Projected Performance of New Casinos in Southeast Kansas

Projections for the
Performance of New
Casinos Proposed for
Southeastern Kansas
Presentation to the Kansas Lottery
Lottery Gaming Facility Review Board
June 10, 2015
1

Will E. Cummings
Cummings Associates
2

Questions Please!
– at any time –
3

Overview
 Projections in General
 Gravity Modeling
 “Reilly’s Law of Retail Gravitation”
 Extensions by Huff et al.
 Projections for Gaming Revenues
 Projections for Financial Results
 Comparisons
4

Will E. Cummings
 Sloan School at MIT
 Racing, Sports, Lotteries ... Gaming
 60+ Studies of New/Improved Casinos
 Private Sector
 Regulatory Agencies
 Public Policy, Financial, Other Analyses
5

Market Analysis and
Projected Performance of
New Casinos
6

Methodology for Projections
 Gravity Model
 Year-Round Residents
 “Near” Neighbors
 Traffic Intercept?
 Seasonal Residents?
 Hotel Guests?
7

Gravity Models – Overview
 Location
 Location
 Size
 Everything Else
8

 Location I
 Location II
 Size
 Everything Else
9

Location I:
The Closer, the Better
10

Location I:
The Closer, the Better
=“Friction”
11

Las Vegas Visitation/Distance
0.0
5.0
10.0
15.0
20.0
25.0
0 500 1,000 1,500 2,000 2,500
LasVegasVisitors/000adults
Distance (miles)

Mississippi Visitors/Day/000
0.0
4.0
8.0
12.0
16.0
20.0
0 100 200 300 400 500 600 700
MississippiVisitors/Day/000adults
Distance (miles)

Casino X / players’ club data
$0
$200
$400
$600
$800
$1,000
0 50 100 150 200 250 300 350 400
AverageAnnualSpending/Adult
Distance from Casino X (miles)

Casino Y: players’ club data
$0
$100
$200
$300
$400
$500
0 20 40 60 80 100 120
AverageAnnualSpending/Adult
Distance from Casino Y (miles)

0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5
ln(distance)
ln(LasVegasvisitors/0000)
16
Las Vegas Visitation [ log-log ]

Las Vegas: linear slope
y = -1.0082x + 10.75
R2
= 0.9631
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5
ln(distance)
ln(LasVegasvisitors/0000)
17

Mississippi: steeper slope
y = -1.4088x + 11.25
R2
= 0.9353
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0
ln(distance)
ln(Mississippivisitors/day/0000)
18

Laughlin: even steeper slope
y = -1.9121x + 16.299
R² = 0.9552
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5
ln(Laughlinvisitors/0000)
ln(distance)
19

Casino X: isolated market
y = -0.8982x + 7.8944
R² = 0.6804
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5
ln(adjustedannualspending/adult)
ln(distance from Casino X)
20

Casino Y: competitors afar
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5
ln(annualspending/adult)
ln(distance from Casino Y)
21

Casino Y: cleaner close
y = -0.886x + 8.0919
R² = 0.8505
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5
ln(annualspending/adult)
ln(distance from Casino Y)
22

23
(1.00)
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50
ln(spendingperadult)
ln(distance)
Exhibit A-9: Slot Spending Declines With Distance at Casino Z
per model
per club
per W-2s

24
(1.00)
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50
ln(spendingperadult)
ln(drive time)
Exhibit A-10: Slot Spending Declines With Travel Time at Casino Z
per model
per club
per W-2s

25
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
0
5
10
15
20
25
30
0-10 miles 10-20
miles
20-30
miles
30-40
miles
40-50
miles
50-70
miles
70-100
miles
100-150
miles
150-
300(±)
miles
> 300(±)
miles
AnnualVisits(and$Win)PerPlayer
Exhibit A-4: Rates of Visitation (and Win) vs. Distance at Casino Z
Tr
$

 Location I
 Location II
 Size
 Everything Else
26

Location II:
Reilly’s Law
30

Reilly’s Law:
ms ~ S/d2
Where
ms : market share
S : outlet size (capacity)
d : distance
31

Newton’s Law:
F = m/d2
Where
F : gravitational force
m : mass (conjoined)
d : distance
32

