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Applied Economics, 2008, 40, 773–791

Government restrictions and


the demand for casino and
parimutuel wagering
Richard Thalheimer
Thalheimer Research Associates, Lexington, KY 40507, USA
E-mail: rthal@gte.net

Growth in casino wagering in the United States from the mid-1980s


forward has been extraordinary. Over the same period, however,
parimutuel wagering has declined. Concern for this decline has prompted
a number of states to allow parimutuel racetracks to offer casino-type
gaming devices at their facilities. Such operations are commonly referred to
as ‘racinos’. If the gaming devices at a racino are under the auspices of a
state lottery, they are referred to as video lottery terminals (VLTs).
Separate parimutuel and VLT wagering demand models were estimated for
a racino facility. A number of restrictions were imposed on the VLT’s at
the beginning of the study period including: number of VLT’s, type of
game and machine, maximum bet per play and VLT location. The effect
of these restrictions on VLT and parimutuel handles was a major focus of
this article. Also of importance was an examination of the relationship
between the VLT and parimutuel products. Relaxation of government
restrictions on the VLT’s was found to have resulted in a large increase in
VLT wagering. On the other hand, parimutuel wagering was found to
decrease with the relaxation of restrictions on the VLT’s. The presence
and growth of the VLT product was found to decrease parimutuel handle.
The presence and growth of the parimutuel product was found to increase
VLT handle.

I. Introduction parimutuel wagering increased only 25%. Real


growth in casino-and-related wagering was 301%
The casino gaming and parimutuel wagering while parimutuel wagering declined by 32%
industries have exhibited markedly different growth (Christiansen, 1989; Christiansen Capital Advisors,
rates over the past several decades. The growth LLC, 2004).
of casino gaming in the United States from the The increase in casino wagering has occurred
mid-1980s forward has been extraordinary. largely due to the introduction of new gaming
To illustrate, consider that over the two-decade venues and locations augmenting the previously
period, 1982 to 2002, casino-and-related wagering1 existing land-based casino gaming venues of Nevada
increased 636%. Over that same period, and Atlantic City, New Jersey. The new gaming

1
Includes land-based casino gaming, riverboat casino gaming, Indian casino gaming, legal bookmaking, card rooms and
charitable gaming.
Applied Economics ISSN 0003–6846 print/ISSN 1466–4283 online ß 2008 Taylor & Francis 773
http://www.tandf.co.uk/journals
DOI: 10.1080/00036840600749672
774 R. Thalheimer
venues include riverboats, land-based casinos, Indian Mountaineer Park racetrack under provisions of a
casinos, and slot machines or card rooms at nonstatutory pilot project involving the West Virginia
parimutuel racetracks. Reasons for the decline in Lottery and the racetrack. Under terms of the
parimutuel horse race wagering are well-known and agreement, Mountaineer Park, Inc. acted as agent
include increased competition from casino gaming for the Lottery. Following this initial experiment,
(Thalheimer and Ali, 1995a; Ali and Thalheimer, full-scale, racino gaming authorized by state statute
2002) and state lotteries (Simmons and Sharp, 1987; was permitted in the states of Louisiana (2002),2
Vasche, 1990; Thalheimer and Ali, 1992, 1995b, Rhode Island (1992), West Virginia (1994),3
1995c; Ali and Thalheimer, 1997). Not only do Delaware (1995), Iowa (1995), New Mexico (1998)
growth rates between casino gaming and parimutuel and New York (2002).4 Gaming devices at racetracks
wagering vary greatly, but there are marked differ- in West Virginia, Rhode Island, Delaware and
ences in the size of each of these gaming industry New York are under the auspices of the state lottery
sectors. For example, in 2002 casino-and-related while racinos in the remaining states are regulated by
handle was $812.2 billion and parimutuel handle state gaming commissions.5
was $17.9 billion (Christiansen Capital Advisors, To illustrate the importance of VLT gaming to
LLC, 2004). total state lottery revenue consider that in fiscal year
Concern for the decline in handle and revenues for 2002 total West Virginia lottery revenues were $728.4
the parimutuel racing industry has prompted a million. Racetrack video lottery revenues generated
number of states to allow parimutuel racetracks to by all four West Virginia racinos accounted for
install casino-type gaming devices at their facilities. $596.0 million or 81.8% of that total (West Virginia
Parimutuel racetracks that are permitted by state Lottery, 2003).
statute to offer such gaming devices are commonly In this study the demand for VLT and on-track
referred to as ‘racinos’. In some states these gaming parimutuel wagering at a racino location,
devices are part of the state lottery and are placed Mountaineer Park Racetrack and Resort
under the lottery’s regulatory authority. In those (Mountaineer Park), is determined. In March 1994,
instances, the gaming devices are referred to as video The West Virginia Video Lottery Act was passed
lottery terminals (VLT’s). In other states where giving statutory authority to the West Virginia
electronic gaming devices are permitted at parimutuel Lottery to conduct VLT gaming at all four
wagering facilities, the privately owned devices are (two thoroughbred and two greyhound) of the West
placed under the regulatory authority of a state Virginia parimutuel racetracks subject to local
racing or gaming commission and are referred to as referendum. Following passage of the required local
electronic gaming devices (EGD’s) or slot machines. referendum approving the use of VLT’s at parimutuel
In either case VLT’s or EGD’s are equivalent racetracks, Mountaineer Park on 2 September 1994
casino-type gaming devices, differing only in regula- ended its pilot project program which had been
tory accountability but not in substance. In almost all judged to be a success. In this study, the estimation
instances where racino gaming is permitted in a state, period is from 1994 to 2002, a period which included
a percent of the gaming revenue is statutorily both pre-pilot project and post-pilot project VLT
allocated to purses for owners of horses (greyhounds) gaming.
racing at those racetracks in an attempt to slow down Under provisions of the West Virginia Lottery Act,
or reverse the decline in the racing industry due a number of restrictions were imposed on the VLT’s.
to competition from other gaming venues. These included the number of VLT’s, the type of
The first racino in the United States was game and machine, the maximum bet per play and
Mountaineer Park, a small thoroughbred racetrack VLT location. The effect of these government
in northern West Virginia. On 9 June 1990 a limited restrictions on VLT and parimutuel handles is a
number of video gaming devices was installed at major focus of this article. Also of importance is an

