The Future of Casino Gambling in Rhode Island
Rhode Island’s two gambling facilities, Twin River Casino in Lincoln and Newport Grand Casino in Newport, are a major source of state revenue and economic activity. In fiscal year 2015, video lottery terminals and table games at these facilities accounted for nearly three-quarters of the $867 million in state lottery revenues.1 $382 million of this revenue went to the state’s general fund, making the lottery the fifth largest source of revenue for the general fund.2 In addition, a gaming industry trade group estimates that Rhode Island’s two gambling facilities contribute $1 billion in economic activity and support almost 5,500 jobs in the state.3
Given the casinos’ contributions to state revenues and to the local economy, it is important to look closely at factors affecting their future. Massachusetts is currently expanding its gambling operations, which may increase competition and affect revenues at Rhode Island’s casinos. In response, the casino owners have proposed closing down the Newport Grand and opening a new gaming facility in Tiverton, a move that will be decided on by voters in November 2016.4 Other key issues affecting the future of gambling in Rhode Island are the state’s relatively high rate of casino taxation and limited funding for problem gambling services, compared to other states. This report provides a detailed accounting of these challenges and of the steps Rhode Island and its gaming industry might take to overcome them.
Fig. 1 Sources of Revenue for the Rhode Island General Fund, FY 2015
Source: State of Rhode Island (2015).2
Fig. 2 Sources of Rhode Island State Lottery Revenues, FY 2015
Source: State of Rhode Island (2015).2
THE CURRENT STATE OF GAMBLING IN RHODE ISLAND
Twin River Casino is the larger of Rhode Island’s two gambling venues. It offers 4,540 video lottery terminals (similar to slot machines) and, since 2013, 108 live table games such as poker, blackjack, and roulette.1 Newport Grand is significantly smaller, with 1,097 video lottery terminals and no table games.1 Twin River earned $548 million in gross gaming revenue in 2014, while Newport Grand brought in $45 million.5
After a $220 million expansion in 2007, Twin River was facing nearly $600 million in debt. The casino’s owner, UTGR, Inc., filed for Chapter 11 bankruptcy in 2009. By the time UTGR emerged from bankruptcy almost a year and half later, its debt had been reduced to $300 million and a number of operational changes had improved its outlook, including the termination of greyhound racing, the initiation of state-provided marketing subsidies, and a commitment to remaining open 24 hours a day, 365 days a year.5
Since then, Twin River has increased its revenues by adding video lottery terminals, which helped boost spending by customers from Massachusetts 84% over eight years (from $182 million in 2006 to $335 million in 2014). This growth came at the expense of Connecticut’s casinos, which saw a decline in visits by residents of both Massachusetts and Rhode Island during this period.5 To further enhance its appeal to customers from Massachusetts, the company that owns Twin River acquired the Newport Grand in 2015 with plans to transfer its gaming license to a new casino in Tiverton, closer to the border.6
FIg. 3 Casinos in Rhode Island and the Surrounding Region
CHALLENGES FACING RHODE ISLAND & ITS CASINOS
Increasing Competition from Massachusetts
An increasingly competitive Northeastern gaming market may threaten the future of Rhode Island’s casinos. Most troubling are new casinos planned for Massachusetts, which contributed the majority of Twin River’s patrons over the past few years.5 Massachusetts’ Expanded Gaming Act of 2011 allowed for a “destination resort casino” in each of three different geographical regions in the state, along with one slots parlor statewide.7
The first new gambling venue in Massachusetts to result from the legislation is the slots parlor, Plainridge Park, which is near the Rhode Island border and a half hour drive from Twin River Casino. It has up to 1,250 slot machines but no table games.7 Since Plainridge Park opened in June 2015, Twin River’s revenues have suffered only slightly.8 Revenues for the nine-month period following the opening of Plainridge Park were only $4 million (1%) less than the same period during the prior year.(a)
(a) In particular, Twin River appears to have benefitted from a less severe winter during January and February of 2016, when revenues increased 5.5% and 12.1%, respectively, over the previous year.8
Fig. 4 Revenues at Twin River Casino & Plainridge Park Slots Parlor, 2012-2016
Massachusetts Gaming Commission (2016), Rhode Island Lottery (2016).8
