Video Lottery Advisory Council Meeting Minutes April 17th, 2012 Members present

Patti Key – Harrington Raceway

Vernon Kirk – Director - Delaware State Lottery

Robert Neugebauer – Delaware Account Manager – Spielo International

Ed Sutor – President/CEO - Dover Downs Hotel & Casino

Members absent: Brennen Lawrence – VP/GM - Video Gaming Systems – Scientific Games

Tim Shortall – Vice President U.S. Eastern Region – Sales - IGT

Mark Casto – Bally Technologies

David Hartman – GTech G2

Stephen Keener – Dover Downs Hotel & Casino

Jim Logue – Delaware State Lottery

Richard MacDonald – Delaware State Lottery

Phil Maruncic – Spielo International

Mark Schrecengost – Harrington Raceway

Dominic Silla – ShuffleMaster

Scott Stewart – Scientific Games

Matt Varanko - WMS

Kathy Wayne – Scientific Games

Bob Willard – State of Delaware – Deputy Attorney General

Doug Dennison – The News Journal

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  Ed Sutor
  

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  The minutes of the previous meeting on October 25, 2011 were approved and posted on the State’s website. The date of today’s meeting, the first meeting for 2012, was posted on the State’s website in compliance with the open public meeting requirements.
  
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  The primary purpose for today’s meeting was for Secretary of Finance, Tom Cook, to address the recommendations made in the 2011 VLAC Report to the State. Unfortunately, Secretary Cook is under the weather today and could not attend the meeting. He has stated he will address recommendations of the 2011 Report at our next meeting, scheduled for July 10^th, 2012.
  

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  Ed Sutor
  

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  For the first time in 20 consecutive quarters, the Delaware gaming industry broke the string of negative year to year slot growth, with Delaware slot revenue improving for the 1^st quarter of 2012 compared to the 1^st quarter of 2011. Terrific weather (compared to a harsh winter in 2011), an extra day in February due to Leap Year, and an extra Friday in the quarter all contributed to the positive growth effect. The positive benefits of these 3 elements can be seen in improvements in the entire Mid-Atlantic region, the East Coast, and the Mid-West.
  
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  In early April, two new regional casinos opened, further heightening the competitive environment. The first in Valley Forge, Pennsylvania, which is already reporting impressive win/day/machine numbers. The second in Atlantic City, the 6 million square feet mega-casino resort, Revel. This casino is anticipated to grow the Atlantic City market, as Atlantic City struggles to re-claim the number 2 gaming destination state, recently awarded to Pennsylvania. While the hope for Atlantic City is growth, Revel is also expected to steal customers from other Atlantic City casinos, cannibalizing the market and pushing marketing efforts to the extreme as A.C. casinos fight to keep their customers. The opening of these casinos will impact the entire region, including the Delaware market – Delaware customers will go and try it out – but, the impact will not be nearly as significant as the impact from the opening of the Arundel Mills, Maryland casino in June.
  
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  The Arundel Mills casino will open mid-June with 3,000 machines, and increase to 5,000 by October. While it is expected that Dover Downs and Harrington will be most affected due to their proximity to Arundel Mills, all three Delaware video lottery agents will face a major negative impact in revenues. DEFAC (the Delaware Financial Advisory Committee) estimated a $50 million decrease in the State’s share of gaming revenues over the next few fiscal years based upon their own estimates of the impact the Arundel Mills casino will have on the Delaware gaming industry.
  
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  While favorable conditions in the first quarter of 2012 had a positive impact on results, relief is still needed. The competitive landscape of the gaming industry in the Mid-Atlantic region has changed dramatically since the inception of Delaware gaming, and our revenue share model should be modified to reflect the market changes in order for Delaware to effectively compete in this region.
  

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  Vernon Kirk
  

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  In Secretary Cook’s absence, I will update the Council that the Secretary’s office and the Administration recognize the situation faced by Delaware video lottery agents, and are working on a revenue-neutral solution for fiscal 2013 between the Delaware video lottery agents and the State to allow the industry the opportunity for reduced fees related to property reinvestment.
  