2
Limited stakes poker machine gaming devices were permitted at racetracks and other locations such as truck stops,
restaurants and lounges in 1992. Legislation resulting in casino style slot machines, restricted to racetracks, resulted in
full-scale racinos beginning with Delta Downs racetrack in 2002.
3
Video lottery terminal gaming was offered as permitted by state statute in March 1994, and after local referendum beginning
in September 1994. At that time, three of the four West Virginia parimutuel racetracks, Mountaineer Park, Wheeling Downs
and Tri-State, became racinos. Charles Town installed VLT’s in September 1997 after local referendum.
4
Although, New York passed enabling racino legislation in 2002, racinos did not come on-line in that state until 2004.
5
In 2004, racinos were authorized but not yet implemented in the states of Maine, Oklahoma and Pennsylvania. The gaming
devices were not under the state lottery in any of these states.
Demand for casino and parimutuel wagering 775
examination of the relationship between the VLT and wagering was that of Thalheimer and Ali (2003).
parimutuel products. The subjects of the analysis were all riverboats and
The plan of this study is as follows. Section II racinos in the Midwestern states of Illinois, Iowa and
reviews the existing empirical literature on the Missouri. Specifically, an econometric model was
demand for racino gaming. Section III develops developed relating the demand for slot machine
two econometric models of the demand for wagering to its determinants. One important finding
racino gaming, one for VLT wagering and one of that study was that government restrictions on
for parimutuel wagering. Section IV reports the bet size/total wager, and restrictions on customer
estimated model and presents empirical results on access resulted in significant reductions in slot
the factors affecting the demand for racino wagering. machine handle.
In addition to reporting results for traditional Only one previous study examined the demands for
demand variables, the effects of government parimutuel and VLT (slot machine) wagering at a
restrictions over the estimation period are reported. racino location (Thalheimer, 1998). In that study,
Section V summarizes the findings and draws further separate econometric demand models were specified
conclusions. for VLT gaming and on-track parimutuel horse race
wagering. The subject of the analysis was
Mountaineer Park. The period of analysis was daily
from 1989–1991 during which a limited number
II. Previous Studies of VLT’s were placed at the racetrack as a pilot
project under the auspices of the West Virginia State
Prior econometric models of the determinants of the Lottery. It was found that the introduction of VLT
demand for parimutuel horse race wagering include gaming at a racetrack caused a significant decline
those of Gruen (1976), Coate and Ross (1974), Suits in on-track parimutuel wagering. However, VLT
(1979), Morgan and Vasche (1979, 1982), Simmons revenue was found to be sufficient to offset the
and Sharp (1987), DeGenarro (1989), Church and decline in on-track parimutuel revenue.
Bohara (1992), Thalheimer and Ali (1992, 1995a,
1995b, 1995c) and Ali and Thalheimer (1997, 2002).
Unlike studies of the demand for parimutuel
wagering, there have been few econometric studies III. Data Description and Model Specification
of the demand for casino gaming. Cargill and
Eadington (1978) developed a quarterly forecasting The Mountaineer Park Racetrack and Resort racino
model of casino win (revenue). Nichols (1998b) used in West Virginia is located near the Ohio and
a Box–Jenkins time series intervention model to Pennsylvania borders. The market area for
investigate the effect of deregulation of gaming Mountaineer Park is defined as including those
floor space on slot machine and total win at the potential customers who reside in counties lying
Atlantic City, New Jersey casinos. The relaxing of within a 100-mile radius of the racino. This market
floor space restrictions was found to have a area definition was used in an earlier study of the
significant positive effect on win. Nichols (1998a) demand for casino gaming (Thalheimer and Ali,
developed regression models for win, win per 2003). Market area population averaged 8.47 million
admission and admissions for riverboats in Iowa. over the first 12 months of the study period, falling
Deregulation was found to have a significant positive slightly to 8.39 million in 2002. In 2002, the market
effect on casino win at Iowa riverboats. Hunsaker area population was distributed as follows: 4.72
(2001) developed separate models of casino win in million in Ohio, 3.23 million in Pennsylvania and
Atlantic City, New Jersey and the Las Vegas, Nevada 0.44 million in West Virginia.
Strip and their relationship to riverboat win in other During the study period Mountaineer Park
states. An excellent review of various economic issues included a hotel, Mountaineer Lodge, with 101