Reilly’s Law:
ms ~ S/d2
Where
ms : market share
S : casino size (capacity)
d : distance
33

Reilly’s Law Extended:
ms ~ S/tt2
Where
ms : market share
S : casino size (capacity)
tt : travel time / convenience
34

35
Midwest Market Projections
Average Distances:
State County ZIP Spdway KStar Campt KSCr CasR Dodge KC7thS Wh Cl Horton Mayetta Powhat Argosy IOC
KS ALLEN 66732 99 129 49 41 76 267 106 155 141 121 146 109 109
KS ALLEN 66748 109 115 62 54 87 252 117 152 133 112 138 120 120
KS ALLEN 66749 100 121 67 59 93 257 108 144 126 105 131 111 111
KS ALLEN 66751 97 126 62 54 89 261 105 145 129 109 134 108 108
KS ALLEN 66755 90 135 57 48 84 271 97 146 133 113 138 100 100
KS ALLEN 66772 103 127 45 37 72 267 110 159 145 125 150 113 113
KS ANDERSON 66014 66 157 68 59 95 288 73 133 121 102 126 76 76
KS ANDERSON 66015 89 130 74 66 101 263 97 133 117 97 122 100 100
KS ANDERSON 66032 70 147 82 73 109 277 78 121 107 87 112 82 82
KS ANDERSON 66033 60 158 83 74 111 287 68 118 105 86 111 72 72
KS ANDERSON 66039 78 144 66 57 93 277 86 136 123 103 128 89 89
KS ANDERSON 66091 80 139 77 69 104 270 88 128 113 93 118 91 91
KS ANDERSON 66093 87 130 83 75 110 261 96 129 109 88 114 99 99
KS ATCHISON 66002 42 226 164 155 192 342 50 37 32 44 38 47 52
KS ATCHISON 66016 44 214 164 155 191 330 53 37 27 32 33 51 56
KS ATCHISON 66023 52 207 170 161 197 321 61 37 20 24 26 59 64
: : : : : : : : : : : : : : :
: : : : : : : : : : : : : : :
: : : : : : : : : : : : : : :
KS WYANDOTTE 66106 9 216 120 110 146 338 7 86 79 65 85 10 11
KS WYANDOTTE 66109 7 217 127 117 154 338 10 78 70 58 76 10 14
KS WYANDOTTE 66111 7 216 122 112 148 338 7 84 76 63 82 10 11
KS WYANDOTTE 66112 7 217 124 115 151 338 8 81 74 61 80 10 11
KS WYANDOTTE 66118 13 223 124 115 147 346 7 88 81 69 88 7 7
Total KS

 Location
 Location
 Size
 Everything Else
36

Bigger IS Better
 Consumer choice
 Micro-environments
 Ancillary attractions
 Queuing issues even if not capacity-
constrained
 Economies of scale
 Ancillary attractions
 Player rewards
37

More Slots, More Spending
y = 43.304x + 207.05
R2
= 0.8607
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
0 5 10 15 20 25 30
"Density" of Slots in Iowa Markets ( = Number of Slots / 000 Adults)
SlotSpending/Adult/Year
38

 Location
 Location
 Size
 Everything Else
39

“Everything Else” 1
 Personal Income
 Micro-Access
 Spaciousness
 Game Mix
 Fit & Finish
 Management Skill
 Marketing / Player Rewards
40

 Hotel
 Parking Garage
 Variety of Dining Choices
 “ / Retail
 “ / Entertainment
 “Brand”
 Tax / Retention Rate
41

The Effects of Gaming
Tax / Retention Rate
on Casino Performance
Presentation to the
15th International Conference on
Gambling and Risk Taking
May 31, 2013
42

43
y = 52.683x+ 67.417
R² = 0.5478
60.0
70.0
80.0
90.0
100.0
110.0
120.0
30% 40% 50% 60% 70% 80% 90% 100%
PowerRating
Retention Rate
Exhibit 13: Slot Power Rating vs. Casino Retention % (Detail)

44
y = 54.962x + 66.374
R² = 0.8798
60.0
70.0
80.0
90.0
100.0
110.0
120.0
30% 40% 50% 60% 70% 80% 90% 100%
PowerRating
Retention Rate
Exhibit 14: Slot Power Rating vs. Retention % (State± Averages)

