A consultant hired by the state reported Jan. 5 that Delaware could reap millions in additional tax revenues if the General Assembly permits the establishment of two new casinos in Sussex and New Castle counties.
But while total gambling revenues would increase, earnings at the state’s three existing racetrack casinos could fall more than 12%, the consultant found.
After a month and a half spent researching the potential impact of additional gambling venues, representatives from TMG Consulting presented their findings to the Video and Sports Lottery Study Commission, a panel charged with preparing a report on the issue for consideration by the General Assembly.
In November the commission tapped the New Orleans-based firm to analyze how more casinos would affect state tax revenues, business at the existing racinos, Delaware’s horseracing industry, the job market and local communities.
Via video conference, TMG project head Suzanne Leckert explained her team’s findings to the commission and dozens of state officials, casino executives and lobbyists who packed the meeting room in Legislative Hall to hear the results of TMG’s work.
Since plans for new Maryland casinos close to the Delaware line are moving ahead somewhat erratically, and plans for table games at Pennsylvania casinos had yet to be finalized at the time of the report, TMG didn’t calculate revenue estimates for the immediate future. Instead, calculations are deferred to 2013, when, Leckert said, the competitive adjustments taking shape now should be in full effect.
“Revenues are certain to decline when new competition comes online,” she said. “We believe the state can regain those revenues and grow total revenues by adding two venues.”
If Delaware sticks with its current number of casinos, total gaming revenues could fall as much as 15% by 2013, TMG found.
However, the study stated total gaming revenues could increase by 25% over current levels if a new casino is built in northeastern New Castle County and another in western Sussex County.
According to TMG, those two facilities could generate more than $330 million in gross revenues by 2013. Combined with the three existing casinos, the statewide total could top $750 million.
For Delaware’s general fund, that would mean approximately $350 million in tax revenue not only from the casinos, but also other businesses connected with them as well as income taxes paid by new employees hired to work there.
That’s almost 25% more tax money than the state currently takes in as a direct or indirect result of casino gambling.
The TMG report did not include any revenue estimates based on table gaming, but Leckert did say data from other areas suggest tables could boost revenue by at last 10%.
Location, location, location
In what certainly signifies a coming battle in the General Assembly, some members of the commission took issue with TMG’s advice to permit new casinos in specific areas of the state.
While the TMG report affirms the establishment of a new casino in the Wilmington area, the consultant’s designation of western Sussex County as a prime location for a new venue sparked protestations from Rep. Pete Schwartzkopf, D-Rehoboth Beach, an unabashed supporter of the proposed $250 million Del Pointe racetrack-casino resort project to be located in Millsboro.
Schwartzkopf grilled Leckert and her team about its recommendation and asked them to explain how they determined a new casino in western Sussex would be more profitable than a venue located nearer to the beaches and its seasonal influx of tourists.
“I’ve got a lot of concern about the southwestern versus the central part of the county,” he said.
Leckert said the locations came from TMG’s computer model, which was calibrated to capture the largest possible portion of the gambling market and establish Delaware’s best stand against competition in neighboring states.
Schwartzkopf countered that TMG underestimated the number of tourists who flock to the beaches each summer. The consultant used figures from the Delaware Economic Development Office, which say the beaches attract approximately 3 million visitors per year. Schwartzkopf argued the Sussex Chamber of Commerce puts the number of visitors closer to 7 million yearly.
Leckert defended TMG’s use of the lower estimates and said demographic data shows beachgoers aren’t likely to gamble.
“Most people who are going to the beach are going for that reason,” she said. “Gaming is secondary.”
Schwartzkopf’s advocacy on behalf of Del Pointe was only part of the debate over the recommended location of possible new venues.
Dover Republican Sen. Colin Bonini argued that TMG went too far in designating specific locations for new casinos
“I’d like to see how we ended up with two,” he said. “That was a big crux of what we’re talking about.”
Bonini he expected to see figures and projections based on a variety of scenarios involving additional casinos, leaving it up to the commission and the General Assembly to decide how many new casinos there should be and where they should be located.
“They have decided a portion of that policy question for us,” he said. “It’s a de facto recommendation and I wanted to see those other scenarios.”
Leckert said TMG was charged with investigating how Delaware could maximize revenues and her team put forward a scenario that does so.
“When you get past two, you splinter the market so much that any facilities you have will not have sufficient revenue to invest and sustain,” she said.
Racinos react
Executives from Delaware’s three existing racinos were not enthused with the TMG report.
Dover Downs Hotel & Casino CEO Ed Sutor questioned the legitimacy of the findings and said TMG’s computer “gravity model” is not the correct way to evaluate Delaware’s gambling market.
“We think some of the strategy is flawed,” he said. “You can’t do a gravity model in a saturated market.”
He also attacked the substance of the TMG document.
“There’s a lot of fluff in the report,” he said.
Sutor offered to bring experts from the racinos’ own market consultant before the commission to pick apart the TMG report.
In December, the three racinos released the results of a study it commissioned from Canadian firm Deloitte and Touche. That report said Delaware could not abide any additional gambling venues.
Commission chair Dennis Rochford said he doesn’t support that idea.
“We all know there are a number of different studies out there,” he said. “I don’t want to get into a debate between the studies. That debate will happen in the legislature.”
On the other side of the issue, Del Pointe developer Preston Schell said he’s generally pleased with TMG’s findings.
The revenue figures TMG projects were almost identical to those outlined in a report commissioned by Del Pointe, he said.
However, Schell did take issue with TMG’s assertion that the new venues should not include horseracing tracks.
The consultant said new tracks would be less advantageous to the horseracing industry, but without new tracks horseracing purses could grow with contributions from the new facilities and not be diluted by expanded racing.
“I’m disappointed where [TMG] came out with the racetrack,” he said. “They seemed very predisposed to come out with a scenario that favors no new racetracks.”
TMG's Findings- Delaware should approve two new casinos, to be located in the northeastern and southwestern areas of the state
- Two additional venues could boost total gambling revenues by 25% statewide
- The state’s three existing racinos likely would see a 12% drop in earnings when new facilities open
- The opening of two new casinos could generate as many as 5,000 new jobs
