State of the Gaming IndustryState of the Gaming Industry

Presentation by

Frank J. Fahrenkopf, Jr.President and CEO

American Gaming Association

East Coast Gaming CongressMay 24, 2010

2009 Review: A Valued Partner2009 Review: A Valued Partner

AGA’s 2010 State of the States was released earlier this month and reveals many of the benefits casinos bring to communities. In 2009, despite the recession, commercial casinos:

– Employed more than 328,000 people who earned $13.1 billion in wages

– Paid almost $5.6 billion in direct gaming taxes to states and communities

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An Unprecedented TimeAn Unprecedented TimePast two years have been some of the most difficult in our industry’s history

– Gaming revenues in 2009 were $30.74 billion – a 5.5 percent drop from 2008, which was a 4.7 percent drop from 2007

– Atlantic City operating profits dropped 25 percent in the first quarter of 2010

– Consumer spending on gaming and leisure travel dropped significantly

– Credit markets seized up as many capital expansion projects got underway, forcing many to be scaled back or cancelled (Echelon, Las Vegas; proposed Pinnacle property in Atlantic City)

– Economic difficulties caused many companies not to bid on expansion opportunities (Md., Kan.)

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2009 Review: Positive Results2009 Review: Positive Results

Some markets saw revenues increase as a result of new properties or changes to gaming laws

New properties– Pennsylvania – Revenues up 21.6 percent, driven by new

properties in Pittsburgh and Bethlehem – Indiana – 2009 was the first full year of operations for two

properties (Hoosier Park, Indiana Live) ; revenue up 4.9 percent

Revised gaming laws– Colorado – Revenues up 2.6 percent after expanding hours,

raising the bet limit and adding new games– Missouri – Eliminated loss limit; revenues up 2.9 percent

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2009 Review: 2009 Review: Racinos Remain StrongRacinos Remain Strong

The racino sector continued to grow in 2009

– Gross gaming revenues increased 5 percent to $6.40 billion

– Racinos paid more than $2.6 billion in direct gaming taxes, a 1.2 percent increase over 2008

– Racino employment stayed steady with more than 29,000 people

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2009 Review: 2009 Review: Equipment ManufacturersEquipment Manufacturers

– $12.1 billion in direct economic output, a 4.7 percent decrease from 2008

– 30,000 jobs, an increase of 1.4 percent from last year– $2.1 billion in wages, an increase of 5 percent

compared to 2008

Gaming equipment manufacturers also have struggled in the recession, but made vital contributions:

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2009 Review: East Coast2009 Review: East Coast

Gaming Revenues– New Jersey: $3.943 billion (-13.3 percent)– Pennsylvania: $1.965 billion (+21.6 percent)– Connecticut: $1.448 billion (-7.8 percent)– New York: $1.019 billion (+7.6 percent)– Delaware: $564.2 million (-4.2 percent)

Tax Contributions– New Jersey: $347.62 million (-18.6 percent)– Pennsylvania: $929.04 million (+21.2 percent)– New York: $455.48 million (+2.1 percent)– Delaware: $227.55 million (+8.1 percent)

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2009 Review: East Coast2009 Review: East Coast

Employment– New Jersey: 36,377 (-5.7 percent)– Pennsylvania: 9,126 (+55.5 percent)– New York: 3,180 (-6.8 percent)– Delaware: 2,363 (-8.5 percent)

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2009 Review: East Coast2009 Review: East Coast

Clear evidence that gaming expansion has cut into the revenues of existing markets– Pennsylvania’s growing industry has led to

declines in Atlantic City and Delaware– New York’s success has affected Connecticut

and Atlantic City

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Turning the Corner?Turning the Corner? Beginning to come out of the recession

– 1st quarter national revenues were flat, down only 0.2 percent

– Atlantic City – April revenue down only 0.7 percent Compared to declines of 9.8 percent, 8.5 percent, 15.7 percent

and 5.6 percent in December, January, February and March, respectively

– Optimistic signs from Nevada Las Vegas Strip up 2.4 percent; Reno up 4.6 percent; and