“Everything Else”
=
“Attractiveness”
45

Reilly’s Law Generalized (Huff+)
weightij = Kn x sizej
scoeff x (distij/7)(grav1+grav2)
weightij : weight of casino j in market segment I
Kn: “attractiveness” parameter(s)
sizej : size of casino j
scoeff : size coefficient ≈ 1.0
distij : distance of casino j from market segment i
grav1 : “competitive” gravity coeff. ≈ -2.0
grav2 : “aggregate” gravity coeff. ≈ -0.7
[ Corresponds to Huff lambda, or “friction” = -2.7 ]
46

=
47

≠
Aesthetics
48

=
“Power Ratings”
49

50
Exhibit 5: Gaming-Device "Power Ratings" in Various US Markets
(vs. $700 Benchmark Spending on Slots and/or VLTs Per "Distance-Adjusted" Adult in 2012-14)
(better half only)
Northeastern US Medium to Large Markets Rural / Remote Markets
and Florida Elsewhere Elsewhere
Mississippi average 135.6 n
Deadwood, SD 126.2
Cripple Creek, CO (2) 124.2 n
S Dakota Tribes (avg of 8) 121.3
San Felipe (ABQ), NM 119.1 n Lagunas (3 facils), NM 119.6 n
Downstream Resort, OK 118.8 Black Hawk/CC, CO (2) 118.5 n
Upstate Michigan avg. 118.0 e
Santa Ana (ABQ), NM 117.3 n Kansas Tribes (avg of 4) 116.9 e
Louisiana average 117.1 n Other NM (avg. of 9) 116.6 n
Dodge City, KS 116.1
Turning Stone, NY 115.0 e Sandia (ABQ), NM 115.6 n Upstate Wisconsin avg. 115.0 e
Seneca Salamanca, NY 115.0 e
Diamond Jo Worth, IA 112.9
Emmetsburg, IA 112.1
Iowa Tribes (avg of 3) 111.9 e
Isleta (ABQ), NM 111.4 n Zia Park (Hobbs), NM 111.7 n
Atlantic City, NJ avg. 109.2 SunRay Park, NM 111.3 n
Seneca Niagara, NY 109.2 e Harrahs NKCMO 108.8
Grand Falls, IA (S. Falls, SD) 107.5
Vernon Downs, NY 106.8 Lakeside, IA 106.7
Tioga Downs, NY 106.7 Taos, NM 106.7 n
(Buffalo) Fairgrounds, NY 105.7 Hard Rock Sioux City, IA 105.5
Kansas Star (Wichita) 104.8 Mt. Pleasant, MI 105.0 e
The Downs at ABQ, NM 104.1 n IOC Boonville, MO 104.0 n, o
Mohegan Sun, CT 103.1 Horseshoe / Bluffs Run, IA 103.8 Wisconsin Dells 104.0 e
Michigan City, IN 102.3 n IOC Marquette, IA 102.0 o
Riverside, IA 101.9
Mountaineer Park, WV 101.5 IOC Waterloo, IA 101.2
Foxwoods, CT 100.6
Mohegan @ Pocono Downs, PA 100.4 Dubuque Diamond Jo, IA 100.1
Harrahs Council Bluffs, IA 100.1
Argosy Riverside, MO 100.1
Ocean Downs, MD 99.6 Dubuque Mystique, IA 99.6
Presque Isle, Erie, PA 98.9 Ruidoso Downs, NM 98.9 n
Finger Lakes, NY 98.8
Wheeling, WV 98.0 Ameristar Council Bluffs, IA 98.2
Dover Downs, DE 97.7
The Meadows / Pittsburgh 97.3 Ameristar KCMO 97.2
Saratoga, NY 97.0 Belterra, Florence, IN 96.8 n, o
Harrington Raceway, DE 96.5
Delaware Park 96.2
Mount Airy / Pocono, PA 94.6 Harrahs Joliet, IL 94.0 n, o St Jo MO 94.4 o
Penn National / Harrisburg, PA 93.7 Hollywood @ Speedway, KS 93.6
Jumers Rock Island, IL 93.5
Indiana Grand 92.4
Catfish Bend Burlington, IA 92.0
Hollywood W St Louis 91.6 n
Hoosier Park, IN 91.1
Batavia, NY 90.8 Detroit (avg / 3 facils) 90.7 n
Ameristar, E Chicago IN 90.5 n, o
Prairie Meadows, IA 90.3 Metropolis, IL/KY 90.2 n, o
Midwest Standard +10%
"Midwest Standard"

