National HBPA Summer Meeting National HBPA Summer Meeting “Table Games at Racinos”© Dr. Richard Thalheimer, President Thalheimer Research Associates Lexington, Kentucky July 2, 2009

How Do Tables Affect Gaming Revenue? + =? Thalheimer Research Associates

The Effect of Table Games on Racing and Gaming Revenue Results of Statistical Analyses Thalheimer Research Associates

Statistical Analysis 1 “The Demand for Casino Gaming” by Thalheimer, R. and Ali, M.M. Applied Economics 2003 Thalheimer Research Associates

Study Objective The objective of this study was to develop a statistical model to measure the effect of factors accounting for changes in slot machine wagering at Midwestern riverboat casinos and racinos. The effect of each factor affecting slot machine wagering can be determined statistically “holding constant” the effects of all other factors affecting wagering.

Subjects of Study 24 riverboats and 3 racinos in: 24 riverboats and 3 racinos in: Illinois Illinois Iowa Iowa Missouri Missouri Thalheimer Research Associates

Slot Machine Handle Factors days of operation access (distance) of market area customers to site access of market area customers to competing Indian, racino and riverboat casino sites slot machine win% number of slot machines number of table games government restrictions market area per-capita income Thalheimer Research Associates

Relationship of Table Games to Slot Machine Handle “Holding constant” changes in other factors, including inflation, affecting slot handle: slot handle decreased 13% with tables. slot handle decreases as tables increase. Thalheimer Research Associates

Statistical Analysis 2 “An Economic-Statistical Analysis of Racing and Slot Machine Wagering at Prairie Meadows Racetrack and Casino”© by Thalheimer Research Associates Lexington, KY for Iowa Thoroughbred Horsemen’s Benevolent and Protective Association (IAHBPA) Iowa Thoroughbred Breeders and Owners Association (ITBOA) Iowa Quarter Horse Racing Association (IQHRA) Iowa Harness Horse Association (IHHA) August 18, 2008

Study Objective The objective of this study was to measure the effect of factors accounting for changes in slot machine and horse race wagering at Prairie Meadows racino over time. Of particular interest was the interrelationship between the racing and gaming sides of the racino operation. Thalheimer Research Associates

Study Method Two monthly statistical wagering models were developed, one for slot machine betting and one for on-track horse race betting. The effect of each factor affecting slot machine or parimutuel wagering can be determined statistically “holding constant” the effects of all other factors affecting wagering. Thalheimer Research Associates

Factors Included In Both Slot and Horse Race Wagering Statistical Models gaming factors: number of slots at Prairie slot machine win percent at Prairie number of tables at Prairie (Dec. 2004) parimutuel factors: number of live horse race days number of import simulcast horse & dog races average daily purse, quality races market area per capita personal income competition from off-site Indian and riverboat casinos Thalheimer Research Associates

Relationship of Table Games to On-Track Parimutuel Handle – Prairie Meadows “Holding constant” changes in other factors, including inflation, affecting on-track handle: parimutuel handle decreased 33% from combined slots and tables effect. parimutuel handle decreases as slots and/or tables increase. Thalheimer Research Associates

Relationship of Table Games to Slot Handle – Prairie Meadows “Holding constant” changes in other factors, including inflation, affecting slot handle: slot handle decreased 8% as a result of tables. slot handle decreases as tables increase. Thalheimer Research Associates

Summary Statistically Estimated Effect of Tables Slot revenue Tables reduce slot revenue 8%-13% note: WV racinos now have enough info for a statistical analysis of the effect of tables Total (slot+table) revenue increases with tables Parimutuel handle Tables reduce on-track parimutuel handle Thalheimer Research Associates

States That Currently Permit Table Games at Racinos Iowa2004 West Virginia2007 Delaware2009* *not yet operational Thalheimer Research Associates

Treatment of Revenue Shares to Stakeholders from Slots and Tables No difference in stakeholder share between slots and tables: Iowa racinos U.S. casinos Difference in stakeholder shares between slots and tables: West Virginia racinos Delaware racinos Thalheimer Research Associates

Effective Shares of Slots and Table Revenue at Mountaineer to All Stakeholders 2008 SlotsTables* Racetrack44%66% Government (and other)44%29.5% Horsemen Purse Breeder Awards 10.6% 1.5% 2.5% 2.0% *State tax of 35% is 29.5% after payment of purses/breeder awards and 1% to racetrack employee pension. Racetrack share includes racetrack employee pension fund. Admin. expenses, state debt reduction, local gov’t, tourism also in state share. Thalheimer Research Associates

Comparison of % Change in Revenue to Stakeholders at Mountaineer Calendar Adjusted for Inflation SlotsSlots+Tables Gross Revenue-26%-8% Purses + Breeder Awards-23%-16% Government and Related-27%-15% Racetrack-25%1.5% Note: Statistical analysis needed to separate VLT impacts such as from competition and introduction of tables. Thalheimer Research Associates

Potential Consequences of a Lower Share of Table Revenue to Purses and Government in West Virginia If slot revenue decreases, purses and/or gov’t may lose revenue, even if total revenue with tables increases, since purse & government shares from tables are significantly less than from slots. A decrease in purses directly affects race horse owner and trainer revenue for operations and resulting jobs. A decrease in purses affects race horse breeder revenue, agriculturally related jobs, and preservation of “green space”. Thalheimer Research Associates