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Missouri Casino Revenue Sensitivity to Competing Casinos

Missouri Casino Revenue Sensitivity to Competing Casinos. Doug Walker and Todd Nesbit College of Charleston. 2012 Association of Private Enterprise Education Conference Las Vegas, Nevada April 2, 2012. Motivation.

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Missouri Casino Revenue Sensitivity to Competing Casinos

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  1. Missouri Casino Revenue Sensitivity to Competing Casinos Doug Walker and Todd Nesbit College of Charleston 2012 Association of Private Enterprise Education ConferenceLas Vegas, NevadaApril 2, 2012

  2. Motivation • Commercial casinos have either been recently legalized or are under consideration in a variety of states • NY, NH, KS, OH, FL, MA, KY • Renewed interest during recession • Recently states have been following a “regional” model • KS, OH, MA • More established markets are clustered: NV, NJ, MS • As casinos spread, “saturation” becomes a potential issue • Few (if any) studies have examined intra-industry competition for casinos Walker and Nesbit, "Missouri casinos..."

  3. Choice of Market • Tribal casinos present a problem in analyzing revenues, • Tribes are sovereign nations and do not publicize revenues • Racinos present a problem because different types of gambling are offered • Competition between racing and machine games may be difficult to control for • The ideal market would not have tribal casinos or racinos in the area • (unless great data were available…which they’re not) • Missouri and Illinois both look good • Well-established markets, no tribal casinos, no racinos Walker and Nesbit, "Missouri casinos..."

  4. Missouri • 6th state to legalize casinos • 12 riverboat casinos currently (13 legal max.) • Changing regulations • “Boats in moats” within 1,000 feet of Missouri/Mississippi rivers • 1998 voters eliminated the “cruise to nowhere” requirement • 2008 voters eliminated the $500 loss limit • 2008 Illinois smoking ban affected MO casinos • See Garrett and Pakko (2010) • Basic information for casinos in 2011 on the next page… Walker and Nesbit, "Missouri casinos..."

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  7. Literature review • No study has examined intra-industry competition within a state • Several studies have examined inter-gambling-industry relationships • Walker & Jackson (2008) included adjacent-state variables • Davis, Filer, & Moak (1992); Thalheimer, & Ali (1995); Ray (2001), Siegel & Anders (2001), Elliott & Navin (2002), Fink & Rork (2003), Kearney (2005) • Cross-border shopping literature: Knight & Schiff • Casino adoption literature • Missouri Gaming Commission invited study (2010) Walker and Nesbit, "Missouri casinos..."

  8. Data • Sample period is 1997.1 through 2010.2 • Missouri casino data: • Quarterly adjusted gross revenues (AGR; real) • Dependent variable • Missouri casino size • Annual number of table games • Annual number of machine games • Annual square footage of casino floor space • Competing casino size • Above size variables for any casinos within 100 miles of a MO casino • Includes casinos in Illinois, Iowa, and Kansas • Distances between casinos, as the crow flies Walker and Nesbit, "Missouri casinos..."

  9. Data, cont. • Demographic (demand) data • Collected for MSA within which the casino is located, except… • Boonville, adjacent to Columbia MSA • Caruthersville, near Dyersburg, TN micropolitan statistical area • LaGrange, near Quincy, IL micropolitan statistical area • Annual population estimate • Annual unemployment rate • Annual per capita personal income (real) • Data sources • States’ gaming regulatory agencies • Census, BLS, BEA • Casinocity.com Walker and Nesbit, "Missouri casinos..."

  10. Model • Regional competition model: “Distance Scaled Competition” (DSC) • For each MO casino iwe use… • Size, table, machine data for all other j casinos within 100 miles • Distancei,jis “as the crow flies” • Scale each measure by , and sum the scaled measures: for all i = 1…n As size of a competing casino increases, or distance decreases, DSC increases: an increase in regional competition Walker and Nesbit, "Missouri casinos..."

  11. Model, cont. • We use the log of each variable, except Urate, for interpretation as elasticities • Since Sq Ft is highly correlated with Tables and Machines, we estimate two separate specifications for size • (1) Sq Ft; DSC is Distance Scaled Sq Ft • (2) Tables and Machines; DSC is Distance Scaled Tables and Distance Scaled Machines (two separate variables) • Pooled model without annual or quarter fixed effects • Period fixed effects were estimated but didn’t add explanatory power and didn’t change qualitative results Walker and Nesbit, "Missouri casinos..."

  12. OLS Results • Columns 1&2: • 10% incr in casino size 7.5% incr in own revenue • 10% incr in DS_SqFt 1.6% decr in casino revenue • Columns 3&4 • 10% incr in machine count 9.7% incr in own revenue • 10% incr in table count 0.9% incr in own revenue • 10% incr in DS_Mach 2% incr in casino rev • 10% incr in DS_Tables 3% decr in casino rev Walker and Nesbit, "Missouri casinos..."

  13. Results, cont. • Spatial Durbin Model (SDM): • WX is the weighted average of the explanatory variables of neighboring casinos • e.g., weighted average of PCPI of neighboring casinos • Wy is the spatial lag of the dependent variable • i.e., the weighted average of neighboring MO casino revenues • Interpretation of Wy requires direct and indirect effects • Direct effects are interpreted as “own effects,” including feedback • Indirect effects are interpreted as combined spillover effects on all other casinos. • Total effects are the sum of the above two. Walker and Nesbit, "Missouri casinos..."

  14. Results, cont. • We are particularly interested in the direct effects because our goal is to measure the impact of indep. variables on a given Missouri casino’s revenues • Table 3b (in the paper) presents the direct results Walker and Nesbit, "Missouri casinos..."

  15. Spatial Durbin Model Results • Columns 1&2: • 10% incr in casino sqft 4.8% incr in own revenue • 10% incrDS_SqFt 1.6% decr in casino revenue • Columns 3&4: • 10% incr in machine count 5.4% incr in own revenue • 10% incr in table count 2.3% incr in own revenue • 10% incrDS_Machines 1.8% decr in casino rev • 10% incrDS_Tables 0.6% incr in casino rev (insignificant) Walker and Nesbit, "Missouri casinos..."

  16. Other Issues & Conclusion • Interpretation of tables (5-15 gaming positions per table) vs machines (1 gaming position per machine) • Policy change variables to include in subsequent analysis… • 1998 voters relax sailing requirement, allowing “boats in moats” within 1000 ft of river main channel • Jan 2008 smoking ban implemented in IL significantly decreased IL casino revenues (Garrett & Pakko 2010) • Nov 2008 repeal of $500 loss limit at MO casinos • Robustness checks: 1/distance • Visitor count as dependent variable • Sports stadiums within walking distance to several casinos in St. Louis • Tunica market, just outside 100 mile distance from Caruthersville, MO casino • Adapt to other states/markets • Contact info: Doug Walker, College of Charleston WalkerD@cofc.edu walkerd.people.cofc.edu Walker and Nesbit, "Missouri casinos..."

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