in net terminal income into the month of September, but it was evidently not enough to cover their payments on an estimated $565 million remaining on their outstanding loans at the end of 2008. In the fourth quarter of the year, net terminal income flattened, but Rhode Island public officials repeatedly rebuffed requests from Twin River's owners to renegotiate its revenue sharing arrangement with the state.11 However, the Rhode Island state legislature is likely to at least consider a bill in the coming months that would place a constitutional amendment on the November 2009 ballot authorizing full- scale casinos (i.e., table games) at Twin River and Newport Grand if ratified by voters.

On May 18, 2008, MGM at Foxwoods opened its new $700 million 825-room luxury hotel, which includes a 21,000-square-foot spa, a 4,000-seat theater, and high-end retail shops. The MGM at Foxwoods opened amid fanfare and media coverage as A-list celebrities arrived to launch the region's newest casino expansion.12 The grand opening of the MGM at Foxwoods generated a less than spectacular initial burst of curiosity raffic, but over the remainder of the year, Foxwoods was unable to reverse a continuing ecline in its gross gaming revenues and concluded the calendar year with its second consecutive year-to-year decline in gross gaming revenues.

On July 2, 2008, Hollywood Slots Hotel & Raceway held the grand opening of its permanent upscale racino. The new gaming facility features a two-story, semicircular, glass tower gaming area, a seven-story 152-room hotel, a four-story parking garage, restaurants, retail space, and a new simulcast facility for off-track wagering. The current facility houses 1,000 slot machines, but it is designed to accommodate up to the authorized 1,500 slot machines at a later time. The slot parlor's gross gaming revenues had been sliding for the first five months of the year, but over 9,000 people attended the grand opening, while the top daily revenue from the temporary casino was more than doubled at the grand opening. However, this initial boost to revenues was short lived and revenues slid back to pre-grand opening numbers by the end of the year.

On September 24, 2008, Newport Grand Slots also completed a multi-milliondollar transformation of its former jai alai fronton into 22,000 square-feet of non- smoking gaming space with an additional 500 VLTs, six virtual blackjack tables, two new food and beverage outlets, enhanced security operations, and back of house functions. However, the new expansion failed to reverse the continuing slide in Newport's net terminal income, as Newport concluded the calendar year with its fourth year-to-year decline in net terminal income.

On September 21, 2008, Mitchell Etess, President and CEO of Mohegan Sun announced a temporary halt to construction on its planned $734 million hotel tower "due to uncertainty in the economy and its impact on the region's gaming market." The move also suspended construction on a planned House of Blues music hall, an additional spa, as well as retail and restaurant space, which were to have been completed by the fall of 2010. The planned expansion has been delayed until at least the fourth quarter of 2009, when regional economic conditions will be reevaluated by the casino's executives.13 Etess stressed that the move was a "suspension and not a termination" of Mohegan Sun's planned expansion, because the "casino continues to believe in the long-term prospects for the business and the region" (Gannon 2008). In fact, the following month (October 10-12, 2009), Mohegan Sun held the grand opening of its new Casino of the Wind, which offers an additional 64,000 square feet of gaming and dining space. The new casino at Mohegan Sun added 650 new slot machines, 28 table games, and a poker room with 42 tables to its existing gaming positions (Mohegan Sun 2008).

The findings for Foxwoods Resort and Mohegan Sun are consistent with previous patron origin analyses conducted by the Center for Policy Analysis, which used the same ethodology to estimate patron origins in 1995, 1999, 2004, 2006, and 2008. The only statistically significant shifts in patron origins during the last two years are a decline in the percentage of patrons originating in Massachusetts and New York, which is attributable to three factors: (1) higher gasoline prices, (2) a general decline in the economy, and (3) increased competition from Empire State Raceway (Yonkers, New York) and Twin River (Lincoln, RI). In addition, there continues to be a year-to-year decline in the percentage of Newport Grand patrons originating in Massachusetts, which is attributable to two factors: (1) a general decline in the economy and (2) increased competition for Massachusetts patrons from Twin River (Lincoln, RI).

Foxwoods Resort and Mohegan Sun

Based on the updated patron origin analysis and a review of financial data:

It is estimated that gross gaming revenues for Foxwoods were approximately $1.05 billion in Calendar Year 2007, compared to $1.12 billion in CY 2007 (-6.0%), while total revenues (gaming and non-gaming combined) were approximately $1.45 billion in CY 2008, compared to $1.53 billion in CY 2007 (-4.7%).

It is estimated that gross gaming revenues for Mohegan Sun were $1.21 billion in CY 2008, compared to $1.26 billion in Calendar Year 2007 (-3.8%), while total revenues (gaming and non-gaming combined) were $1.49 billion in CY 2008, compared to $1.52 billion in CY 2007 (-2.0%).

It is estimated that:

Massachusetts residents spent approximately $709 million at Connecticut's two casinos in Calendar Year 2008, compared to $846.2 in CY 2007 (-3.4%) and $876.2 million in CY 2006. It is estimated that total spending at Foxwoods Resort and Mohegan Sun by Massachusetts residents has declined by $137.2 million over the last two calendar years (-19.1%).

Rhode Island residents spent approximately $250.9 million in CY 2008 at Connecticut's two Native American casinos, compared to $261.0 million in CY 2007 and $291.6 in CY 2006. It is estimated that total spending at Foxwoods Resort and Mohegan Sun by Rhode Island residents has declined by $40.7 million over the last two calendar years (-14.0%).

