Analysis of Incremental State Revenues from Three Potential Casino Locations
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- Comparison of Supply to Other Regional Gaming Markets
- Revenue Estimates
- A Chain of Rocks casino will generate a total of $14.1 million in annual, incremental new tax revenue for education in the State of Missouri.
- A Sugar Creek casino will generate a total of $8.4 million in annual, incremental new tax revenue for education in the State of Missouri.
- Appendix I – Chain of Rocks
| Analysis of Incremental State Revenues from Three Potential Casino Locations
Submitted to the Missouri Gaming Commission by Ameristar Casinos, Inc. May 24, 2010 Overview This document summarizes an analysis conducted by Ameristar Casinos, Inc. of which of the following three potential locations for the thirteenth casino license will maximize revenue for the State of Missouri and provide critical funding for education in the State: Chain of Rocks, a suburb to the north of St. Louis Sugar Creek, a suburb to the east of Kansas City Cape Girardeau, a city in southeastern Missouri From the perspective of the State, the key question is just how much of the revenue generated by a new casino is incremental, that is, revenue that is not already being captured by another casino in Missouri. For example, in 2008, Lumiere Place recorded Adjusted Gross Receipts (“AGR”) of $137 million. However, the total Missouri portion of the St. Louis market (i.e., excluding Illinois-based facilities which do not pay tax to Missouri) grew by only $82 million. The $55 million difference is the amount of revenue that migrated from existing Missouri casinos to the new casino, resulting in no incremental tax revenue for that portion of Lumiere’s AGR. Furthermore, the $82 million increase to the Missouri portion of the St. Louis market’s AGR can be only partially attributed to the opening of Lumiere Place. A significant portion of this $82 million increase must be attributed to the following factors: In November 2008, the Missouri electorate voted to eliminate the $500 loss limit. That change was effective for the last seven weeks of 2008. This helped to increase AGR for all Missouri casinos, particularly in the St. Louis market where there were competitors in Illinois which had been operating without the burden of the loss limit restriction. The Illinois indoor smoking ban, which includes casinos, took effect at the beginning of 2008 and undoubtedly caused a shift in casino revenues from Illinois to Missouri in the St. Louis market. Ameristar St. Charles opened its new 400-room hotel facility in phases during the first half of 2008, which also helped to grow the market. This analysis examines the total AGR expected at each of the three locations listed above and also calculates how much of that AGR is incremental in nature, creating additional tax revenue for the State. Methodology Each market is analyzed using a consistent methodology that is standard for market estimates such as these. The analysis uses a gravity model that utilizes a combination of total adult population within the market (25-miles in an urban/suburban area; 50 miles in a rural area), average income and proximity to the proposed facility to estimate the total potential AGR for the new casino. Using the same methodology, the model then factors in the impact upon one another of the proposed casino and other competing casinos in the area whose existing customer bases will overlap to some extent with the new facility. This process determines what percentage of the new casino’s AGR will come from existing competitors within the market and what percentage of the new casino’s AGR will be truly incremental as a result of un-served areas (i.e., areas with poor or remote access to existing casinos) or undersupply (i.e., a lack of sufficient gaming positions relative to the adult population). Key metrics such as total AGR per gaming position per day and total adults per gaming position help to determine the reasonableness of the gravity model estimates, particularly when analyzing larger markets such as St. Louis or Kansas City. Please refer to the appendices for more in depth detail related to the development of the estimates and analysis contained in this document. Comparison of Supply to Other Regional Gaming Markets A number of stabilized regional gaming markets (markets that primarily generate gaming revenue from the local region) are examined for this report to measure the ratio of adults to the supply of gaming positions. Destination gaming markets such as Las Vegas and Atlantic City are purposely omitted as visitation primarily comes from outer trading areas. This analysis provides a benchmark for determining the appropriate level of market supply relative to the adult population base. Furthermore, to account for possible changes in population, the adult population was obtained for 2010 as well as forecasted for 2013 (Source: 2010 MapInfo Census Data). For comparable regional markets with a significant local population base, there is a significant range of adults per gaming position. Examining the forecasted 2013 adult population over the current supply of gaming positions shows that the metropolitan Chicago, Illinois market has the highest ratio of adults per gaming position (295) followed by Detroit, Michigan (222), New Orleans, Louisiana (185), Cincinnati, Ohio (115) and Omaha, Nebraska (114). The addition of a new gaming license in either the St. Louis or Kansas City markets will result in a substantially lower number of adults per gaming position than any of the stabilized regional gaming markets analyzed, indicative of market oversupply. Specifically, the addition of a casino with approximately 2,000 gaming positions at Chain of Rocks in St. Louis will reduce the ratio of adults per gaming position to 92 from 97 currently. Adding a casino with approximately 2,000 gaming positions in Sugar Creek in Kansas City will reduce the ratio of adults per position to 89 from 102 (this figure reflects the initial phase of the Kansas Speedway casino currently under construction; without that project the Kansas City market currently has 130 adults per gaming position). If the Kansas Speedway project were to be delayed or terminated for some reason, the ratio of adults per position will be 112 after the addition of a Sugar Creek casino. Revenue Estimates Chain of Rocks - St. Louis Area Currently, the St. Louis area is in the process of absorbing the two new facilities that have been added in the past three years. This includes the River City Casino that opened in March 2010. It will likely require at least a year to understand River City’s long-term impact on the market. In addition, this market has adequate gaming supply with 97 adults per gaming position, already a somewhat low ratio for a mature gaming market. This analysis contemplates an approximately 2,000-gaming position facility at Chain of Rocks, resulting in a decrease to only 92 adults per gaming position (a 1,000 gaming position facility