by C. Robert Castro, HVS Gaming Services
After three years of steady proliferation, it is obvious that the majority of local municipalities and a large portion of casino operators have benefited from the expansion of casino gaming. But, what impact has casino gaming had on local hoteliers? While a multitude of factors influence the traditional sources of lodging demand (i.e., commercial, leisure, and group meeting), a host of additional variables are introduced when evaluating a casino's impact on marketwide lodging demand. How can hotel operators assess gaming's impact on lodging demand? The first step is to think like a casino operator. Seek to understand the elements and economics of casino gaming and its ability to induce demand into the market. The following case study presents two different scenarios in which casino-only operations enter the market.
Scenario One is a gaming market with three Class III Native American casinos located in a small community approximately 50 miles east of, and 150 miles west of, major metropolitan cities. The Class III casinos offer all types of banking table games and a large inventory of gaming devices. Only one other full-service casino is located within a 125-mile radius of the market.
Scenario Two is a gaming market which includes two ~30,000-square-foot riverboat casinos locate approximately 25 miles south of a major metropolitan city. The riverboat casinos offer a limited number of banking table games and a moderate inventory of gaming devices. The riverboat casinos make approximately six, three-hour excursions per day. One additional casino (at dockside) is located within a 100-mile radius of the market, and two full-service Class III Native American casinos are located within a 150-mile radius of the market.
Market research indicates a high correlation between the pentration and frequency of visitation and the proximity and convenience of the gaming inventory. Based on this correlation, a distance-based demand model is used to project the number of casino visits to a specific gaming jurisdiction. The first step in projecting gaming visitation levels is to quantify the base population within three concentric circles around the subject market. The sizes of the concentric circles are typically 0 to 50 radial miles, 50 to 100 radial miles, and 100 to 150 radial miles. The second step adjusts the base population figures to account for competitive gaming markets equating to a capturable adult population estimate. A gaming incidence factor is then calculated by multiplying the estimated market penetration by the estimated trip frequentcy for each concentric circle (60% x 7.0 = 4.2). The gaming incidence factor is then applied to the capturable adult population, existing tourism, and incremental visitation estimates in order to arrive at the estimated number of marketwide casino visits. From these projections, a reasonable estimate of lodging demand can be ascertained by applying capture rates to the various visitation figures within each concentric circle. The table on the following page entitled, Projection of Gaming-Generated Lodging Demand, presents and analysis of gaming and lodging demand based on the two previously mentioned scenarios.
As illustrated, casino visitation can vary dramatically, depending on the proximity of the casino in relation to the primary population centers and the scope and the number of competitive facilities in the area. In addition, the type of casino and the variety of games offered can have an impact on penetration and trip frequency levels. Casinos such as Class II Native American facilities and riverboats tend to capture less demand outside their primary markets (0-50 miles), than do full-service Class III Native American and dockside casinos. Under Scenario One, the casinos are able to induce a large portion of overall demand from outside the primary market. This gaming demand can be in the form of tour and travel buses, "day-trippers," or overnight leisure visitors. Despite a larger capturable adult population base, the market under Scenario Two can be expected to derive much less lodging demand from gaming due to the high proportion of visits generated within the primary market. Existing tourism estimates are already accounted for as lodging demand. Incremental visitation accounts for demand originating outside the 150-mile circle directly resulting from the availability of gaming within the market. Due to the specific nature of the visit, this demand source typically has a high propensity to utilize lodging facilities within the primary market.
By incorporating the specific factors impacting casino visitation and market demographics, hotel operators can assess the potential increase in lodging demand as a result of casino gaming. Developers and casino owners are encouraged to perform a similar analysis when determining the feasibility of new hotel development. In many cases, the addition of a hotel component fails to increase the overall value of a casino project. It should be noted that the figures utilized in this case study are overall estimates. Additional factors such as seasonality, capacity constraints, market pricing, and market accessibility must be factored into an actual study.
The Hotel Valuation Journal