affecting the casino gaming industry can be found in rooms and a restaurant, located at a short distance
Eadington (1999). None of these models focused on from the racetrack. In addition to Mountaineer
the economic behaviour of customers with regard to Lodge, a new hotel was opened near the end of the
wagering demand, rather they were reduced form study period in 2002. Video lottery gaming and
equations designed to either forecast or assess the wagering on the simulcasts of races from off-site
impacts of various factors such as government racetracks were available both at the racetrack and
regulations on gaming revenue (win). lodge.
While previous studies examined casino win or In the previous study for which Mountaineer Park
revenue, the only study of the demand for casino was also the subject of analysis (Thalheimer, 1998)
776 R. Thalheimer
the demand for racino gaming was estimated using of the demand determinants for both parimutuel and
daily data from 1989 to 1990. The period of analysis VLT wagering.
was immediately prior to and after the nonstatutory
pilot project when a limited number of VLT’s were
installed at the racetrack under the auspices of the VLT and parimutuel demand determinants
state lottery. In this study the period of analysis – general market environment
is July 1994 through December 2002. Data are
weekly with 443 observations over the study period. General market environment factors affecting the
The data cover a period that includes the end of the demands for both VLT and parimutuel wagering
limited-VLT pilot project period and subsequently include,
the period where the statutory provisions of the West . trend
Virginia Lottery Act of 1994 replaced the temporary . seasonality
provisions of the pilot project period. In what . holiday
follows, two econometric models are developed, . market area per capita income
one each for the demand for VLT and on-track . extreme weather conditions
parimutuel wagering both occurring at a single racino . competition
location.
A stochastic trend term was introduced to
Dependent variable capture effects such as continuing capital improve-
ments not captured by the other included variables.
Demand is measured as handle per unit of market The trend variables for VLT and parimutuel wager-
area population for VLT wagering (PCHAND_VLT)
ing demands are the lagged dependent variables
and for on-track parimutuel wagering
LRPCHAND_VLT(-1) and LRPCHAND_PARI
(PCHAND_PARI). Annualized total VLT handle
(-1), respectively. Seasonality in the data is captured
increased from $131 million to $2.6 billion from the
by the binary(0, 1) month variables: JAN, FEB,
first to the last 12 months of the study period. On a
MAR, APR, MAY, JUN, JUL, AUG, SEP,
weekly basis, per capita VLT handle increased from
OCT, NOV, DEC. The holiday effect is captured
$0.30 to $5.92. Real per capita VLT handle
by the binary(0, 1) national holiday variable,
(RPCHAND_VLT) increased 1.580%.
HOLIDAY. Extreme weather conditions which
Annualized total on-track parimutuel handle
were observed for the winter week of 9 January
increased from $38.2 million to $39.4 million from
1999 and which resulted in limited wagering
the first to the last 12 months of the study period.
On a weekly basis, per capita parimutuel handle availability, are captured by the binary(0, 1) variable,
increased from $0.087 to $0.090 while real per capita BADWEATH.
parimutuel handle (RPCHAND_PARI) declined by The market area economic environment is captured
13%. The relative importance of parimutuel handle by per capita income, PCI. The independent variable
to total VLT plus parimutuel handle decreased over real per capita income is denoted by RPCI. It is
the study period. On-track parimutuel handle fell expected that both VLT and parimutuel wagering
from 22.7% to 1.5% of total handle. demands will be positively related to real per capita
The functional form chosen for the analysis relates income and will increase at a decreasing rate. For
the logarithm of real per capita handle to its this reason, RPCI is transformed into its logarithmic
determinants. This specification was chosen to equivalent, LRPCI.
ensure that handle will be positive. The two The major competitors for Mountaineer Park
dependent variables transformed into their over the study period were Wheeling Downs grey-
logarithmic equivalents are LRPCHAND_VLT hound racino in West Virginia, located approxi-
and LRPCHAND_PARI. mately 55 miles away and the West Virginia State
Lottery. Since both Wheeling Downs and the state
lottery were in place over the entire study period their
Demand determinants
effects on the demand for wagering at Mountaineer
The major determinants of the demand for a product could not be determined.
are price and product characteristics of the product, The effects on handle of the new hotel which was
price and product characteristics of competing opened in 2002, augmenting the existing Mountaineer