Two other casinos have now been approved by Massachusetts, for Springfield and Everett. According to the Massachusetts Gaming Commission, an additional casino is expected to open in the southeastern region of the state. It will be located in Taunton and operated by the Mashpee Wampanoag Tribe, which held a groundbreaking for the casino in April 2016.7,9 Two recent reports forecast a negative impact on Rhode Island’s casinos from increased competition in southeast Massachusetts. A 2015 Moody’s Report estimates that “Twin River’s revenue could decline as much as 20% when a full-scale casino opens in Massachusetts’ southeast region,”10 while a 2015 report commissioned by the state predicts a smaller decline in revenue of less than 5%, depending on how many casinos are eventually opened.11
High Taxation of Casino Revenue
Rhode Island’s relatively high tax rate on casinos compounds the competitive challenge posed by new gambling venues in Massachusetts. At more than 60%, Rhode Island’s effective tax rate on gambling revenue is significantly higher than any other state in the region. In Massachusetts, the Plainridge Park Slots Parlor is taxed at 49%, while the expected commercial casinos in Springfield and Everett will be taxed at 25% and the Mashpee Wampanoag tribal casino in Taunton at 17%. Connecticut taxes casinos on 25% of slot machine revenue only, for an effective tax rate of less than 18% of total revenues.12 While Rhode Island’s high tax rate allowed it to collect virtually as much in taxes from casinos as did Connecticut, despite lower overall casino revenues, it puts the state’s casinos at a disadvantage just as competition in the region is heating up. In fact, the state’s high casino tax rate was one of the contributing factors cited in the 2009 bankruptcy filing of UTGR, Inc., the owner of Twin River.5
Fig. 5 State Casino Tax Rates, 2012
Source: Camp et al. (2016). 12
Low levels of funding for problem gambling services
Casinos that focus on “convenience gambling” work to attract local residents instead of tourists.13 Convenience gamblers are individuals who travel short distances to local casinos to gamble for brief periods of time and then return home. In contrast, “destination resort gamblers” travel longer distances to destination casinos and remain for extended periods, often taking advantage of dining, entertainment, and other activities at the casino and in the surrounding area.14
A 2008 report found that Twin River Casino mainly attracts convenience gamblers: 61% of its customers travel less than 30 minutes and 97% travel less than one hour to the casino. In contrast, approximately 67% of Foxwoods’ and 47% of Mohegan Sun’s customers come from outside Connecticut. The vast majority (77%) of these out-of-state customers have never visited the Twin River or Newport Grand Casinos.14 If patronage by Massachusetts residents drops due to increased competition from Massachusetts gambling venues, Rhode Island casinos are expected to focus even more on the convenience gambling market in the future.15 The downside of this focus on convenience gambling is a potential increase in problem gambling among local residents. Problem gambling can result in a number of social costs, including increased crime, illness, business and employment costs, social service costs, bankruptcy, and suicide.16 Research suggests that those living within 50 miles of a casino have higher rates of pathological and problem gambling.16 Almost all Rhode Island residents live within 50 miles of the Twin River Casino, which may contribute to the more than 18,000 Rhode Island adults (2.2% of the adult population) who are estimated to have a gambling disorder.17
Compared to neighboring states, Rhode Island provides minimal support for problem gambling services, such as prevention and treatment programs.17 In 2012, total lottery sales and casino revenues in Rhode Island were more than $4 billion,(b) yet in the following fiscal year, the amount dedicated to problem gambling services(c) in the state was just over $100,000.17
In comparison, 2012 revenues from lottery sales and casinos in Connecticut were almost $1 billion less than those in Rhode Island, but in fiscal year 2013 the Connecticut state budget for problem gambling services was $2,150,000. In addition, the Connecticut Council on Problem Gambling had a budget of $643,721. Rhode Island’s Council on Problem Gambling (RICPG), in contrast, is staffed on “a strictly volunteer basis.”17
In Massachusetts, combined lottery and casino revenues for 2012 were somewhat greater than those in Rhode Island ($4.74 billion compared to $4.06 billion), but Massachusetts also supported problem gambling services at a much higher level than did Rhode Island. Massachusetts provided $1,362,200 for prevention and training programs, and the Massachusetts Council on Compulsive Gambling received a 2013 budget of $1,482,200.17
(b) The revenue figures in this section, such as the $4 billion in revenue in Rhode Island, represent the total amount of money spent on lottery and casino gambling in each state. A large share of these revenues are from lottery ticket sales. The casino revenue data in Figure 6 show the revenues for casinos only. The $867 million in Rhode Island state lottery revenues mentioned at the beginning of the article refers to the state’s share of total lottery and casino revenues.
