Guessing the future of casinos in Kentucky – picking a pony

Race at Churchill Downs

Predicting future events has become a kind of science; pollsters, for example, attempt to predict the outcome of elections, the likelihood that a model of car or television program will succeed and a thousand other likely or unlikely outcomes.  The general method is to ask a small sampling of given population questions about intents and preferences – then using long established mathematics to compute the likelihood of any given outcome, plus or minus some percentage number.

The methodology is also at the heart of market studies (or market analysis or market research), although market analysis requires the use of historical data as well the polling data.  So, if you were planning to build and open a new restaurant with a novel menu in a certain location you would want to do a few things first.  You might start by testings the menu by conducting polls to find out if people are interested in your concept and would patronize your restaurant; you might want to go further and conduct focus groups to see how real people actually felt about your food. Then you would want traffic studies to find out about the traffic near your restaurant, how many people drive past that site daily, what is the traffic count during key business times, lunch and dinner?  Next you would use census data to determine the number of people who live within say 5, 10 or 15 miles of your site. You want to know how much money they make, how much disposable income they have, how many times a week, month or year do they eat out?  How much do they spend on average when they go out to eat? Is your menu priced right for those habits?  It can be a very demanding discipline, McDonald’s is said to pay $50,00 -$100,000 on reserach to find the right location for each of its outlets – Wendy pays nothing for research, but pays $50,000 – $100,000 more for their sites located near the McDonald’s.  Getting all of the elements right is important in opening any new business.

Increasingly, state legislatures are prone to commissioning just such studies when they are thinking about expanding gaming in their state.  The end report should have all of the data that would appear in your restaurant report; how many customers can they expect, how much are those customers likely to spend and how much money will accrue to the state in the process?  It used to work pretty well, but it is highly unlikely to be accurate in 2012, nor was it in 2007 it seems.  Maryland commissioned just such a study in 2006 or 2007 in anticipation of legislation allowing for 5 casinos in the state – the report came back with numbers to warm a lawmakers heart – $1 billion a year in gaming revenue each year, the state’s share in the hundreds of millions of dollars – how can a state go wrong with that?  Well, easy, only two casinos have opened in 5 years, another is slated to open this year, but in the meantime, the surrounding states have increased their gaming and the economy took a dump.  Casino revenue in 2011 was about $100 million, not quite a billion; nor is it likely to ever even reach half of the billion dollars the study so glibly predicted way back before the recession.

This week, Kentucky released the details of a report it commissioned – and wow, the expect gaming revenues in Kentucky will approach $2 billion a year.  Or not.  First, no one is counting on the displacement, how much money that is currently spent on the ponies or lottery will move to casinos?  Second just what other gaming outside of Kentucky will have materialized before the first casino can open in Kentucky?  What legal and economic hurdles will the prospective casino developers have to overcome to get to the starting gate? And finally, just when will the fine citizens of the great state of Kentucky with its blue-blooded gentlemen, horses and grass be able to sit at home and place their bets on a computer?  I don’t question the science, math or skills of the people who did the research for the state of Kentucky – I question the world of gaming’s stability.

The current situation in gaming is too dynamic, too fluid to make long-term predictions.  Casinos in Kentucky might succeed, but the longer the state delays the less likely it is that Kentucky casinos will meet today’s expectations.  No state can guarantee what will happen in other states and worse, now no one can tell what is going to happen with the Internet. More than one state lottery director believes he/she has the authority currently, without the permission or approval of the governor or legislature, to sell tickets online – and some believe that includes video lottery terminals – slot machines.  Good luck Kentucky!  If you go into this like you bet on the ponies you will be fine – pick a pony you like, plunk down your bet and then go to rail to watch and cheer; no one who plays the ponies expects to win every race.  But wasn’t it exciting?


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