products, market area income and other factors Lodge, could not be determined, possibly due
influencing the market environment such as to the lack of a sufficient time period over which to
government restrictions. Following is a discussion determine its impact.
Demand for casino and parimutuel wagering 777
VLT and parimutuel demand finished play. This receipt could then be cashed by the
determinants – VLT-specific racino cashier. Machines with this type of payment
option are referred to as ticket-out machines.6 The
Each of the VLT-specific demand variables,
second type of payment method, permitted later in
i.e. number of VLT’s, type of VLT, location of
the study period, is referred to as a coin-out or coin-
VLT’s and maximum VLT bet, was subject to
drop. Coin-out machines pay winnings as coins
government restrictions at some point over the
‘dropped’ into a container on the front of the
study period. Video lottery terminals-specific
machine.
factors affecting the demands for both VLT and
In addition to payment method, the type of VLT
parimutuel wagering include,
was also defined by different game options permitted
. number of VLT’s at various times over the study period. Some
. VLT type machines offered multiple game options while
. VLT location others offered single game options. All machines
. VLT maximum bet per play offering multiple game options were video gaming
. VLT wagering days devices. The single game machines could offer either a
. VLT price video game such as a multi-payline slot machine-type
game or a classical mechanical spinning reel
The number of VLT’s was increased greatly over Las Vegas-style slot machine game. The naming
the study period. In fiscal year 1994 at the beginning convention for machine type used in the remainder
of the study period Mountaineer Park had 165 VLT’s of this study is: VLT_payment type_number of
under the pilot program. These were replaced in games_machine type(game options). Payment type
September 1994 by 400 newer generation VLT’s can be ticket-out (T) or coin-out (C). The number
permitted with enactment of the West Virginia of games on a machine can be one (SINGLE) or more
Lottery Act of 1994. Subsequent increases in the (MULTI). Machine payment type can be video (VID)
number of VLT’s required permission from the West or mechanical spinning reel (REEL). A chronology
Virginia Lottery Commission. Upon request by of the introduction of various machine types
Mountaineer Park, the number of VLT’s was now follows.
increased over the study period from 400 in 1994 to The pilot project period ended in September 1994
800 in 1995, to 1000 in 1997, to 1200 in 1998, to 1345 with implementation of the West Virginia Lottery
in 1999, to 1905 in 2000, to 2500 in 2001 and to 3000 Act of 1994. The first-generation ticket-out, single
by the end of 2002. game, video, VLT’s permitted over the pilot project
VLT demand is expected to be positively related to period are designated as VLT_T_SINGLE_VID
the number of VLT’s and to increase at a decreasing (pilot: card, keno or slot).
rate (Thalheimer and Ali, 2003). For this reason, the The West Virginia Lottery Act initially provided
VLT’s variable (VLTS) was transformed into its for 400 second-generation ticket-out multi-game
logarithmic equivalent, LVLTS. Parimutuel wagering video machines which were installed at the racino
demand is expected to be negatively related to the on 2 September 1994. These machines replaced all of
number of VLT’s (Thalheimer, 1998). Parimutuel the original 165 pilot project machines. They offered
demand was specified as a linear function of VLTS. card and keno games and are designated as,
In this study, the relationship of the type of VLT to VLT_T_MULTI_VID(card, keno). While offering
VLT wagering demand is examined for the first time both card and keno games on a single machine, the
in the literature. The type of VLT offered to Lottery Act prohibited them from offering a video
customers is constantly changing with new game slot machine game option. In July 1996, a video slot
innovations and new technologies. The VLT’s avail- machine game option was permitted for use on the
able and permitted at various times over the study VLT’s and was available as an additional game
period varied by combinations of payment method option on the existing ticket-out machines,
and game option. There were two payment methods VLT_T_MULTI_VID(card, keno, slot).7 By
available over the period. Initially, during the pilot October 1998, all of the existing and new ticket-out
project period and with passage of the West Virginia VLT’s had the video slot game option.
Lottery Act, all VLT’s had to pay out winnings In June 1999, the statutes were again changed to
by issuing a ticket, paper receipt when a player permit coin-out payment machines with various
6
In recent years, receipts from ticket-out machines can be used as input to other machines in lieu of receiving cash.