(c) In fiscal year 2013, Rhode Island Hospital received a $50,000 state grant for gambling treatment, while the State Lottery provided $51,600 for the problem gambling hotline.17
Fig. 6 State Support for Problem Gambling Services, 2012
Source: Camp, et al. (2016)12, Marotta, et al. (2014).17
OPTIONS FOR RHODE ISLAND’S CASINOS TO ADDRESS COMING CHALLENGES
Expand Twin River Casino to better compete with gambling venues in Massachusetts.
Twin River has already taken steps to bolster its offerings before more casinos open in neighboring Massachusetts. In addition to adding table games in 2013, the casino gained approval in 2015 to build a new hotel.15 Rhode Island casinos might consider taking full advantage of opportunities to strengthen their position before the planned Massachusetts casinos begin operating.
Relocate the Newport Grand Casino to Tiverton.
UTGR, Inc., the owner of Twin River, purchased the Newport Grand in 2015 with plans to relocate it to Tiverton, near the Massachusetts border. This proposal was recently approved for statewide referendum and will be voted on in the November 2016 election.4 While video lottery terminal income grew 39% at Twin River over the past decade, it dropped 41% at the Newport Grand.18 Newport has been less successful as a casino location in recent years, and a Tiverton facility closer to potential gambling patrons in Massachusetts might bring in more revenue. A study commissioned by Twin River’s owners in 2015 suggests that, if a casino were built in Taunton, a competing casino in Tiverton would bring in an estimated $112 million annually.19 This revenue would at least partially offset projected decreases in revenue at Twin River resulting from greater competition.
Fig. 7 Video Lottery Terminal Income at Rhode Island Casinos, 2006-2015
Source: Rhode Island Lottery (2016).18
Increase spending on problem gambling services.
Given Rhode Island casinos’ continued emphasis on convenience gambling and the expansion of gambling opportunities in the region, the state might consider increasing funding for problem gambling services to be more in line with spending in neighboring states. Some funding could go toward the Rhode Island Council on Problem Gambling, which is presently supported solely by volunteers and has no paid staff members. Funding could also support information and public awareness campaigns; prevention, referral, and treatment programs; and advocacy initiatives. Since problem gambling in Rhode Island may increase as convenience gambling opportunities in the region expand, it may be valuable to consider now how to proactively address this issue as a public health concern and prevent the potential social costs – such as crime, bankruptcy, and suicide – associated with problem gambling.
THE FUTURE OF GAMBLING IN RHODE ISLAND
Increased casino competition in New England in general and Massachusetts in particular will present challenges for Rhode Island’s gambling industry and the state revenues it produces. So far, the Plainridge Park Slots Parlor that opened in 2015 appears to have had only a slight negative impact on Twin River’s operations. However, this situation is expected to worsen when other, larger casinos open in Taunton and Everett, especially since over half of Twin River’s patrons live in Massachusetts. A decrease in gambling revenue at Twin River would result in a corresponding decline in tax payments to the state, cutting into the fifth largest source of revenue for the state’s general fund.
