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Special House Commission to Study Gaming State of Rhode Island January 23, 2003

Special House Commission to Study Gaming State of Rhode Island January 23, 2003 Background Crowe, Chizek and Company LLP 8 th Largest Consulting & Accounting Firm Nationally Formed in 1942 in South Bend, IN 15 offices nationally, from Grand Rapids to Fort Lauderdale Work Experience

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Special House Commission to Study Gaming State of Rhode Island January 23, 2003

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  1. Special House Commission to Study GamingState of Rhode IslandJanuary 23, 2003

  2. Background • Crowe, Chizek and Company LLP 8th Largest Consulting & Accounting Firm Nationally • Formed in 1942 in South Bend, IN • 15 offices nationally, from Grand Rapids to Fort Lauderdale Work Experience • Hospitality expertise extended into some gaming just as interest in gaming spread nationally (circa 1990) • Economic and Fiscal Impact Studies • Testimony before State and Local governments in • Indiana • Louisiana • Mississippi • Ohio • Wisconsin

  3. Ameristar Argosy Aztar Binion/Horseshoe Blue Chip Caesars Harrah’s Hyatt Pinnacle Trump Representative Clients • Boykin Lodging • Centaur • Churchill Downs • Keeneland • Scioto Downs • Turfway Park • Numerous Native American Indian tribes (e.g., Ho-Chunk, Pokegan, Grand Traverse Band, Big Cypress Seminole)

  4. Indiana? Yes! Ranks Third in FY 2001 Tax Revenue from Gaming $688M $529M $493M Source: State gaming regulators and associations

  5. Fastest Growing Gaming Markets: 2000-2001 Nationally: up 4.9%, to $25.7 Billion +13.1% +34.5% +4.0% +5.9% +5.9% +10.3% Source: State gaming regulators and associations

  6. Industry Overview • As the commercial gaming industry has expanded throughout the United States, the gross annual revenue has steadily increased to over $140B in 2001. • Gaming revenues are generated from pari-mutuel wagering, lotteries, casinos, legal bookmaking, bingo and Indian reservations. • Over the past decade, spending on casino gaming has increased significantly, from 11.5B in 1990 to an estimated $47B in 2001 ($28.1B excluding unreported Native American gaming activity).

  7. Industry Overview • Nearly every state in the US offers some form of gambling: • Lotteries • Resorts like Las Vegas, Atlantic City, Biloxi • Riverboats in Illinois, Indiana, Louisiana, Missouri, Iowa, and throughout the nation’s heartland • Over 150 Indian reservations

  8. States with Lotteries

  9. States with Casinos (Riverboat or Land-based)

  10. States with Native American Casinos

  11. States with Lotteries, Casinos (Commercial or Native American) or Pari-mutuel

  12. Industry Overview – Beyond Nevada and New Jersey • Riverboat gaming was first established in the Midwest with the State of Iowa in 4/91; Illinois followed in 11/91 and Indiana in 12/95. • Riverboat gaming revenue for the year ended December 31, 2001 in Illinois and Indiana neared $2B: YE 12/31/01 (in 000s) Illinois $1,783,958 Indiana $1,841,841 TOTAL $3,625,799

  13. Industry Overview – Beyond Nevada and New Jersey • Admission and wagering taxes levied by the states of Illinois and Indiana in 2001 amounted to $1.1 billion (not including the state income taxes on the profits). • Other states in the Midwest which conduct riverboat gaming and their related 2001 gaming revenues are noted below: YE 12/31/01 (in 000’s) Iowa $886,996 Missouri $1,049,216 • Michigan has three commercial casinos operating in Detroit. These opened between 1999 and 2000 in temporary facilities. Combined casino revenues in 2001 were slightly over $1B.

  14. Native American Casinos • Throughout the US there are approximately 290 tribal gaming operations which generated $12.7B in revenues in 2001 (less than 10% of the total industry*). * Source: National Indian Gaming Association

  15. States With Greatest Gaming Tax Revenues $688M $529M $342M $493M $375M Source: State gaming regulators and associations

  16. Central 30% (22%) Northeast 27%(19%) West 36%(23%) South 20%(36%) Northeast is Undersupplied % of Nationwide Casino Visits in 2001 (% of U.S. Population in Parentheses) Source: Harrah’s Entertainment, Inc./NFO WorldGroup, Inc.

  17. Demographics Typical Casino Patron = “Typical American” • Patrons compared to U.S. Population: • Caucasian (76% vs. 76% of total population) • Married or engaged (61% vs. 59%) • Male (45% vs. 48%) • Median age over 21 (45 vs. 46) • At least some college (55% vs. 52%) • Median household income ($50k vs. $41k) • White collar (46% vs. 41%) • Homeowner (73% vs. 68%) Sources: American Gaming Association, Harrah’s Entertainment, Inc. and Bear, Stearns & Co. Inc.

