National Council of Legislators from Gaming States s2

NATIONAL COUNCIL OF LEGISLATORS FROM GAMING STATES

COMMITTEE ON CASINOS

NEW ORLEANS, LOUISIANA

JUNE 15, 2012

The Committee on Casinos of the National Council of Legislators from Gaming States (NCLGS) met at the Royal Sonesta Hotel in New Orleans, Louisiana, on Friday, June 15, 2012, at 4:30 p.m.

Rep. Helene Keeley from Delaware, Acting Chair of the Committee, presided.

Other legislators present included:

Rep. Pebblin Warren, AL Rep. Lois Delmore, ND

Rep. Jim Waldman, FL Sen. Nancy Rodriguez, NM

Sen. Curt McKenzie, ID Rep. Jim Dunnigan, UT

Rep. Dennis Keene, KY Rep. Allen Jaggi, WY

Rep. Ben Chipman, ME

Others present were:

Susan Nolan, Nolan Associates, NCLGS Executive Director

CASINO GAMING EXPANSION INITIATIVES IN THE STATES

Paul Girvan, Managing Director of The Innovation Group, said that while some people characterize the Northeast region as saturated, there remain pockets of underserved demand. He said that expansion efforts in Massachusetts, New Hampshire, and New York will cause some pain for states like New Jersey and Connecticut and, to a lesser extent, Pennsylvania. Efforts in Maryland, he said, have been rather slow and have led to unexpectedly low revenues, among other things. He said that officials were considering table games and tax relief as a result.

Mr. Girvan reported that Ohio had the most dramatic expansion among states in the North Central region. He predicted that revenues would consequently decline in West Virginia, Pennsylvania, Indiana, and Michigan. He said that Illinois has only limited room for expansion and that interest was building in Kentucky in an effort to help the state’s horse racing industry, which is competing with racing in other states. He said that West Virginia could potentially add one or more additional gaming sites as it strives to offset losses caused by casino development in surrounding jurisdictions.

Regarding the Southeast region, Mr. Girvan said thatFlorida holds great potential as evidenced by the success of the Seminoles and the tracks in Dade and Broward counties. He commented that Florida could be a catalyst for gaming action in Georgia, where there are already proposals for large casino developments in the Atlanta area and for a destination-style resort in Savannah. Mr. Girvan said that Alabama is unlikely to revisit the gaming issue anytime soon given recent problems and that he expected to see limited development in Louisiana and Mississippi.

Mr. Girvan said also that Arkansas and Texas are likely to look at gaming development, though not for several years, and that the rest of the country has likely developed to its maximum extent. The only significant exceptions, he suggested, are a few Native American casinos and isolated racino or casino developments in specific locations.

Mr. Girvan commented that existing operators will seek relief via the addition of table games or a reduction in tax rates. He reported that some states have the potential to generate substantial amounts of new tax revenue from gaming, other states have reached a position of stability, and others will see revenue declines as new markets in surrounding states develop and mature. He said that legislators should remain vigilant of market developments in neighboring states and should be flexible and nimble enough to adjust to changing market conditions.

Mr. Girvan then reported that the focus of casino development has moved to the internet as casinos look for ways to strengthen their properties in the face of new competition. He explained that the internet allows casinos to expand their demographic appeal to a younger generation. Mr. Girvan suggested that legislators can help this process by passing legislation that permits more freedom for casinos to develop free play sites. He also said that as activity at the federal level become clearer, real-money iGaming will come to the fore as a states’ rights issue.

In response to Committee questions, Mr. Girvan said, among other things, that:

· although development in underserved areas would not negatively impact surrounding states, there appeared to be little movement toward expansion in underserved areas

· convenience is the number one reason why people visit a casino, followed by the quality of a casino’s facilities

IMPACT OF EXPANSION AND INTERNET ON EXISTING CASINOS

Mr. Girvan reported that until recently, operators and legislators were concerned that internet gaming would result in a decline in land-based gaming revenues, as happened in Europe. He explained that The Innovation Group did not anticipate such a decline because the U.S. and European gaming industries differ dramatically. In Europe, Mr. Girvan noted, the land-based casinos are smaller, more exclusive, and less densely developed, while U.S. casinos cater to a mass market.

Mr. Girvan, who noted that major casino companies now embrace iGaming, also reported that The Innovation Group had conducted surveys that resulted in the following key findings:

· Respondents would increase the number of trips to land-based casinos with the introduction of iGaming, in the realm of between four and seven percent.

· This increase could be because iGamers are significantly younger than those who visit land-based casinos and so iGaming could be used to incentivize younger gamers to visit land-based facilities.

· Current land-based patrons could be encouraged to increase their casino visits if given the ability to play online while earning points for comps that are redeemable at the casino.

Mr. Girvan said that iGaming is not gaming expansion, and he recommended that legislators limit iGaming licenses to existing land-based casino operators and to state lotteries. He noted that iGaming creates a revenue stream for the state, as well as a limited number of high tech jobs. Mr. Girvan cautioned, however, that:

· iGaming might generate a fraction of the revenues generated by a state’s land-based casinos, at best 40 percent.

· States should be careful of overtaxing, since the iGaming business model is radically different from the land-based model (e.g., iGaming’s marketing might account for upwards of 40 percent of its revenues, compared with eight percent in the land-based model).

· Taxing player deposits will severely discourage play.

· States should avoid over-promising on iGaming job creation.

REGULATORY OVERSIGHT OF CASINOS

Leonce Gautreaux, Deputy Director of the Gaming Division in the Louisiana Department of Justice, said that state casino regulation shares the following goals:

· keep gaming free from criminal and corrupt influences

· protect the integrity of the games through testing and approvals

· safeguard assets by relying on intensive internal controls

Mr. Gautreaux described various impacts of and efforts to overcome recent regulatory budget constraints, particularly related to personnel cuts. He reported that Louisiana recently rewrote its 18 year-old casino regulations in order to update and consolidate. He also spoke to tax revenue issues, saying that revenues were slowing increasing after hitting their all-time low in 2007. He commented, among other things, that although consumer spending is on the rise, the increase in casino competition is hampering revenue growth for some facilities.

ADJOURNMENT

There being no further business, the meeting adjourned at 5:30 p.m.

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