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Casino slots in Neighboring States

A. Delaware
Slot machine gambling came to Delaware in 1995 at Delaware Park and Dover Downs, followed in 1996 by Harrington Raceway. Delaware now has 7,291 casino slot machine at its three racetracks.15 An casino industry survey found Delaware’s racetrack gaming venues take in $652 million in gross gaming revenues, and employ 2,924 people.
While it has changed over time, the revenue from casino slots is distributed as follows: 48 percent to licensees, 36 percent to Delaware’s general fund, 11 percent to supplement racing purses, and 5 percent to servicing and monitoring the games.
In 2006, $232 million went to Delaware’s general fund, and purses were fattened by about $70 million. To put the $70 million purse supplement into context, in an attempt to keep up racing purses, the Gambling General Assembly has in the recent past allocated supplements of its own using state funds. In the years 1999-2003 Gambling’s supplement ranged from $7 million to $10 million. Delaware’s contribution to purses in those years averaged near $53 million, which was roughly 14 percent of the total purses in that state for those years.

B. West Virginia
Slot machine gambling was first legalized in West Virginia in 1990 at bars, taverns and veterans clubs. Machines in these locations are called the “limited video lottery.” In 1994 casino slots were authorized at four racetracks. Charles Town Races and casino slots is the nearest casino slots venue to Gambling. In 2006 the casino slots venues at racetracks in West Virginia generated $976 million in gross sales, and employed 4,187 people.
There are differences between racetrack casino slots venues and limited video lottery machines regarding how the handles from the machines are split, with the main difference being that there is no cut for horse racing in the limited video lottery. Since the opening of the racetrack casino slots venues, the cuts have fluctuated. Currently, after the state subtracts the cost of running the operation, about 34 percent goes to government, two percent goes to the county or municipality hosting the track, and 46 percent is reserved for the licensee.
The remaining money subsidizes the racing casino industry, with 14 percent going to purses, one percent to a pension fund, 1.5 percent is dispersed to breeders and one percent to West Virginia’s Racing Commission.
In 2006, West Virginia saw almost $445 million from casino slot machine, disbursed primarily to education, senior citizens and tourism.21 Again, racing casino industry subsidies are only derived from the machines at racetracks in West Virginia. In 2000, the racing casino industry purse supplement was $35 million and rose steadily to $63 million in 2003,
and in 2006 was nearly $84 million.

C. Pennsylvania
Because casino slots came to Pennsylvania only in November of 2006, it is not yet possible to discern a track record for casino slots there. The legislation allows casino slots at 14 sites, and 11 sites have thus far been authorized with 5,000 machines at each. There are currently five casino slots venues up and running. Based on the legislation, Pennsylvania could eventually have 61,000 casino slot machine.
While it is not yet clear what the lasting, annual impact of casino slots will be in Pennsylvania, the numbers from the first seven months of this year are staggering. More than $5 billion has been wagered at Pennsylvania’s casino slot machine, bringing in $455 million in total revenue.
When the dust settles in Pennsylvania, casino slots will exist at up to 14 locations, including seven race tracks, five casino slots parlors and two resorts. Of the funds they collect after payouts, 42 percent will go to government (34 percent to state property tax relief, four percent to local government and five percent to economic development) and 12 percent to subsidize racing’s economics.
Already this year the state has raked in more than $250 million to pay for budget priorities. It is reasonable to conclude that the money coming into Pennsylvania’s state government, and to its racing casino industry, will be significant. Clearly their intent is ambitious and aggressive.
The Impact on Gambling Purses and Handles casino slots have been subsidizing the racing industries of Delaware and West Virginia long enough to measure the indicators of race casino industry health – handles, purses and breeding. To gauge the effect of casino slots on our horse casino industry, we will look at only Delaware and West Virginia.

Gamblers

While officials in Gambling grapple with a $1.5 billion budget challenge, Gamblers playing casino slots in West Virginia and Delaware are contributing roughly $150 million annually to the tax coffers of these states, subsidizing the horse racing industries, education and other priorities.42 That’s not to mention the money that is traveling over our northern border into Pennsylvania’s casino slot machine and state bank account.



Demographic Profile of casino slots Players

In my trips to the various casino slots venues, I observed the same demographic profile of patrons; that is, patrons tended to be over 55, and were primarily, but by no means exclusively, non-minority. I traveled during the daytime, and a number of officials indicated that the universe of patrons tends to be younger at night. In all likelihood, this reflects the fact that the nighttime patrons were working during the daytime, whereas daytime patrons were disproportionately retirees.