South Shore Lake Tahoe up 7.2 percent in March MGM MIRAGE reports that convention and booking

rates are on the upswing Las Vegas Sands announced a $2.50 quarterly dividend Las Vegas visitor volume is up 1.5 percent 2010 YTD

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First Quarter ComparisonsFirst Quarter Comparisons

1Q 2009 1Q 2010 % changeColorado $175,340,957 $186,227,221 6.21%Illinois $371,633,000 $355,536,000 -4.33%Indiana $713,967,663 $705,009,226 -1.25%Iowa $356,511,621 $344,125,570 -3.47%

KansasFirst property opened

in Dec. ‘09 $9,666,310 N/ALouisiana $662,249,809 $594,976,193 -10.16%Michigan $343,902,970 $353,623,697 2.83%

Mississippi $673,026,105 $628,149,584 -6.67%Missouri $443,702,165 $439,324,177 -0.99%Nevada $2,661,953,221 $2,742,109,633 3.01%New Jersey $950,079,244 $856,554,563 -9.84%Pennsylvania $433,002,783 $552,657,408 27.63%South Dakota $22,467,266 $24,474,670 8.93%Total $7,807,836,804 $7,792,434,252 -0.20%

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Expansion on the HorizonExpansion on the Horizon

Entering a period of expansion in the East, especially in the mid-Atlantic– Table games in Pennsylvania, Delaware and

Charles Town, W.Va.– Casinos in Maryland, Ohio, Aqueduct (Queens,

N.Y.)– Possible expansion in Massachusetts, New

Hampshire Existing markets must adapt

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Public Perceptions of Public Perceptions of Gaming Entertainment Gaming Entertainment

Public opinion polling released in State of the States– Consisted of phone interviews conducted with

804 adult (age 21+) Americans from Feb. 10-17

Polling found that acceptance of casino gambling remains high 81 percent of Americans view casino gaming as acceptable for themselves or others

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Public Perceptions of Public Perceptions of Gaming Entertainment Gaming Entertainment

Polling also revealed that that– Casino gaming is a good value

Nearly three-quarters (73 percent) of those polled think that going to a casino for an evening out is a good value compared to other entertainment options

– 36 percent of survey respondents see job creation as the most important benefit of casinos, 21 percent say taxes

– 28 percent of Americans visited a casino during 2009, up from 25 percent in 2008

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Poll of Casino County ResidentsPoll of Casino County Residents

A 2010 poll of 304 casino county residents nationwide found that:

– 42 percent have visited a casino to gamble in the past year

– 64 percent describe the impact of casinos on their community as very or somewhat positive

– 68 percent would vote “yes” on a referendum on keeping casino gaming

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Spotlight on Gaming MachinesSpotlight on Gaming Machines

In 2009, there were nearly 833,000 gaming machines in 38 states– Nevada has the most with 191,110, followed by California and

Oklahoma– New Jersey – 30,782– Pennsylvania – 24,754– Delaware – 7,532

All commercial casino states get at least 65 percent of their gaming revenue from machines (N.J. – 69 percent)

59 percent of survey respondents say slots are their favorite game– 49 percent say they prefer slots because they don’t feel

embarrassed or pressured when playing 16

Casino VisitationCasino Visitation

Casino gambling (28 percent participation) was the second most popular form of gambling for survey respondents, behind only the lottery (46 percent participation)– Approximately 61.7 million casino visitors

Of those who visited casinos:– 50 percent visited local casinos for a few hours at a time– 13 percent took long-distance trips to gambling

destinations– 23 percent visited both local and destination casinos– 10 percent took one- or two-night trips to local casinos

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Not Just GamblingNot Just Gambling

When visiting a casino during the past year– 75 percent ate at a fine dining restaurant– 60 percent saw a show, concert or other live

entertainment event– 48 percent visited a bar or club– 41 percent went shopping– 35 percent used recreational facilities, such as a

spa, pool, fitness area or golf course

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Spotlight on PokerSpotlight on Poker