Because of the casinos’ significance to the state economy, Rhode Island may want to work with Twin River’s owners to address increasing competition from Massachusetts. The addition of table games and the construction of a recently approved hotel at Twin River, along with the potential development of a casino in Tiverton, are measures that may help shore up Rhode Island’s casinos from competition.
In the process of competing with Massachusetts, however, casinos in Rhode Island may further target convenience gamblers who live in state. To prevent a potential public health problem, Rhode Island might consider increasing funding for problem gambling prevention and treatment programs and the Rhode Island Council on Problem Gambling. These programs are presently underfunded when compared to problem gambling services in neighboring states. While the growth of gambling in the region raises concerns for Rhode Island, it also presents opportunities for the casinos to address competition through new offerings and for the state to continue benefitting from casino revenues.
1. Rhode Island Lottery. (2015). Comprehensive Annual Financial Report. Cranston, RI: Rhode Island Department of Revenue, Lottery Division.
2. State of Rhode Island. (2015). Comprehensive Annual Financial Report. Providence, RI.
3. American Gaming Association. (2016). “Get to Know Gaming – Rhode Island Fact Sheet.” Washington, D.C.
4. Bogdan, J. (2015). “Twin River Wants to Move Newport Grand to Tiverton, Then Expand.” The Providence Journal, April 21. Bogdan, J. (2016). “Governor Signs Measure to Let Voters Decide on Tiverton Casino.” The Providence Journal, March 1.
5. Pyramid Associates, LLC. (2015). Northeastern Casino Gaming Update, 2015. Westport, MA.
6. Grimaldi, P. (2015). “Twin River Completes Purchase of Newport Grand Slot Parlor.” The Providence Journal, July 15.
7. Massachusetts Gaming Commission. (No Date). “About the Massachusetts Gaming Commission [website].”
8. Massachusetts Gaming Commission. (2016). “Slot Machine Revenue: Plainridge Park Casino.” Boston, MA. Rhode Island Lottery. (2016). “VLT Revenue Information by Facility (Unaudited and Unadjusted.” Cranston, RI: Rhode Island Department of Revenue, Lottery Division. Rhode Island Lottery. (2016). “Rhode Island Lottery Monthly Table Games Revenue (FY 2013-2016) [data files].” Cranston, RI: Rhode Island Department of Revenue, Lottery Division.
9. Winokoor, C. (2016). “We Did It! Tribe Breaks Ground on Taunton Resort and Casino.” The Herald News, April 5.
10. Trombetta, P. (2015). “Northeast Casinos Face Rising Tide of Competition.” New York, NY: Moody’s Investors Service.
11. Christiansen Capital Advisors, LLC. (2015). Rhode Island Gaming and State Revenue Forecast. New York, NY.
12. Camp, J., C. Hartley, and P. Kelly. (2016). “State Revenue from Casinos: Increased Complexity in a New Era of Casino Gambling.” Working Paper. Providence, RI: Providence College.
13. U.S. General Accounting Office. (2000). “Convenience Gambling: Information on Economic and Social Effects in Selected Locations.” Washington, D.C.
14. Barrow, C. (2008). “Casino Economics in the U.S. and New England.” MassBenchmarks, 10(1).
15. Bogdan, J. (2015). “Raimondo Signs Bill Allowing Twin River Casino to Build Hotel.” The Providence Journal, April 23.
16. Grinols, E. L. (2004). Gambling in America – Costs and Benefits. New York, NY: Cambridge University Press. National Gambling Impact Study Commission. (1999). Final Report. Washington, D.C.
17. Marotta, J., M. Bahan, A. Reynolds, M. Vander Linden, and K. Whyte. (2014). National Survey of Problem Gambling Services. Washington D.C.: National Council on Problem Gambling.
18. Rhode Island Lottery. (2016). “VLT Revenue Information by Facility, Unaudited and Unadjusted (2006-2015) [data files].” Cranston, RI: Rhode Island Department of Revenue, Lottery Division.
19. The Innovation Group. (2015). Gaming Market Study – Tiverton, Rhode Island. Winter Park, FL.
How will an increasingly competitive New England gambling market affect Rhode Island's casinos?
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