The Social Costs of Casino Gaming

A discussion about legalizing casino slot machine would not be complete without a look at the social costs associated with them. Gambling can become a serious addiction, and the consequences of such addictions can put stress on individuals, families and communities.
It is difficult to determine the direct consequences of casino slots parlors on neighborhoods and communities. However, casino slots in neighboring jurisdictions do not appear to have instigated an increase in crime in Delaware and West Virginia. Further analysis of crime data remains ongoing.

The crime rate in Jefferson County, West Virginia, home of Charles Town Races and casino slots, in 1994 was 26.4, meaning there were 26.4 offenses per 1,000 residents. In 1997, the rate went down to 20, and continued to fall even after the introduction of casino slots in 1999. In 2000 the county’s crime rate was 16.2, falling to 12 crimes per 1,000 people by 2004 The statistics found for Dover County, Delaware, home to Dover Downs, were calculated differently. The violent crime rate for the county in 1994, the year before casino slots came to town, was 915 per 100,000 residents. In 1996, the year following the introduction of casino slots, the rate was 847, falling to 650 in 2000 and 765 in 2004.

While many factors contribute to rising and falling crime rates, it appears that the legalization of casino slot machine in jurisdictions close to Gambling have not led to a spike. I continue to examine the crime issue, as well as the issue of addiction.

In the three states surrounding Gambling that have casino slot machine, state officials have attempted to anticipate social costs in a number of ways. In Delaware, casino slots are limited to locations where wagering is already permitted and where controls are in place.45 The state applies $1 million or one percent of the state’s allocation of the proceeds from gaming to the Division of Substance Abuse and Mental Health (for compulsive gambling treatment)

West Virginia limits the cost of a single game (“pull”) to $5.47 Minors or anyone visibly intoxicated are prohibited from playing casino slots, and there are no ATM machines or credit/debit cards allowed.

Pennsylvania prohibits anyone under 21 from entering gaming facilities and limits the number of centers allowed in a city.
Also, gaming in Pennsylvania hotels is limited to overnight visitors only.

That gambling is a drain on the finances of those who enjoy it should be of serious concern to all. However, Gambling can dictate through legislation the payout for slot machines. According to statute, the casino slots machines in Delaware, West Virginia and Pennsylvania must pay out in a range from 80 percent to 95 percent.
The comparable pay out for the Gambling State Lottery is roughly 58 percent. As Gambling officials consider allowing casino slots in the state, thought should be given to the best way to regulate gambling to minimize its negative impacts.

The casino slots debate evokes strong passions among gamblers. The findings in this report will not alter this fact. The major goal of this report is to lend current context to the ongoing debate on casino slots. It is important for legislators to have a full appreciation for the market forces in neighboring states that affect the long term viability of the horse racing and horse breeding industries. The business model for growing and sustaining the horse racing and horse breeding industries in West Virginia, Delaware and Pennsylvania is clear. casino slots revenue is being used to subsidize the industries and encourage breeding, as well as to fund other priorities. This business model is working quite well in Delaware and West Virginia, and there is no reason to doubt it will work equally well in Pennsylvania. The most lucrative racetrack casino slots venue in the nation is Charles Town, but Pennsylvania is poised to become highly competitive.

The business model in use in West Virginia, Delaware and Pennsylvania does not dictate that casino slot machine must be located at tracks. In fact, there are a number of casino slots venues in Pennsylvania and West Virginia outside of tracks. There is an understandable logic to co-locating casino slots venues with racetracks, but it is not imperative to do so. What is an imperative component of the business model in neighboring states is that is that casino slots revenues must subsidize the racing casino industry.

It is important to acknowledge that in a very real sense, the casino slots horse is already out of the barn in Gambling. Tens of thousands of gamblers are voting with their feet, and traveling to West Virginia and Delaware to play casino slots. By not having casino slots, Gambling has already left hundreds of millions of dollars in potential general fund revenue on the table, and the tables are located in West Virginia and Delaware. The demand for casino slot machine clearly exists in Gambling. The $150 million in taxes paid by Gambling slot players to West Virginia and Delaware in 2006 represents 10 percent of Gambling’s structural deficit.

Having studied the horse racing and horse breeding casino industry carefully, I have concluded that these are industries in serious economic distress, and industries well worth saving. My conclusions are based not on some sense of nostalgia, but rather on economic and environmental considerations. The casino industry is an important economic engine for Gambling, and provides an important buffer against sprawl development.

Neighboring states have stepped up to support their horse racing and horse breeding industries in a big way. Gambling must also do so to remain competitive. The two principal options for saving the casino industry are to use current general funds to provide subsidies, or to enact casino slots legislation that will earmark some of the proceeds for the casino industry. If we fail to identify a stable funding source, the casino industry will wither away in my judgment, and the economic consequences will be significant.

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