51
Exhibit 6: Table-Game Power Ratings in the Midwest
(Benchmark = Total Annual Spending of $80 per Distance-Adjusted Adult)
Large Urban Markets Smaller Cities
(or Fed From Such) & Misc. Markets Remote Markets
Des Plaines, IL (Chicago) 143.4
Hammond, IN (Chicago) 129.2
Ameristar E Chicago IN 123.4
Ameristar, Omaha / IA 122.7
Harrahs NKCMO 122.4
Harrahs Joliet, IL (Chicago) 120.8
Ameristar KCMO 118.3 Black Hawk, Colorado 118.1
Hollywood Aurora, IL (Chicago) 117.5
Horseshoe, Omaha / IA 116.5
Holllywood Joliet, IL (Chicago) 116.3 Michigan City, IN 116.4
Elgin, IL (Chicago) 113.9 Dodge City, KS 114.5
H'wood @ KS Speedway 111.5 Kansas Star 111.6 Metropolis, IL / KY 111.6
Majestic Star, Gary IN (Chicago) 111.0 Horseshoe Louisville 111.0 Cripple Creek, Colorado 111.0
Argosy Riverside, (KC)MO 109.8
Belterra, IN 107.9
E St Louis, IL (avg. of 2) 105.4
Ameristar St. Charles, MO 105.3 French Lick, IN 104.8
Worth County, IA 104.7
Boonville, MO 103.3
St Louis, MO (avg. of 3) 100.5
Waterloo, IA 99.7
Lakeside, IA 99.5
Harrahs, Omaha / IA 97.7 DBQ Diamond Jo, IA 96.7
Sioux City, IA 95.3 Deadwood, SD 95.8
Riverside, IA 94.9
Rising Star, IN (Cincin.) 93.4 Evansville, IN 93.9
Hollywood Lawrenceville, IN ( " ) 92.8
Isle of Capri, KCMO 92.0 DBQ Mystique, IA 92.3 Emmetsburg, IA 92.0
Catfish Bend, IA 90.0
E Peoria, IL 88.6
St Jo, MO 87.0 o
Marquette, IA 85.2 o
Downstream, OK 83.3 e
Mark Twain, MO 82.2
Jumers Rock Island, IL 81.9
Clinton, IA 75.4
Grand Falls, IA 73.1
Bettendorf, IA 70.7 o
Davenport, IA 64.0 o
a = annual rate, e = estimated, n = mileage-based or low-resolution estimate, o = old boat, hotel- or capacity-constrained market
"Midwest Standard"
Midwest Standard -10%
Midwest Standard -20%

Power Ratings Modulate:
 Local propensity to spend
 Absolute “attractiveness”
 Relative ” / Market Share
 “Reach” = Rate of exponential
decline with distance
52

Gravity Models – Summary
 Location
 Location
 Size
 Everything Else
53

54
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
0
5
10
15
20
25
30
0-10 miles 10-20
miles
20-30
miles
30-40
miles
40-50
miles
50-70
miles
70-100
miles
100-150
miles
150-
300(±)
miles
> 300(±)
miles
AnnualVisits(and$Win)PerPlayer
Exhibit A-4: Rates of Visitation (and Win) vs. Distance at Casino Z
Tr
$

More Slots, More Spending
y = 43.304x + 207.05
R2
= 0.8607
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
0 5 10 15 20 25 30
"Density" of Slots in Iowa Markets ( = Number of Slots / 000 Adults)
SlotSpending/Adult/Year
56

 Personal Income
 Micro-Access
 Spaciousness
 Game Mix
 Fit & Finish
 Management Skill
 Marketing / Player Rewards
57

 Hotel
 Parking Garage
 Variety of Dining Choices
 “ / Retail
 “ / Entertainment
 “Brand”
 Tax / Retention Rate
58