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  Ed Sutor
  

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  On behalf of the three Delaware video lottery agents, we appreciate the openness from the State to work together on a mutually beneficial solution to help keep the Delaware gaming industry competitive in the Mid-Atlantic gaming market. A preliminary outline that was released publically a couple of weeks ago included the roll-out of Keno and Sports Betting to other locations in the state, and for internet sales of both traditional lottery games and casino type games. The video lottery agents support this approach in light of the relief offered in return, which is contingent upon marketing, capital expenditure, and debt service reinvestment. This relief will help to offset the initial impact of the opening of the Arundel Mills casino. The actual impact Arundel Mills will have on the Delaware gaming industry will be known in the fall of 2012, and we will be in a better position to address recommendations for the revenue share model in the 2012 Report.
  

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  Vernon Kirk
  

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  The Lottery is making plans and preparations for the potential changes to the current Delaware gaming landscape. Nothing can move forward until legislation is passed.
  

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  Kathy Wayne
  

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  No updates at this time.
  

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  Patti Key – Harrington Raceway
  
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    Harrington Raceway is focused on marketing projects to sustain business levels. We are concerned about the impact from Arundel Mills, as a good portion our customers are from that section of Maryland. We are preparing for a significant negative impact in June.
    

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  Andrew Gentile – Delaware Park
  

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  Thanks to Scientific Games and the vendors for their assistance with the maintenance project at Delaware Park on the Easter holiday.
  
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  Delaware Park is continuing the carpet replacement project now that the Poker tournament is completed.
  
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  Delaware Park’s recent poker tournament exceeded last year’s numbers. We had professional players participate, and received national interest due to positive feedback from poker blogs. We are happy that our poker product is growing and creating name recognition for Delaware Park.
  
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  Delaware Park’s capital plan is focused on maintenance capital projects.
  

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  Ed Sutor – Dover Downs Hotel & Casino
  
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    Dover Downs is focusing marketing efforts in the Arundel Mills region, to retain business after the opening of the Arundel Mills casino.
    
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    Capital expenditures, which at one time were around $5 million each year, are now down to less than $2 million. We increased our meeting room space, adding 6,500 more square feet of upscale conference area. We are also currently renovating our buffet, which had not been updated in 12 years. The new buffet will reopen in late May.
    

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  Mark Casto – Bally Technologies
  

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  Bally is committed to keeping the Delaware gaming market competitive in the Mid-Atlantic region. Every Bally title that Arundel Mills will open with will be at a Delaware video lottery agent’s facility first.
  

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  Ed Sutor
  
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    On behalf of the industry, we thank our vendors, the central system provider, and the Lottery office for working together to ensure we have the best system and the finest machines available.
    

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  Matt Varanko – WMS
  

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  WMS continues to roll out the Bluebird II product in Delaware. Currently we have 56 machines total at all 3 video lottery agent’s facilities, and will be installing more during the 2^nd -3^rd week of May.
  
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  The new, community-play game, The Great and Powerful Oz, is doing very well.
  

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  Robert Neugebauer – Spielo International
  
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    Spielo International continues to make improvements with VLT’s in the form of theme changes or configuration updates.
    
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    For this year, we are trending an approximate conversion rate of 17% for the Spielo ProdiGi Vu platform, Atronic E-motion platform, and the Aristocrat Mark 6 & Gen 7 platforms.
    
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    We continue to monitor central system & lottery revenue reports, cross referencing with GTECH analysis to ensure game efficiency.
    
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    Spielo’s Alfa Street automated roulette tables continue to generate strong revenue numbers. Seat cushion and wood upgrades are planned to restore the units’ appearance at Delaware Park and Dover Downs.
    
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    The new Join N Play community game product is getting positive reviews and showing positive results in over 40 casinos across the country.
    

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  Dominic Silla – Shuffle Master
  
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    Shuffle Master continues to bring its most successful table game titles to Delaware, including Mississippi Stud.
    
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    We are also working on bringing our hybrid table game market to Delaware. The hybrid table game combines a pure table game with a live “game host” and an electronic component in increase efficiency. The iTable roulette product is at the Tropicana is has had a very successful roll-out. A live dealer/game-host with an electronic table increases spins per hour by 30%.
    

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  Ed Sutor
  

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  The meeting was opened for discussion for items not on the agenda, and none were mentioned.