Nathan Associates Principal Economist Alan P. Meister, Ph.D., and academic affiliates Clyde W. Barrow, Ph.D., and David R. Borges, M.P.A. announced the publication of a groundbreaking article in Gaming Law Review & Economics, which is the first systematic analysis of market saturation in the U.S. casino gaming industry.
The authors note that even though the U.S. economy remains on a slow growth trajectory, casino gaming supply has seen a rapid and ongoing expansion since the beginning of the Great Recession (2007-2009). Nevertheless, in many local and regional markets, gaming revenue has been flat or declining and, in some well publicized cases, such as Atlantic City, New Jersey and Tunica, Mississippi, casinos have filed for bankruptcy or ceased operations completely. In other cases, existing casinos have seen precipitous drops in gaming revenue – Connecticut and Illinois, for example – as new gaming facilities appear to “cannibalize” revenues from competing casinos.
Consequently, the authors point out, state lawmakers, tribal governments, regulators, and gaming executives have increasingly shifted their attention from the politics of gaming expansion to the problems of regional competition, market saturation, and cannibalization. The question of “market saturation” has become a salient point of public policy debate in many state legislatures and a question that is now frequently raised in the media in response to proposals for additional gaming expansion. Nevertheless, while it is widely agreed in the industry that some local and regional markets are saturated, no one has previously attempted to define or measure saturation on the basis of clear and objective metrics. The authors develop several metrics for measuring saturation in multiple markets often deemed to be saturated, including:
• Gaming Machines per 1,000 Adults (21+);
• Gaming Machines per $1 Billion in Disposable Personal Income (DPI);
• Win per Machine per Day;
• Gross Gaming Revenue (GGR) per Capita (age 21+); and
• Gross Gaming Revenue (GGR) as a Ratio of Disposable Personal Income (DPI).
In the article, Dr. Meister, Dr. Barrow, and Mr. Borges identify and compare these metrics for measuring market saturation, apply them to markets that have been widely acknowledged as being saturated, and propose them as benchmarks for evaluating saturation in other markets.
The markets studied indicate that market saturation may be reached at nearly 6 Gaming Machines per 1,000 Adults and is most certainly reached at 7 Gaming Machines per 1,000 Adults. Similarly, when the researchers examined the number of Gaming Machines per $1 Billion of DPI, they concluded that market saturation occurs at about 100. Similarly, the authors found that a Win per Machine per Day of around $200 and lower signals market saturation. Looking at GGR per Capita, the authors conclude that $500 GGR per Capita is a good indicator of market saturation. In terms of GGR as a Ratio of DPI, the authors conclude that a ratio of 0.8% or higher seems to indicate market saturation.
In looking across all five market saturation metrics, the authors found it noteworthy that the indicators generally seem to corroborate each other with the Tunica/Lula market showing the highest level of saturation among the selected markets in terms of all five market saturation metrics. The St. Louis market was the second most saturated market on four of the five metrics (third most saturated on one metric). The Kansas City market was the third most saturated market on four of five metrics (second most saturated on one metric). And Atlantic City was the least saturated on all five metrics after what appears to be a market recalibration following four casino closures. Used together, the authors conclude that the five market saturation metrics may have a higher predictive capability in determining whether or not (a) a gaming market is saturated and (b) if gaming expansion in particular jurisdictions will result in a saturated market.
For example, the authors found that the Chicagoland market, which some have identified as a saturated market, is actually less saturated than the benchmark markets (including Atlantic City) on all five metrics, and significantly below the absolute levels indicating market saturation. The Chicagoland market has 2.5 Machines per 1,000 Adults compared to the 5.8 in St. Louis, 5.9 in Kansas City, and 7.3 in Tunica/Lula. Chicagoland had 41.3 Machines per $1 billion of DPI compared the nearly 100 in St. Louis and Kansas City, and over 150 in Tunica/Lula. Similarly, Chicagoland’s Win per Machine per Day of $292 was above all the benchmark markets and the $200 threshold. Chicagoland’s $338 in GGR per capita is well below the $500 plus in Tunica/Lula, St. Louis, and Kansas City. The same holds true for its GGR as a ratio of DPI, which is 0.56%, well below the 0.8% plus in Tunica/Lula, St. Louis, and Kansas City.
The article, "An Empirical Framework for Assessing Market Saturation in the U.S. Casino Industry," appears in the latest issue of Gaming Law Review and Economics (June 2016, Vol. 20, Issue 5), a leading peer-reviewed journal addressing legal, regulatory, and economic issues in the industry.
To obtain a copy of the article, go to the Gaming Law Review & Economics’ website or contact Dr. Meister.
Over the past 15 years, Dr. Meister has conducted extensive scholarly and consulting research and analysis of the gaming industry, including Indian gaming, commercial casinos, racinos, card rooms, and online gaming. Dr. Barrow is a Professor of Public Policy and Chair of the Department of Political Science at the University of Texas Rio Grande Valley. Mr. Borges is Director of Research & Administration for the Public Policy Center at the University of Massachusetts, Dartmouth.