15 percent of survey respondents reported playing poker in 2009– Highest percentage since 2003 and 2004, the

height of the “poker boom”– New Jersey’s 2009 poker revenue – $78.1 million

Poker revenues are more resilient than overall gaming revenues

The 5.2 percent decline in N.J. poker revenues compared with 2008 was considerably smaller than the 13.3 percent drop overall gaming revenues

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Global Gaming DevelopmentsGlobal Gaming Developments Asia

– Macau Continues to set revenue records ($1.76 billion in April); expansion has

resumed on Cotai Strip properties 65 percent of Wynn Resorts’ revenue 80 percent of Las Vegas Sands’ revenue in first quarter

– Singapore Two new integrated resorts – Marina Bay Sands, Resorts World Sentosa

(Genting) Genting: 1st quarter results – 46-day period of operations, property

generated revenues of $242.5 million, EBITDA of $78.9 million (33% EBITDA margin) and $5.3 million/day

– Development underway in Vietnam– Other countries considering expansion– G2E Asia 2010 – June 8-10 at the Venetian Macao

Mexico and South America; Europe20

Federal Issues – Internet GamblingFederal Issues – Internet GamblingCurrent Pending Legislation

– The Internet Gambling Regulation Consumer Protection and Enforcement Act (H.R. 2267) – Introduced by Rep. Frank (D-Mass.), the bill would establish a federal regulatory and enforcement framework for Internet gambling operations

– Internet Gambling Regulation and Tax Enforcement Act of 2009 (H.R. 2268) – Introduced by Rep. McDermott (D-Wash.), this companion bill to H.R. 2267 would establish a system of taxation for Internet gambling operations. Under the legislation, licensed operators would pay a two percent tax on all deposits

– Internet Poker and Games of Skill Regulation, Consumer Protection, Enforcement Act of 2009 (S. 1597) – Introduced by Sen. Robert Menendez (D-N.J.), it would legalize and regulate games of skill on the Internet, also known as the “poker carve-out bill”

– The Bipartisan Tax Fairness and Simplification Act of 2010 (S. 3018)Introduced by Sens. Wyden (D-Ore.) and Gregg (R-N.H.), the bill would, among its many provisions, use taxes and licensing fees on Internet gambling as a federal revenue generator 

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Federal Issues – Internet GamblingFederal Issues – Internet GamblingAGA Position

– The technology now exists to properly regulate Internet gambling with appropriate law enforcement oversight and to provide appropriate consumer protections for individuals gambling online. 

– A properly regulated legal framework for Internet gambling is the best way to protect consumers.

– Online gambling operators and suppliers should be held to the same level of probity to which AGA members adhere in their traditional land-based operations. 

– The AGA will continue to put any legislative proposal through three tests:

Must not create competitive advantages or disadvantages No form of gambling currently legal shall be made illegal Must respect states’ rights

– The AGA remains neutral on all existing legislation being considered – SEN. HARRY REID?????

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Federal Issues – Federal Issues – Financial RegulationFinancial Regulation

Restoring American Financial Stability Act of 2010 (Financial Reform Bill; S. 3217)

– Among other provisions, would create new Consumer Financial Protection Bureau (CFPB) to regulate entities that extend credit, service loans, engage in deposit-taking activities or otherwise act as custodian of consumer funds

– Some questions raised about whether the gaming industry might be subject to oversight by CFPB

– The AGA has reviewed the bill and does not think it applies to the industry; Sen. Reid’s office has concurred

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Where Do We Go From Here?Where Do We Go From Here?

Atlantic City – Facing a tremendous challenge in a new competitive

environment – Needs strong leadership – Tough decisions will have to be made

Pennsylvania and Delaware– Transition from slots parlors to full-service casinos

Sports Wagering– Delaware and N.J. litigation

In the gaming industry, you must innovate or get left behind, no matter where you’re operating

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2010 2010 State of the StatesState of the States

2010 State of the States: The AGA Survey of Casino Entertainment was released this month and is available for download at www.americangaming.org

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