  18. How to Get There - Our Market Study of West Warwick Methodology: Demand-driven/Market-driven • Bottom-up approach • Don’t subscribe to “IYBITWC” philosophy • Back-testing shows we’re conservative • Example (from our 2000 forecast of Indiana’s 2001 market):

  19. How to Get There - Our Market Study of West Warwick

  20. Market 2000 Adult 2001 Census Geography Adult Adult % % Who Visits perCounty Census Pop’n Estimate Factor Pop’n of Pop’n Game Year (33.2%) (6.0) Bristol, RI 50,648 36,334 51,173 100% 36,711 71.7% 12,188 73,128Kent, RI 167,090 123,109 169,224 100% 124,681 73.7% 41,394 248,365Newport, RI 85,433 62,870 85,218 100% 62,712 73.6% 20,820 124,922Providence, RI 621,602 438,952 627,314 100% 442,986 70.6% 147,071 882,427Washington, RI 123,456 87,180 125,991 100% 88,970 70.6% 29,538 177,228New London, CT 259,088 185,834 259,065 5% 9,291 71.7% 3,085 18,507Windham, CT 109,091 76,567 110,162 30% 23,196 70.2% 7,701 46,206Norfolk, MA 650,308 478,556 653,232 100% 480,708 73.6% 159,595 957,570Middlesex, MA 1,465,396 1,080,509 1,463,454 100% 1,079,077 73.7% 358,254 2,149,522Plymouth, MA 472,822 330,414 481,059 80% 268,936 69.9% 89,287 535,721Suffolk, MA 689,807 550,466 682,062 100% 544,285 79.8% 180,703 1,084,217Worcester, MA 750,963 528,847 762,207 50% 268,383 70.4% 89,103 534,618 Total Market 5,445,704 3,979,638 5,470,161 3,429,935 1,138,738 6,832,430 Note that less than one-fourth (22.0%) of the market visitation might be derived from Rhode Island residents. How to Get There - Potential West Warwick Gaming Market

  21. Annual Visitation 6,832,430 Win per Visit $100.00 (Note 1) Adjusted Gross Gaming Revenue $683,243,000 State Fiscal Impact (at 25% Tax Rate) $170,810,750 Note 1: Indiana - 11/02 average $89.22Argosy riverboat - 11/02 $108.97Illinois - 12/02 average $102.00Illinois - FYTD 12/02 average $97.00Elgin riverboat - FYTD 12/02 $136.00 How to Get There - Potential West Warwick Fiscal Impact

  22. A Regulatory Framework for Rhode Island Gaming Overview: • Enabling Legislation • Regulatory Body • Regulatory Standards • Enforcement and Penalties

  23. A Regulatory Framework for Rhode Island Gaming Enabling Legislation • Local Developer Agreements • Provide for direct, local “compacts” with developer: • Local taxes/fees • Local hiring/purchasing requirements • Infrastructure funding • Community involvement • Charitable activities • Licensing requirements • Owner/operator • Suppliers • Occupations

  24. A Regulatory Framework for Rhode Island Gaming Enabling Legislation (cont.) • Create regulatory body • Number of commissioners/directors • Powers and duties of the body • Address political contributions by licensees • Set operating parameters • Minimum legal age • Permissible games/wager amounts • Cash or cashless wagering? • Operating hours/calendar

  25. A Regulatory Framework for Rhode Island Gaming Regulatory Body • Commission appointments • Commissioner criteria • Geographic representation • Professional skills – accounting/finance, law, government, social services • Political party affiliation balance • Appointment power • Governor, Legislature, combination • Commission staff

  26. A Regulatory Framework for Rhode Island Gaming Regulatory Body (cont.) • Funding Sources • Fees and assessments • e.g., licensing and related investigations • Wagering tax revenue • First cut (“off the top”) • e.g., investigations and general costs of regulation • Fixed amount • Activity-based levies • Licensee pays actual costs as/when incurred • e.g., all enforcement and disciplinary proceedings

  27. A Regulatory Framework for Rhode Island Gaming Regulatory Body Example: Indiana Gaming Commission • Seven Commissioners • Three-year staggered terms • Three from Lake Michigan counties, three from Ohio River counties, one from neither • Up to four from same political party • At least one from law enforcement, one CPA, one attorney • Executive Director and staff of 36 • 15 associated with Field Audit function • SFY 2001 budget of $15 million • 56% funded through licensee reimbursements • 18% funded from fees and fines • 26% funded from wagering tax appropriations

  28. A Regulatory Framework for Rhode Island Gaming Regulatory Standards/Duties • Conduct licensing/renewal process • Investigate applicants/licensees for suitability • Investigate alleged rule violations • Administer enforcement/disciplinary actions • Collect reimbursement by licensee of all administrative or enforcement costs • Report • Illinois offers an example of good monthly reporting (Appendix)

  29. A Regulatory Framework for Rhode Island Gaming Enforcement and Penalties • Cash business = need for tight controls • Regulatory agents on-site during all operating hours • Continual audit/testing of security and reporting controls • Need for swift, effective investigations and penalties • Fines must be properly scaled to have force • Example: $95k fine for failure to disclose a contract (Illinois) • Example: $8k fine for granting access to a minor (Indiana) • Example: 3-day quasi-shutdown for improper advertising (Indiana) • Casino operator was required to “make good” to employees and its host community so the shutdown was revenue-neutral to them

  30. Appendices • A: Illinois Gaming Board Monthly Riverboat Casino Report (December, 2002) • B: Useful References

  31. Appendix A: Illinois Gaming Board Monthly Riverboat Casino Report December 2002

  32. Appendix B: Useful References • Indiana Riverboat Gaming Laws (IC §4-33) • http://www.ai.org/legislative/ic/code/title4/ar33/index.html • Illinois Riverboat Gaming Laws (230 ILCS 10) • http://www.legis.state.il.us/ilcs/ch230/ch230act10.htm • Indiana Gaming Commission • http://www.state.in.us/gaming/ • Illinois Gaming Board • http://www.igb.state.il.us/

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