Assumptions
 New casinos’ performance (“power ratings”)
very similar to other new Midwest
 Minor modifications for $/position, square footage, etc.
 Very similar to Downstream except for “tax” advantage
 Rest of the world remains as is
 No new casinos / enhancements of existing
 Exception: “Stressed Case”
 Gravity model x local & regional residents
 Plus small contributions to Castle Rock / I-44
60

61
Exhibit 7: Slot Power Ratings, etc.
(for comparison)*
Camptown KS Crossing Castle Rock Downstream
Slot Machines 750 625 1,400 2,000
Table Games (not inc. poker) 16 15 35 36
Total Gaming Positions ( " " ) 846 715 1,610 2,216
Baselines for Slots:
Midwest Standard (+) 102.00 102.00 102.00 102.00
Distance from Major Population Center 7.00 6.00 4.00 4.00
Intensity of Competition 1.00 2.00 4.00 3.00 *
Low Payments in lieu of Taxes at Downstream 7.80
Bricks & Mortar $ / Gaming Position (in $100ks) 0.63 0.77 0.59 1.01
Casino Square Footage / Gaming Position (x .02) 0.77 0.56 0.96 0.63
Hotel Rooms / Gaming Position (x 2) 0.15 0.34 0.25 0.35
---------- ---------- ---------- ----------
Total Slot Power Rating 111.55 111.66 111.80 118.80 *
"Reach" (miles before extra decline with distance) 200 200 200 200
Compare: 2008 est. at this location 102.0 N/C 102.0 105.0
* Downstream power rating tuned to actual performance in 2010-11; competition was less intense then.
Note: 100 = "Midwest Standard" power rating. Latest major facilities in Iowa range from 100 to 107. Kansas Star today = 104.8, Boot Hill = 116.1
Slot power ratings at the "Big Three" KCMO facilities currently range from 97 to 104; table ratings from 110 to 123.
I have assumed 111 for tables at all SE KS facilities. Existing Kansas facilities' tables range from 111.7 to 114.5.

Top-Line Gross Gaming $$
63
Camptown KS Cr CasRock
Slots $29.1 $30.3 $44.8
Tables 5.5 6.3 15.0
-------------------------- ---------------------------- ----------------------------
Totals: $34.6 $36.6 $59.8
Number of Slots: 750 625 1,400
Gaming Revenue Projections in 2019 in millions of then-year dollars.
Also reflects different numbers of table games at each.

Sources by State
64
Source Market Camptown KS Cr CasRock
Kansas $20.7 $20.3 $10.9
Missouri 10.0 11.8 31.0
Oklahoma 3.4 4.1 14.8
Other Midwest 0.5 0.4 0.6
Traffic Intercept * 0.0 0.0 2.5
-------- ------- -------
Total $34.6 $36.6 $59.8
Net Exports + / - + 18.9 + 21.1 + 55.4
(All $ million in 2019)
* Traffic intercept includes some visitors from the states above.

Sources by Type
65
Source Type Camptown KS Cr CasRock
New Spending / Kansas $13.5 $13.6 $2.0
Diverted within Kansas 2.2 1.9 2.4
Import Substitution 5.0 4.8 6.5
Exports 13.9 16.3 48.9
-------- ------- -------
Total $34.6 $36.6 $59.8
Net Exports + / - + 18.9 + 21.1 + 55.4
(All $ million in 2019)

Visitation by State
67
Source Market Camptown KS Cr CasRock
Kansas 335 317 174
Missouri 150 172 485
Oklahoma 43 51 213
Other Midwest 6 5 7
Traffic Intercept * 0 0 29
------- ------- -------
Total 534 545 908
“Tourists” 121 126 197
(All in thousands in 2019 )
* Traffic intercept includes some visitors from the states above.

Projected Financial
Results
69

Key Financial Metrics
70
Camptown KS Cr CasRock
GGR $34.6 $36.6 $59.8
EBITDA * $3.4 $5.4 $7.9
EBITDA ROI 4.1% 7.2% 5.5%
Total Invested $84.0 $75.2 $144.5
All dollar figures in millions of then-year dollars; GGR in 2019;
EBITDA and ROI average annual rates 2017-2021.

Will E. Cummings
Cummings Associates
135 Jason Street
Arlington, MA 02476
(781) 641-1215
cummingsw@aol.com
77

Projected Performance of New Casinos in Southeast Kansas

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