Return to First Principles

The impending decline of Rhode Island's casinos

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Recently, Twin River, Rhode Island’s casino operator, has experienced a run of bad luck.

With the opening of Encore Boston Harbor, Twin River suffered a 34 percent decline in table-game revenues and a 17 percent decline in video slot machine revenues. As a result, Twin River laid off nearly 90 table-game employees. Furthermore, in less than two months, Twin River’s stock price declined nearly 30 percent.

Twin River’s misfortunes can create a predicament for Rhode Island taxpayers. Last month, gambling and lottery revenues to the state of Rhode Island declined by 11 percent. For this fiscal year, Rhode Island is dependent upon $412.8 million in gambling and lottery revenues, of which $328.4 million comes from slot machines and table-games.

Because Rhode Island is likely to experience a decline in gambling revenues, it would be unwise for Rhode Island to enter into a no-bid contract giving International Game Technology (IGT) 85 percent of video slot machines at Rhode Island casinos until 2043.

There are primarily three reasons why Rhode Island casinos are entering a period of decline. First, growing competition from Massachusetts’ gambling facilities is causing Rhode Island casinos to lose customers. Twin River essentially serves convenience gamblers who reside in the local area. For example, about 60 percent of Twin River’s customers live within a half hour drive of its casinos. Because a majority of Twin River’s customers come from Massachusetts, many of these customers will likely choose to gamble at a nearby Massachusetts gambling facility rather than travel to a Rhode Island casino if given the opportunity.

For example, in the four years after the Plainridge Park, a harness race track, added slot machines, the amount of net income from video slot machines at Twin River’s Lincoln casino declined by about 8 percent. The opening of Encore Boston Harbor has made the situation worse for Twin River, and when a casino someday opens in Southeastern Massachusetts, the situation could become dire for Twin River.

Second, the customer base interested in playing slot machines is shrinking due to changing demographics. Younger generations, such as millennials, are far less inclined to play slot machines than prior generations. For example, one study showed that only 44 percent of millennials are interested in playing slot machines compared to 72 percent of older generations. Slot machines currently provide the state budget over $300 million a year in revenues, which far exceeds the revenue generated by table-games, traditional lottery games or sports betting combined. Over time, the amount of revenues generated by these slot machines will likely decrease as the number of slot machine players decrease.

Third, the cost structure for Rhode Island casinos makes it difficult for them to make large investments or offer amenities to compete with nearby destination luxury resort casinos such as Encore Boston Harbor. Both Massachusetts and Connecticut take a much lower percentage of gambling revenues from their casinos than the state of Rhode Island does from its casinos. Therefore, casino operators in neighboring states are able to make larger investments and offer customers more amenities than Rhode Island casinos. Gamblers – in particular high rollers who gamble large amounts of money – will pass by Rhode Island in search of a superior casino experience. Rhode Island casinos will be left with local customers looking for a convenient place to gamble.

The coming decline of Rhode Island’s casinos will in some ways parallel the demise of Rhode Island’s horse race tracks a generation ago. After horse racing was legalized in Rhode Island in 1934, it was profitable and popular, but eventually it went into decline primarily for three reasons.

First, competition from horse race tracks located in other New England states caused Rhode Island horse race tracks to lose customers. Originally, New England race tracks had an agreement as to when each track would host horse races, but this understanding broke down in the late 1950s.

New England race tracks began holding more and more horse races in direct competition with one another. In the 1970s, horse racing in New England had reached a point of oversaturation. By 1977, race track operators were admitting there was “too much racing” and that “New England might be raced out” because of “years of round-the-clock racing.”

Second, the number of horse racing gamblers shrank as the sport failed to attract younger fans. For example, in 1974, the Providence Journal reported “there are few young people at the race track” and that “the next generation of horse-racing fans will be smaller than the last.”

Third, the quality of Rhode Island horse racing became poor due in part to a high tax burden. Rhode Island politicians steadily increased the state’s share of horse racing revenues from 3.5 percent in 1934 to 9 percent by 1971. This caused race track owners to invest less money into their facilities and it reduced the quality of the horses they could attract for races since the prize money was smaller. By 1976, Rhode Island race tracks were being called “the most miserable race tracks in America” with “the most miserable horses in America.” In 1978, horse racing in Rhode Island came to an end.

Flexibility is valuable in times of uncertainty. With Rhode Island casinos entering an era of decline, lawmakers should avoid locking taxpayers into a no-bid contract that would give IGT 85 percent of video slot machines at Rhode Island casinos until 2043.

IGT’s video slot machines are failing to meet performance standards under its current contract with the Rhode Island Lottery and their slot machines may be generating less revenues than those of its competitors. Giving a company 85 percent of the machines that annually produce over $300 million in state revenues for 20 years at a time when their machines are under performing is a gamble.

As Rhode Island’s casinos likely head down the same track that Rhode Island horse racing did years ago, the safest bet is to go out to competitive bid and get the best deal we can for taxpayers.

Steven Frias is Rhode Island’s Republican National Committeeman, a historian, and recipient of The Coolidge Prize for Journalism.

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Wm Horan

THIS IS AN EXCELLENT ARTICLE WORTH SHARING AND DISCUSSING AT THE LIBERTY POLES. THE RI STATE GOVERNMENT LIKE THE MOB LATCHES ON TO A PROSPEROUS BUSINESS ENTERPRISE OF ANY KIND AND LOOTS IT UNTIL IT COLLAPSES. THEN MOVES ON TO THE NEXT KILL. THIS IS WHY BUSINESS, JOBS AND OPPORTUNITY HAS ABANDONED RI WITH THE EDUCATED POPULATION CAPABLE OF CREATING WEALTH AND ADDING VALUE FOLLOWING THE RELOCATION. YOU SEE RI REALLY IS A CRIME TOWN SANCTUARY CITY STATE LOCATED ON SMITH HILL. OVERLOOKING DOWN CITY WITH CATHEDRAL SQUARE IN THE DISTANCE LOOKING BACK ITS NOT SO SILENT PARTNERS INCLUDES; AN ALT RADICAL LEFT MONOLITHIC POLITICAL PARTY, AN IGNORANT CRIME INFESTED POPULATION, PUBLIC UNIONS LARGEST & CRONIES. CAPITALISM.

Wednesday, August 28
magandamy1

It seems fishy that Gina wants to renew the IGT contract four years before it is up - I think they were aware before we were that the casinos were not doing well and wanted to lock in before we all found out. If she doesn't have it go out to bid someone should recall her from office!!

Monday, September 2