7
See MTR Gaming Group, Inc., United States Security and Exchange Commission, Form 10-K, Annual Report,
31 December 1996. The simulated slot machine game startup was obtained from earlier reports.
778 R. Thalheimer
associated new game options. There were three game the statute. This government restricted maximum
options associated with the newly permitted coin-out bet is defined by the binary (0,1) variable,
machines. In November 1999, the first coin-out VLT_BETLIMIT2TO5.9
machines were placed on the racino floor. These The number of VLT days per week was not
were classic Las Vegas-style single game mechanical included in the estimating equations, since the
spinning reel slot machines, VLT_C_SINGLE_ VLT’s were operated year-round 7 days per week,
REEL(classic slot). These were followed in April with the exception of Christmas Day, and so their
2000 by multi-game coin-out video machines with effect on the demand for VLT and parimutuel
card and slot game options, VLT_C_MULTI_VID wagering could not be determined.
(card, slot). Finally, in August 2000, single game The price of VLT gaming is the win percent. This is
multi-payline video slot machines, the amount remaining after payout of winning bets
VLT_C_SINGLE_VID(multi-line slot) were installed relative to total handle. The win percent which
on the racino floor. These video machines (generally averaged 8.5% over the study period was relatively
with low coin input denominations such as penny or constant throughout the period and so its effect on
nickel) have symbols on more than one line and offer VLT or parimutuel wagering demand could not be
many possibilities of connecting symbols both on a determined.
single line and between lines.
The distribution of machine types in a given period VLT and parimutuel demand
was determined as the ratio of the number of each determinants – parimutuel-specific
available machine type divided by the total of all
existing machine types. Each machine type in a given VLT-specific factors affecting the demands for both
period, thus assumed a value between 0 and 1 and the VLT and parimutuel wagering include,
total of machine types in a given period summed to 1. . parimutuel wagering days
Because the number of VLT’s largely accounted for . number of on-track full-card simulcast programs
the VLT impact on parimutuel wagering, the per parimutuel wagering day
distribution of machines by type was not included . live race days per parimutuel wagering day
in the parimutuel demand model.8 . average daily purse
As was the case for machine types, the effect on . presence of stakes race
demand of the location of VLT’s has not been . price of parimutuel wagering.
examined in previous studies. Video lottery terminals
were located at both the racetrack and lodge. The The days per week over which parimutuel wagering
placement of the VLT’s at the lodge and racetrack is was conducted (DAYSPARI) varied from five to
measured by the VLT lodge-to-track ratio seven over the study period. Wagering at a racetrack
(VLT_LODGETOTRACK). Prior to enactment of location on a full schedule (card) of races simulcast
the West Virginia Lottery Act, there were no from other racetrack who are conducting live racing
restrictions on location of the VLT’s. The ratio of is referred to as full-card simulcasting. Wagering on
VLT’s at the lodge relative to the racetrack was 0.4. simulcasts of live horse and dog races sent to
The Lottery Act provided for restrictions on the Mountaineer Park from other in-state and out-
location of the VLT’s at the racino over the study of-state parimutuel racetrack locations was available
period. The Lottery Act specified that a 1 : 1 ratio of each week over the study period. It is expected that
machines at the lodge vs. those at the racetrack be parimutuel wagering demand is positively related to
maintained. The statutes were amended in June 1998 DAYSPARI and increases at a decreasing rate. For
to permit a 2 : 1 lodge-to-track ratio. Finally, in 2000, this reason, DAYSPARI was transformed into its
the statute was amended to eliminate the relative logarithmic equivalent, LDAYSPARI.
placement requirements of the VLT’s between the The intensity of the full-card simulcast product was
racetrack and lodge. The nonrestricted lodge-to-track defined by the number of racetracks whose signals
ratio was 3.4 : 1 in the last year of the study period. were received at Mountaineer Park over a week
The maximum bet per play on a VLT as permitted divided by the number of parimutuel wagering days
by statute was initially set at $2 which was raised in the week (FULLCARD). The average number of
to $5 on 21 April 2001 as a result of changes in full-cards per parimutuel wagering day increased
8
The overall explanatory power of the included demand determinants was virtually unaffected by this action. The adjusted
coefficient of determination was 0.875 with VLT types included and 0.865 when they were excluded.
