Earlier today, Center Economist Dennis Delay provided testimony on Senate Bill 113, legislation which would allow the creation of two casinos with slot machines and table games. The Center has conducted numerous studies of legalized gambling in New Hampshire in recent years. Today's testimony, presented at the invitation of House Ways & Means Committee Chairman Norm Major, focused on the fiscal note accompanying SB 113. Delay's full testimony to the committee follows.
NHCPPS testimony on expanded gambling
The New Hampshire Center for Public Policy Studies has analyzed the impact of expanded gambling, starting with our service to the Governor’s Gaming Commission in 2010. The Center has offered testimony to the General Court in 2011, 2013 and 2014 regarding expanded gambling bills under consideration in those years.
SB113 would authorize a maximum of 5,000 slot machines and 240 table games at two separate locations operating under two types of licenses (Category 1 and Category 2). A Category 1 license will permit up to 3,500, but not less than 2,000, slot machines and a maximum of 160 table games, and a Category 2 license will permit up to 1,500, but not less than 750, slot machines and a maximum of 80 table games. Category 1 and Category 2 initial license fees are $80,000,000 and $40,000,000, respectively. Both categories of licenses shall be valid for 10 years, and the renewal fee shall be $1,500,000, which will also be valid for 10 years.
Our analysis speaks to the fiscal note at the end of SB113. Specifically, our comments address the underlying assumptions in the revenue and social impact analysis in the fiscal note to the bill.
The Lottery Commission operating assumption, contained in the fiscal note, is that “there is not a gaming facility within the metro region of Boston, Massachusetts, a location closer to the New Hampshire border, or in the southern portion of the State of Maine (south of Portland) operating in the next biennium.”
From the above assumption the Lottery Commission estimates that the Category 1 facility will be in operation July 2018, and that by 2019 that Category 1 casino will produce $319 million in gross slot machine revenue per year (assuming average daily gross machine revenue of $250 per machine for all 3,500 slot machines) and $128 million in gross table game revenue per year (assuming average daily gaming table revenue of $2,200 per table for all 160 table games).
The revenue per slot machine of $250 and revenue per table game of $2,200 are close to gaming industry averages. However these estimates are too optimistic, because the operating assumption is unreasonable.
Massachusetts is moving forward on expanded gambling. The Massachusetts Gaming Commission has already approved the construction and operation of two casinos and one slot parlor in Massachusetts, and a third casino could be allowed consistent with the Massachusetts 2011 expanded gambling law.
Penn National Gaming is building a $225 million slots parlor at the harness racing track in Plainville, Massachusetts, which will have up to 1,250 slot machines, and is projected to open in June 2015. MGM is building an $800 million casino resort in Springfield, Massachusetts, which is projected to open in 2017. Wynn Resorts is building a $1.7 billion casino resort project in Everett, Massachusetts (just outside of Boston). Recent reports suggest the Wynn casino will likely have to push its opening into late 2018, because the Massachusetts state energy and environmental affairs agency must review plans for the project before construction can begin, and Wynn must address noise and traffic issues before proceeding.
Even if the Wynn casino opening is delayed until 2018, the Wynn casino will be operating in 2019, which in turn means there will be an operating casino in Massachusetts, close to the New Hampshire border. In any event, in the year 2019 there will an operating slot parlor in Plainville, Massachusetts, which is 72 miles and approximately one hour’s drive time from Salem, New Hampshire.
In testimony presented to the House Ways and Means Committee in February 2014 the Center estimated that an equally attractive casino at the Wynn Everett location could reduce the Salem, New Hampshire gambling market by 36%. This is because Salem, New Hampshire and Everett, Massachusetts share a common market area of 1.9 million people, as the two locations are about a 40 minute drive time from each other.
Gravity model analysis presented last year to House Ways and Means suggests that the more attractive a casino, the more it reduces the potential revenue of a nearby competitor. A resort casino in Everett, Massachusetts that is three times more attractive than a casino located in Salem, New Hampshire could reduce the potential New Hampshire market by 45%. Since the SB113 Category 1 gaming license requires a minimum investment of $450 million, it is likely that the Wynn resort $1.7 billion resort casino will be at least three times more attractive than the Category 1 casino in New Hampshire.
Our analysis suggests that the Lottery Commission revenue estimates are one third to almost one half too optimistic.
While the above revenue impacts are estimates, there is ample evidence that the presence of casinos in close proximity reduce total potential revenues for both facilities. For example, a Christiansen Capital analysis done for Rhode Island shows casinos are affected by competition, as observed in gambling markets in Delaware and West Virginia.
Potential Social Costs
In the SB113 fiscal note there is no comprehensive analysis of potential social costs to New Hampshire of expanded gambling. Historically, this has been the hardest issue to come to grips with from an econometric perspective. And while the Department of Safety, Department of Justice, and the Department of Health and Human Services do present estimates of the increased staff that will be needed by those agencies, there is no analysis of the impact of pathological and problem gaming in New Hampshire from changes to expanded gambling in either New Hampshire or Massachusetts.
There is general agreement about the increase in pathological behavior associated with the expansion of gambling (a 2004 study estimated that 7.2% of those living within 10 miles of a casino develop pathological or problems related to gambling, compared to 3.1% living more than 10 miles from a casino). Estimating the costs is more difficult as it requires putting numbers to job loss, bankruptcy, poor mental health, and divorce, all of which impose additional costs on society.
The SB113 fiscal note includes no estimate of these additional social costs. In February 2014 the Center estimated that 5,000 slot machines and 150 table games would incur $65 million in public and private social costs in New Hampshire. Since SB113 ultimately authorizes 5,000 slot machines operating in New Hampshire, we continue to believe that it is important that understanding the potential costs and benefits to the state should include an estimate of the social costs.
We should also note that social costs would be incurred in New Hampshire because of the Wynn casino in the Boston area, even if there were no New Hampshire casino. The existence of a casino in Massachusetts, and close to New Hampshire, will also increase social costs due to increased problem and pathological gambling in New Hampshire residents who visit the casino(s) in Massachusetts. However we would expect those costs in total to be less than the $65 million cited above.
In summary, our prior work suggests that the fiscal note to SB113 over-estimates the potential revenue to the state, and by not addressing the issue of pathological and problem gaming and their associated social costs, likely under-estimates the costs to the state associated with expanded gambling in New Hampshire.