will result in a slight increase to the ratio of adults per gaming position to 98, primarily due to the population growth through 2013). However, the River City Casino has been master-planned to allow for future expansion of its casino floor, thereby possibly resulting in a further decrease in the number of adults per gaming position in the market. In contrast to the River City Casino that is located in an area with minimal direct competition, Chain of Rocks is unlikely to grow the market significantly due to the presence of nearby existing high-quality facilities in both St. Charles (Ameristar) and Maryland Heights (Harrah’s.) Total forecasted AGR for a new Chain of Rocks casino is $150 million; however, an estimated $98 million or 65% of the revenue will be derived from existing Missouri casinos and will produce no additional tax revenue. An estimated $33 million of the AGR will be captured from existing Illinois casinos and the remaining $19 million will be new, incremental gaming revenue that is not currently being captured by any existing facility. These two revenue sources combine to create incremental Missouri gaming revenues of $52 million, resulting in $10.9 million of incremental gaming taxes and $3.2 million of incremental admission taxes. A Chain of Rocks casino will generate a total of $14.1 million in annual, incremental new tax revenue for education in the State of Missouri. Sugar Creek – Kansas City Area The Kansas City market is one that has experienced minimal growth over the last three years, with an average annual growth rate of less than 1% despite the benefit of the $500 loss limit removal. Typically, a protracted, stagnant growth rate is indicative of a market with limited room for expansion. This is exacerbated by the impending introduction of a new approximately 2,800-gaming position casino at the Kansas Speedway, which will further dilute the market to 102 adults per gaming position and also prevent an understanding regarding the ability of this market to absorb additional expansion for at least a year after it has commenced operations. Like River City in the St. Louis market, the Kansas Speedway casino has been master-planned to allow for future expansion, resulting in the possible further reduction of the number of adults per gaming position in the market. The Sugar Creek casino suffers from the same challenge as the Chain of Rocks in that the primary market area served by it will significantly overlap with nearby competitors in Kansas City (Ameristar) and North Kansas City (Harrah’s). The gravity model indicates that the Sugar Creek area is already adequately served by existing high quality casinos, even before factoring in the addition of the Kansas Speedway casino. Of note, the opening of a fifth Missouri casino in the Kansas City market in 1997 resulted in such an oversupply in the market that one of the competing casinos with approximately 1,400 gaming positions was forced to go out of business less than a year following the opening of the new casino. Assuming an approximately 2,000-gaming position casino in Sugar Creek is opened within a year of the Kansas Speedway casino, it will reduce the total adults per position to 89, the lowest of any market in Missouri and significantly lower than the other regional markets in other states discussed above. Total AGR for a Sugar Creek casino is forecasted at $125 million, of which $94 million or 75% will be derived from existing Missouri casinos and only $31 million of which will be new, incremental gaming revenue. Total incremental gaming tax revenue for the State of Missouri will be an estimated $6.5 million with $1.9 million of incremental admission taxes. A Sugar Creek casino will generate a total of $8.4 million in annual, incremental new tax revenue for education in the State of Missouri. Cape Girardeau – Southeastern Missouri As opposed to the Chain of Rocks and Sugar Creek locations, Cape Girardeau is without any nearby competitors in Missouri, though it is clearly in a much less populated area. Using the gravity model, this analysis examines Caruthersville, Boonville and LaGrange, Missouri markets as the basis for estimating the size of the Cape Girardeau market. Based on the average for these three markets of 114 adults per gaming position within 25 miles using 2010 population data, Cape Girardeau could support a casino with approximately 1,000 gaming positions. Total forecasted AGR for a new Cape Girardeau facility is $87 million, of which virtually none will be cannibalized from existing Missouri casinos (the nearest Missouri casino in Caruthersville is 80 miles away, while the St. Louis market is 92 miles away). Approximately $10 million of Cape Girardeau’s AGR will come from the casino located 47 miles away in Metropolis, Illinois. The $87 million of incremental AGR results in just over $18 million of incremental gaming taxes and just over $5 million of incremental admission taxes. A Cape Girardeau casino will generate a total of $23.5 million in annual, incremental new tax revenue for education in the State of Missouri, 67% more than will be generated by a Chain of Rocks casino and 180% more than will be generated by a Sugar Creek casino. Conclusion When considering gaming expansion, it is critical to distinguish between gaming revenue that a new facility takes from existing Missouri-based casinos and how much it either takes from casinos in other states or generates as new incremental gaming revenue. As shown in the chart below, the total estimated revenue to be generated by each of the three potential casino locations discussed above does not directly correspond to incremental gaming revenue and the associated net increase in gaming and admission taxes. 
While Cape Girardeau will generate the lowest AGR of the three potential locations, it will generate substantially more tax revenue for education in the State of Missouri when compared with either Chain of Rocks or Sugar Creek, as virtually none of the Cape Girardeau facility’s revenue will come from existing Missouri casinos. In addition, a license could be promptly issued for a casino in Cape Girardeau since there will be no need to consider longer term competitive conditions and economic impacts of new gaming operations in St. Louis and Kansas City. As a result of the recent addition and possible future expansion of the River City casino in St. Louis and the imminent opening and possible future expansion of the Kansas Speedway casino in Kansas City, it could be several years before the St. Louis and Kansas City markets stabilize sufficiently to determine whether either of those locations, each a mature market with relatively low number of adults per gaming position, could support an additional casino and generate greater incremental tax revenues for the State of Missouri than a casino in Cape Girardeau. Appendix I – Chain of Rocks Map shows approximately a 25-mile radius from Chain of Rocks Zip code and adult population (21+ years of age) 
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