9
See MTR Gaming Group, Inc., United States Security and Exchange Commission, Form 10-K, Annual Report 31
December 2002. The simulated slot machine game startup was obtained from earlier reports.
Demand for casino and parimutuel wagering 779
from 4 per day over the first year of the study period so its effect on VLT or parimutuel wagering demand
to 18 per day over the last year of the study period. It could not be determined.
is expected that parimutuel wagering demand is
positively related to FULLCARD and increases at
a decreasing rate. For this reason, FULLCARD was Summary of model specification – VLT
transformed into its logarithmic equivalent, The VLT demand model is specified as
LFULLCARD.
Live horse racing was conducted on all but 5 of the LRPCHAND VLT
443 weeks in the study period, but not every day of ¼ 0 þ 1 LRPCHAND VLTð 1Þ þ 2 JAN
the wagering week. When offered, live racing was þ 3 FEB þ 4 MAR þ 5 APR þ 6 MAY
always conducted on a day when full-card simulcast- þ 7 JUN þ 8 JUL þ 9 AUG þ 10 SEP þ 11 OCT
ing was offered. The number of live race days in a
week was equal to or less than the number of þ 12 NOV þ 13 HOLIDAY
simulcast days in a week. The availability of live þ 14 LRPCI þ 15 LVLTS
horse racing on a parimutuel wagering day þ 16 VLT T MULTIðcard, kenoÞ
(LIVECARD) was computed as the number of live þ 17 VLT T MULTI VIDðcard, keno, slotÞ
race days in a week divided by the number of
parimutuel wagering days in that week. LIVECARD þ 18 VLT C SINGLE REELðclassic slotÞ
varies between zero and one. þ 19 VLT C SINGLE VIDðmulti  line slotÞ
Live race purse per wagering day, LIVEPURSE, is þ 19 VLT C MULTI VIDðcard, slotÞ
a measure of product quality to the wagering þ 21 VLT LODGETOTRACK
customer. Live race purse per race day increased
from $23 500 to $163 100 over the study period. The þ 22 VLT BETLIMIT2TO5 þ 23 LDAYSPARI
independent variable real live race purse is denoted by þ 24 LFULLCARD þ 25 LIVECARD
RLIVERPURSE. To show the importance of statu- þ 26 RLIVEPURSE þ 27 STAKE WVDERBY
tory payments to purses from VLT revenues consider þ 28 STAKE KYDERBY
that in fiscal year 1995, the first 12 months of the
study period, payments from VLT revenues were þ 29 STAKE PREAKNESS
36% of total live race purses, the remaining 64% þ 30 STAKE BELMONT
being funded by payments from parimutuel handle. þ 31 STAKE BRCUP þ 32 BADWEATH þ u
By 2002, the last 12 months of the study period, ð1Þ
payments to live race purses from VLT revenues were
79% of the total with payments to purses from where the variables and their functional forms are as
parimutuel handle accounting for the remaining 21%. previously discussed and u is the error term.
Stakes races are the highest quality of race offering
the highest purse at a racetrack. In this study, the
stakes race of greatest regional importance was the Summary of model specification – parimutuel
West Virginia Derby (STAKE_WVDERBY) con- The demand determinants for the parimutuel demand
ducted live at Mountaineer Park. Simulcasts of the equation are identical to those in the VLT demand
three triple crown stakes races of greatest national equation with the exception that the VLT machine
interest, the Kentucky Derby (STAKE_KYDERBY), type variables are not included. Additionally, the
the Preakness Stakes (STAKE_PREAKNESS) and VLT variable, which is expected to be negatively
the Belmont Stakes (STAKE_BELMONT) were related to parimutuel handle, is specified in linear
available to Mountaineer customers each year over form. The parimutuel demand model is specified as:
the study period. In addition, the simulcast of the
Breeders Cup (STAKE_BRCUP) another stakes LRPCHAND PARI
event of national importance was also available to ¼ 0 þ 1 LRPCHAND PARIð 1Þ þ 2 JAN
Mountaineer customers each year over the study
þ 3 FEB þ 4 MAR þ 5 APR þ 6 MAY
period.
The price of parimutuel wagering is the takeout þ 7 JUN þ 8 JUL þ 9 AUG þ 10 SEP
rate, the statutory percent withheld from each wager þ 11 OCT þ 12 NOV þ 13 HOLIDAY
for payment to government, racetrack and horsemen þ 14 LRPCI þ 15 VLTS
(purses, breeders awards). The takeout rate on live
þ 16 VLT LODGETOTRACK
racing, which averaged 23% over different bet types,
was not changed by statute over the study period and þ 17 VLT BETLIMIT2TO5 þ 18 DAYSPARI
780 R. Thalheimer
þ 19 LFULLCARD þ 20 LIVECARD VLT handle was also found to be positively related
þ 21 RLIVEPURSE þ 22 STAKE WVDERBY to each of the machine type variables. The impact of
each machine types is computed relative to the
þ 23 STAKE KYDERBY
omitted pilot period machine type variable,
þ 24 STAKE PREAKNESS VLT_T_SINGLE_VID(pilot: card, keno or slot).
þ 25 STAKE BELMONT þ 26 STAKE BRCUP To compare the relative impacts on VLT handle for
þ 27 BADWEATH þ u ð2Þ each of the machine types, their impact is computed
for a 1% share of total available machines as
where the variables are as previously discussed and u follows:11
is the error term.

