2012 Association of Private Enterprise Education Conference Las Vegas Nevada April 2 2012 Doug Walker and Todd Nesbit College of Charleston Motivation Commercial casinos have either been recently legalized or are under consideration in a variety of states ID: 588435
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Slide1
Missouri Casino Revenue Sensitivity to Competing Casinos
2012 Association of Private Enterprise Education ConferenceLas Vegas, NevadaApril 2, 2012
Doug Walker and Todd Nesbit
College of CharlestonSlide2
Motivation
Commercial casinos have either been recently legalized or are under consideration in a variety of statesNY, NH, KS, OH, FL, MA, KYRenewed interest during recessionRecently states have been following a “regional” modelKS, OH, MAMore 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..."
2Slide3
Choice of Market
Tribal casinos present a problem in analyzing revenues,Tribes are sovereign nations and do not publicize revenuesRacinos present a problem because different types of gambling are offeredCompetition between racing and machine games may be difficult to control forThe 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..."
3Slide4
Missouri
Walker and Nesbit, "Missouri casinos..."4
6
th
state to legalize casinos12 riverboat casinos currently (13 legal max.)
Changing regulations“Boats in moats” within 1,000 feet of Missouri/Mississippi rivers1998 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…Slide5
Walker and Nesbit, "Missouri casinos..."
5
Market
Property Name
Opening Date
Major Change (Date)
2011 Fiscal Year Gross Revenues
(millions nominal $)
2011
Casino Space (sq. ft.)
2011
Gaming Machines
2011
Gaming Tables
St. Joseph
St Jo
Frontier
6/1994
Changed ownership (2/2005)
$40.2
18,000
550
11
Kansas City
Argosy
6/1994
--
$193.1
62,000
1,894
39
Isle of Capri, KC
10/1996
Changed ownership (7/2000)
$83.6
45,300
1,163
22
Harrahs
, N KC
9/1994
--
$193.3
63,300
1,585
62
Ameristar, KC
1/1997
Changed ownership (12/2000)
$241.1
140,000
2,840
74
Sam’s Town
9/1995
Closed (7/1998)
--
28,000
a
1,117
a
45
a
Boonville
Isle of Capri,
Boonville
12/ 2001
--
$82.0
28,000
991
19
LaGrange
Mark Twain
7/2001
Changed ownership (2/2005)
$38.1
18,000
656
13
Caruthersville
Lady Luck
4/1995
Changed ownership (3/2007)
$33.3
21,400
595
14
St. Louis
Ameristar, St L
5/1994
Changed ownership (12/2000)
$278.3
130,000
2,738
72
Harrahs, MH
3/1997
Bought neighboring Players Casino (4/2000)
$269.3
120,000
2,503
86
Lumière
12/2007
--
$173.2
75,000
2,011
67
Players
3/1997
Bought by Harrahs, MH (4/2000)
--
52,000
b
1,586
b
48
b
President
5/1994
Closed (6/2010)
--
53,800
c
674
c
7
c
River City
3/2010
--
$180.9
90,000
2,034
59
Total values for casinos open in 2011
$1,806.4
811,000
19,560
538Slide6
Walker and Nesbit, "Missouri casinos..."
6Slide7
Literature review
Walker and Nesbit, "Missouri casinos..."7
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)Slide8
Data
Walker and Nesbit, "Missouri casinos..."8
Sample period is 1997.1 through 2010.2
Missouri casino data:
Quarterly adjusted gross revenues (AGR; real)
Dependent variableMissouri casino sizeAnnual number of table gamesAnnual 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 fliesSlide9
Data, cont.
Walker and Nesbit, "Missouri casinos..."9
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.comSlide10
Model
Walker and Nesbit, "Missouri casinos..."10
Regional competition model: “Distance Scaled Competition” (DSC)
For each MO casino
i
we use…
Size
, table,
machine
data for all other
j
casinos within 100
miles
Distance
i,j
is “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
Slide11
Model, cont.
Walker and Nesbit, "Missouri casinos..."11
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
Slide12
OLS Results
Walker and Nesbit, "Missouri casinos..."12
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 Table 2: Pooled OLS results for log(Casino Revenue): 1997 Q1 - 2010 Q2
[1]
[2]
[3]
[4]
Variable
Coefficient
t-stat
Coefficient
t-stat
Constant
-5.789-1.4205.300***1.829log(Square Footage)0.750***21.026log(Machines)0.970***14.718log(Tables)0.087***1.448log(DS_SqFt)-0.159***-4.339log(DS_Machines)0.199***2.783log(DS_Tables)-0.303***-4.307Population0.4104.0090.353***5.839PCPI1.021***1.933-0.166***-0.457Unemployment Rate-0.030***-3.079-0.012***-1.786Observations486486R-square0.817 0.918 Results corrected for heteroskedasticity using White's Matrix.Statistical significance of 1%, 5%, & 10% denoted by ***, **, & * respectively.Slide13
Results, cont.
Walker and Nesbit, "Missouri casinos..."13
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.
Slide14
Results, cont.
Walker and Nesbit, "Missouri casinos..."14
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 resultsSlide15
Spatial Durbin Model Results
Walker and Nesbit, "Missouri casinos..."15
Columns 1&2:
10%
incr
in casino sq
ft
4.8%
incr
in own revenue
10%
incr
DS_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 revenue10% incr DS_Machines 1.8% decr in casino rev10% incr DS_Tables 0.6% incr in casino rev (insignificant)Table 3b: Pooled SDM results for log(Casino Revenue):
1997 Q1
- 2010 Q2
[1]
[2]
[3]
[4]
Variable
Coefficient
t-stat
Coefficientt-statDirect Effectslog(Square Footage)0.478***13.726log(Machines)0.541***8.597log(tables0.226***4.844log(DS_SqFt)-0.163***-7.696log(DS_Machines)-0.182**-2.526log(DS_Tables)0.0590.856Population0.665***9.5090.558***8.582PCPI1.098**2.280-0.226-0.520Unemployment Rate0.134***3.7040.057*1.915Statistical significance of 1%, 5%, & 10% denoted by ***, **, & * respectively.Slide16
Other Issues & Conclusion
Walker and Nesbit, "Missouri casinos..."16
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