New Hampshire residents spent approximately $66.1 million in CY 2008 at Connecticut's two Native American casinos, compared to $75.9 million in CY 2007 and $80.4 million in CY 2006. It is estimated that total spending at Foxwoods Resort and Mohegan Sun by New Hampshire residents has declined by $14.3 million over the last two calendar years (-17.8%).

Maine residents spent approximately $22.0 million in CY 2008 at Connecticut's two Native American casinos, compared to $32.7 million in CY 2007 and $33.1 million in CY 2006. It is estimated that total spending at Foxwoods Resort and Mohegan Sun by Maine residents has declined by $11.1 million over the last two calendar years (-33.5%).

New York residents spent approximately $237.3 million in CY 2008 at Connecticut's two Native American casinos, compared to $350.3 million in CY 2007 and $365.5 million in CY 2006. It is estimated that total spending at Foxwoods Resort and Mohegan Sun by New York residents has declined by $128.2 million over the last two calendar years (-35.1%).

Based on these figures, it is estimated that:

Massachusetts residents contributed $93.1 million to the Connecticut state treasury as a result of its citizens' gaming activity in that state.

Rhode Island residents contributed $32.5 million to the Connecticut state treasury as a result of its citizens' gaming activity in that state.

New Hampshire residents contributed $8.6 million to the Connecticut state treasury as a result of its citizens' gaming activity in that state.

Maine residents contributed more than $2.9 million to the Connecticut state treasury as a result of its citizens' gaming activity in that state.

New York residents contributed more than $53.6 million to the Connecticut state treasury as a result of its citizens' gaming activity in that state.

Twin River and Newport Grand Slots

Based on the updated patron origin analysis and a review of financial data:

Net terminal income (gross gaming revenues) for Twin River was $407.5 million in CY 2008, compared to $375.3 in Calendar Year 2007 (+8.6%) and $329.3 million in CY 2006, while it is estimated that total revenues (gaming and non-gaming combined) were approximately $447.8 million in CY 2008, compared to $420.3 million in CY 2007 (+6.5%) and $359.0 million in CY 2006. Net terminal income at Twin River has increased by $78.2 million over the last two calendar years (+23.7%).

Net terminal income (gross gaming revenues) for Newport Grand was $67.5 million in CY 2008, compared to $72.7 million in CY 2007 (-7.1%) and $77.1 million in CY 2006, while total revenues (gaming and non-gaming combined) were estimated at approximately $74.2 million in CY 2008, compared to $79.9 million in CY 2007 and $84.1 million in CY 2006. Net terminal income at Newport Grand has declined by $9.6 million over the last two calendar years (-12.5%).

It is estimated that:

Rhode Island residents spent approximately $286.2 million at Twin River and Newport Grand in CY 2008, compared to $271.6 million in CY 2007 and $251.3 in CY 2006.

Massachusetts residents spent approximately $210.8 million at Twin River and Newport Grand in CY 2008, compared to $212.2 million in CY 2007 and $182.2 million in CY 2006.

Based on these figures, it is estimated that:

Rhode Island residents contributed approximately $159.5 million to the Rhode Island state treasury as a result of its citizens' gaming and other gaming related expenditures in that state.

Massachusetts residents contributed approximately $117.4 million to the Rhode Island state treasury in CY 2008 as a result of its citizens' gaming and other gaming related expenditures in that state.

Hollywood Slots

Based on the updated patron origin analysis and a review of financial data:

Gross gaming revenues for Hollywood Slots were $50.5 million in CY 2008, compared to $43.3 million in Calendar Year 2007 (+16.8%) and $37.5 million in Calendar Year 2006 (+15.5%), while total (gaming and non-gaming) revenues were estimated to be $54.8 million in CY 2008, compared to $46.5 million in CY 2007 (+17.9%) and $38.6 million in CY 2006.

It is estimated that:

Maine residents spent approximately $52.3 million at Hollywood Slots in CY 2008, compared to $46.3 million in CY 2007 and $36.4 million in CY 2006.

Massachusetts residents spent approximately $602,000 at Hollywood Slots in CY 2008, compared to $1.7 million in CY 2007 and $1.4 million in CY 2006.

New Hampshire residents spent approximately $602,000 at Hollywood Slots in CY 2008, compared to $883,000 in CY 2007 and $734,000 in CY 2006.

Based on these figures, it is estimated that:

Maine residents contributed approximately $22.7 million to the Maine general treasury and to the city of Bangor in CY 2008 as a result of its citizens' gaming and other expenditure activity in that state.

Massachusetts residents contributed approximately $262,000 to the Maine general treasury and to the city of Bangor in CY 2008 as a result of its citizens' gaming and other expenditure activity in that state.

New Hampshire residents contributed approximately $262,000 to the Maine general treasury and to the city of Bangor in CY 2008 as a result of its citizens' gaming and other expenditure activity in that state.

Other Highlights

New England's two casinos and three slot parlors generated $2.79 billion in gross gaming revenues in CY 2008, compared to $2.86 billion in CY 2007 (-2.4%), compared to $2.91 billion in CY 2006 (-4.1% for the two-year period). Total revenues (gaming and non-gaming) were approximately $3.53 billion in CY 2008, compared to $3.53 billion in CY 2007 (-0.09%) compared to $3.63 billion in CY 2006 (-2.8% for the two-year period).

New England's casino/racino industry employed approximately 23,600 people in CY 2008, compared to 24,080 people in CY 2007 (-2.0%).

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