Data sources and summary statistics VLT_C_SINGLE_REEL(classic slot) 2.28%


VLT_T_MULTI_VIDEO(card, keno, slot) 1.73%
Data definitions and sources are given in appendix VLT_C_SINGLE_VIDEO(multi-line slot) 1.33%
Table A1. Summary statistics are given in appendix VLT_C_MULTI_VIDEO(card, slot) 0.85%
VLT_T_MULTI_VIDEO(card, keno) 0.80%
Table A2.

The machine type with the greatest impact on VLT


IV. Model Estimation and Analysis handle was the classical Las-Vegas, coin-out spinning
reel slot machine. Another interesting finding was
The parimutuel and VLT wagering demand models that the permitted addition of a video slot machine
were estimated using ordinary least squares. game option to the existing ticket-out, multi-game,
video card and keno machines, i.e. VLT_T_MULTI_
VIDEO(card, keno, slot) vs. VLT_T_MULTI_
VLT demand model VIDEO(card, keno), more than double the impact
The estimated VLT handle demand model is given in of those machines on VLT handle.
Table 1. The estimated equation fits the data well It should be mentioned that other factors
with an adjusted R2 of 0.991. The equation is included in the product characteristic mix for each
statistically significant. The Breusch–Godfrey LM machine-type are characteristics that may vary
(Lagrange multiplier) statistic indicates the absence of between and within machine types. Such character-
serial correlation. This suggests that the equation is istics would include, for example, win percent12 and
likely free of specification errors such as those caused minimum bet (e.g. nickel, quarter, dollar). Available
by omitted variables or incorrect functional form. information did not permit measurement of the effect
Of the 32 variables, 25 were significant at the 5% of each of these factors on VLT handle independent
level or lower. All of the VLT-specific variables of the machine-types with which they were associated.
and the stochastic trend variable were significant. The individual impacts of the various machine
Per capita personal income and the parimutuel types at the Mountaineer Park racino are facility
variables, live race purse and each of the stakes race and location-specific and may not be able to be
variables were not significant. generalized with respect to other racino locations.
Video lottery terminal handle was positively related What is apparent from this aspect of the analysis is
to the stochastic trend. This indicates that variables that customers showed distinct preferences for
not specifically included in the equation, such as machines with different product characteristic
capital improvements made over the period, had a net packages such as payment method, type of game,
positive effect on VLT handle. Video lottery terminal and number of game options.
handle was also found to increase at a decreasing rate VLT handle was found to be positively related to
with the number of VLT’s. The long-run elasticity the VLT lodge-to-track ratio. Video lottery terminal
with respect to the number of VLT’s was found to be handle was also found to increase with an increase of
0.36.10 the maximum bet limit restriction from $2 to $5.
10
Long-run elasticity computed as: 15/(1  1), where 1 and 15 are given in Equation 1 with corresponding values in
Table 1.
11
Long-run percent change in handle for each machine type is computed as: [exp( i/(1  1)(0.01))  1]100, i ¼ 16, 20, where i
and 1 are given in Equation 1 with corresponding values in Table 1.
12
Although the win percent could vary by machine, the aggregate win percent remained fairly constant over the study period.
Demand for casino and parimutuel wagering 781
Table 1. VLT wagering demand model (dependent variable: LRPCHAND_VLT)

Variable Coefficient SE t-Statistic Prob.


