Tuesday, September 12, 2006
Betting on the Big Payday
The Pennsylvania Gaming Control Board is at odds with Millennium Gaming, the owners of the Meadows harness race track, over the projected revenues from the track’s slots parlor. The Gaming Board estimates gross slot revenues from the track in the neighborhood of $123 million while Millennium Gaming is predicting at least $215 million and possibly a high of $296 million. Each side cites the validity of their consultants and is standing by their respective predictions. What hangs in the balance is Millennium Gaming’s casino license which the Gaming Board can choose to approve, deny, or defer.
The dispute came in the wake of the Gaming Board’s hearings to grant the casino license to the state’s horse racing tracks, which it expects to do on September 27th. The licenses have been priced at $50 million each. Why should the Gaming Board care if the gross (after payout) revenues are $100 million, $300 million or $0? The answer is that the state needs to maximize its own take of the revenues. Therefore the Gaming Board wants each casino to be as lucrative as possible. This is the dilemma created when the Governor and the Legislature decided to set the price for licenses instead of auctioning them off to the highest bidder.
Had they let the licenses go to auction, the state would have its money up front and not have to worry about each casino maximizing revenues. That would be up to the license owner. If the slots parlor was unprofitable then the owner could then have the freedom to sell the license, with the approval of the Gaming Board, to another party. The onus would be on the license holder to be profitable—not the state’s responsibility.
But instead we have petty bickering over demographics, potential competition, repeat customers, and the size of wagers. The state has a lot riding on the success of these slot parlors. Cities, counties, and municipalities have built budgets around the expected windfall from the slots legislation. Projects, such as a new hockey facility in Pittsburgh, around the state are depending on these revenues. If actual slots revenues fall short of their predictions the Governor and the Legislature would be in a very precarious situation. This whole episode points to the predictable mess government creates when it tries to interfere with the private market.
The dispute came in the wake of the Gaming Board’s hearings to grant the casino license to the state’s horse racing tracks, which it expects to do on September 27th. The licenses have been priced at $50 million each. Why should the Gaming Board care if the gross (after payout) revenues are $100 million, $300 million or $0? The answer is that the state needs to maximize its own take of the revenues. Therefore the Gaming Board wants each casino to be as lucrative as possible. This is the dilemma created when the Governor and the Legislature decided to set the price for licenses instead of auctioning them off to the highest bidder.
Had they let the licenses go to auction, the state would have its money up front and not have to worry about each casino maximizing revenues. That would be up to the license owner. If the slots parlor was unprofitable then the owner could then have the freedom to sell the license, with the approval of the Gaming Board, to another party. The onus would be on the license holder to be profitable—not the state’s responsibility.
But instead we have petty bickering over demographics, potential competition, repeat customers, and the size of wagers. The state has a lot riding on the success of these slot parlors. Cities, counties, and municipalities have built budgets around the expected windfall from the slots legislation. Projects, such as a new hockey facility in Pittsburgh, around the state are depending on these revenues. If actual slots revenues fall short of their predictions the Governor and the Legislature would be in a very precarious situation. This whole episode points to the predictable mess government creates when it tries to interfere with the private market.
