RI Expected to Lose $422M Revenue in 5 years to MA Gambling

Saturday, March 01, 2014

Zeke Wright, GoLocalProv Contributor

Rhode Island is expected to see the greatest impact from gambling in Massachusetts, with state revenues forecast to drop off $422.1 million over a five-year period beginning next year.

The first shoe to drop came this week with the Massachusetts Gaming Commission's decision to award a slots parlor license located in Plainville, Mass. — of three proposed sites, potentially the most damaging for the Ocean State.

“I think they made the right decision for a lot of reasons,” said Clyde Barrow, director of the Center for Policy Analysis at University of Massachusetts Dartmouth, where the Northeastern Gaming Research Project has followed trends in gambling since 2004.

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Over that timeframe, Bay State residents generated over $1.1 billion in state tax revenue for Rhode Island. But there are going to be big losses soon — the figurative second shoe comes later this year when Massachusetts decides where to situate three casinos.

“Rhode Island should be in crisis mode,” says Leonard Lardaro, a professor of Economics at the University of Rhode Island who sees the state “headed toward a fiscal train wreck.”

And what's been the response?

“Standard operating procedure: Mañana,” Lardaro said.

Mass. slots 'intended to compete' with Twin River

Currently, over half of all combined visitors to Twin River Casino and Newport Grand Slots hail from Massachusetts according to surveys by Barrow's gaming research group. Bay Staters outnumber Rhode Islanders two to one in those facilities.

In 2012, Massachusetts gamblers spent a combined $512 million in Rhode Island on gaming, food and beverage service, and other entertainment.

Spurred by an advertising blitz and the addition of gaming tables to the former slots-only Twin River last year, that facility saw a 261-percent increase in Massachusetts traffic between 2006 and 2012.

The single, 1,250-machine slot parlor allowed under Massachusetts' 2011 law isn't sufficient to capture half of that demand, according to Barrow, but it will make a dent. “The original intent was to compete with Twin River,” he said. “The location is perfect,” positioned midway between the major metropolitan areas of Boston and Providence — a 14-mile drive north of Lincoln.

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Plainville expected to be popular

The location, existing infrastructure investments and harness racetrack, and track record of the successful applicant, Penn National Gaming, all bode well for the venture, which could begin operating as early as August.

“I think you'll see a very successful slots operation,” predicts Barrow.

So who goes where? “It's entirely a question of proximity,” Barrow said. “They're going to go to whatever facility is closer.”

Twin River readies for some competition

“We knew this day was coming,” says Twin River spokesperson Patti Doyle, who said the hope and expectation was that guests continued to flock to the casino for its gaming, entertainment, and, most importantly, customer service.

“We do define ourselves as a convenience casino, and there's no beating our location,” Doyle said. “That will always be a draw.”

While Twin River now offers table games, trumping the slots-only Plainville parlor, there are casino proposals in the neighborhood in Fall River, Mass.

“We just decided we had to focus on those things we can control,” Doyle said. “What we can control is a positive guest experience at Twin River.”

Casino operators there have also focused on improving their balance sheet, after bankruptcy filings under previous ownership in 2009, and the acquisition of a second casino property out of state, in Biloxi, Miss.

Meanwhile, a current bill in the General Assembly that would allow a hotel at Twin River, sponsored by Woonsocket Rep. Robert Phillips, doesn't appear to have legs. Doyle said the casino wasn't involved in that proposal, a discussion she said that would have to start with town officials.

Those officials in Lincoln passed a resolution Tuesday opposing the bill. “Our opposition, in a nutshell, is any proposal like that should go through the local authority,” not initiated in the Legislature, said Town Administrator Joseph Almond.

Local impact in Lincoln lessened

The local impact to the town of Lincoln will be blunted by a 2007 decision to cap the amount of gaming revenue that goes toward the operational budget.

“We obviously have been very aware of what's been going on in Massachusetts,” Almond said. With slots in nearby Plainville, “we anticipate we'll see that effect sooner,” he said.

But local officials were already cognizant of fluctuations in gaming revenue, which led to its capping at $5.2 million annually for general operations (about $10 million in extra revenue has gone toward capital improvements in the meantime). “That's really an insurance policy,” Almond said, that puts the town in comparatively better shape to weather future decreasing returns.

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Estimates on overall financial impact vary

Gary Sasse, director of Bryant University's Hassenfeld Institute for Public Leadership, put the revenue loss from the slots parlor at Twin River between 8 to 12 percent. “But this is only the tip of the financial storm that could hit Rhode Island,” added the GoLocal MINDSETTER™. “Once a slot parlor and casinos are operating in Massachusetts they are projected to reduce the $300-plus million the state gets from Twin River by about one-third, and could well drive Newport Grand out of business.”

Sasse said gaming revenue losses were one factor driving state deficit forecasts. “Decision-makers knew that this day was coming,” he said, “let's hope they are not understating the potential economic and fiscal impacts.”

The casino expert at Dartmouth, Barrow put the impact of Massachusetts gaming at about 15 percent of Twin River's net terminal income — an annual loss of $60 to $70 million. Newport Grand faces the same percentage loss.

For his part, Lardaro said he expected the impact was being understated. “(Gambling) is our number three revenue source,” he said. “If we take a hit to our number three, how are we going to make that up? ... Nobody is going to accuse Rhode Island of rapid economic growth.”

Without long-term due diligence, Lardaro said he saw only one “quick fix” on the horizon: tax revenue from legalizing recreational marijuana. “It only hurts when I laugh.”

“A storm is coming, a real hurricane is coming, and they bought an umbrella.”

RI Expected to Lose $422M Revenue in 5 years to MA Gambling

Related Slideshow: Which New England States Make the Most on Lottery Revenue?

6. Vermont

5. Maine

4. New Hampshire

3. Connecticut

2. Rhode Island

1. Massachusetts

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RI Expected to Lose $422M Revenue in 5 years to MA Gambling

Related Slideshow: Which New England States Make the Most on Lottery Revenue?

6. Vermont

5. Maine

4. New Hampshire

3. Connecticut

2. Rhode Island

1. Massachusetts

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