C 9.2670 4.8872 1.90 0.0586
LRPCHAND_VLT(1) 0.3799 0.0354 10.74 0.0000
JAN 0.1262 0.0283 4.46 0.0000
FEB 0.1792 0.0288 6.23 0.0000
MAR 0.1718 0.0270 6.36 0.0000
APR 0.2033 0.0265 7.67 0.0000
MAY 0.1447 0.0315 4.60 0.0000
JUN 0.1417 0.0292 4.85 0.0000
JUL 0.1859 0.0268 6.94 0.0000
AUG 0.2030 0.0277 7.33 0.0000
SEP 0.1312 0.0246 5.33 0.0000
OCT 0.1488 0.0242 6.14 0.0000
NOV 0.0744 0.0244 3.05 0.0024
HOLIDAY 0.1463 0.0145 10.10 0.0000
LRPCI 0.5408 0.5109 1.06 0.2905
LVLTS 0.2241 0.0420 5.33 0.0000
VLT_T_MULTI_VID(card, keno) 0.4963 0.0675 7.36 0.0000
VLT_T_MULTI_VID(card, keno, slot) 1.0629 0.0947 11.23 0.0000
VLT_C_SINGLE_REEL(classic slot) 1.4005 0.1433 9.78 0.0000
VLT_C_SINGLE_VID(multi-line slot) 0.8194 0.2135 3.84 0.0001
VLT_C_MULTI_VID(card, slot) 0.5262 0.1841 2.86 0.0045
VLT_BETLIMIT2TO5 0.0645 0.0281 2.29 0.0224
VLT_LODGETOTRACK 0.0534 0.0192 2.78 0.0057
LDAYSPARI 0.3328 0.1206 2.76 0.0061
LFULLCARD 0.2750 0.0397 6.92 0.0000
LIVECARD 0.1957 0.0437 4.48 0.0000
RLIVEPURSE 2.80E-07 4.80E-07 0.58 0.5592
STAKE_WVDRBY 0.0040 0.0465 0.09 0.9312
STAKE_KYDRBY 0.0590 0.0398 1.48 0.1384
STAKE_PREAK 0.0566 0.0398 1.42 0.1553
STAKE_BELMONT 0.0047 0.0380 0.12 0.9020
STAKE_BRCUP 0.0542 0.0334 1.62 0.1056
BADWEATH 0.6632 0.0978 6.78 0.0000
Summary statistics:
Observations 443
Observations – adjusting endpoints 442
Adjusted R2 0.990
F-statistic 1368
Prob(F-statistic) 0.00
Breusch–Godfrey LM test statistic 0.64
Prob(LM test statistic) 0.42

With respect to the parimutuel-specific variables, while the average number of parimutuel wagering
VLT handle was found to increase at a decreasing days per week did not vary greatly over the study
rate with the number of parimutuel wagering days period, full-card simulcast per wagering day
and the number of full-card simulcasts per wagering (FULLCARD) at Mountaineer Park did vary
day. The long-run demand elasticities with respect to greatly, increasing from 4 per day over the first
parimutuel wagering days and full-card simulcasts 12 months to 18 per day over the last 12 months.
per wagering day were 0.5413 and 0.44,14 respectively. The impact on VLT handle from increasing the
To show the importance of the parimutuel intensity of the full-card simulcast product over the
wagering product to VLT handle, consider that study period was estimated to be 94.8%.15
13
Long-run elasticity computed as: 23/(1  1), where 1 and 23 are given in Equation 1 with corresponding values in
Table 1.
14
Long-run elasticity computed as: 24/(1  1), where 1 and 24 are given in Equation 1 with corresponding values in
Table 1.
15
Long-run percent change in handle computed as: [exp(( 24/(1  1))(ln(FULLCARD{18})  ln(FULLCARD{4}))  1]100,
where 1 and 24 are given in Equation 1 with corresponding values in Table 1.
782 R. Thalheimer
Table 2. Impact on VLT handle of lifting government restrictions on machine type, 1994–2002

Machine-type Share (1994) Share (2002) Individual impact(2)


VLT_T_MULTI_VID(card, keno) 1.000 0.000 48.5%
VLT_C_SINGLE_REEL(classic slot) 0.000 0.368 129.5%
VLT_T_MULTI_VID(card, keno, slot) 0.000 0.246 52.5%
VLT_C_SINGLE_VID(multi-line slot) 0.000 0.227 34.9%
VLT_C_MULTI_VID(card, slot) 0.000 0.159 14.5%

Video lottery terminal wagering was found to ticket-out, multi-game, video machines with card and
increase with the number of live race days. The keno game options without slot game options,
presence of one live race day per week was found to VLT_T_MULTI_VID(card, keno). Eventually, as
increase VLT handle 4.6%.16 The number of live race permitted by changes to the Lottery statutes, a
days per week varied from 0 to 7 over the study video slot machine game option was added to each
period. The maximum impact on parimutuel handle of these machines, VLT_T_MULTI_VID(card, keno,
from offering live race wagering can be computed by slot) replacing all of the original no-slot machine
comparing the absence of live racing to offering it game option machines. The decline in the relative
each day of the parimutuel wagering week. This is share of the original machines from 1 to 0
estimated to be 37.1%.17 From these results it can be accounts for the negative impact on handle shown
seen that the presence of the horse racing and in Table 2. None of the remaining machine types was
wagering resulted in a large increase in the demand permitted in 1994 and all were phased in at various
for VLT wagering.18 times over the study period due to changes in
Each of the VLT-specific demand variables were statutory provisions of the West Virginia Lottery
subject to government restrictions at some time over Act. The joint impact on VLT handle from permit-
the study period. The effect of lifting government ting changes in VLT types relative to the initially
restrictions on the VLT product over the study permitted ticket-out, multi-game, video machines
period is now examined. As a result of petition by with card and Keno options is computed to be
the racino to relax the restriction on the number of 178.3%.21
VLT’s, the number of VLT’s was increased from the The lifting of the statutory restriction on placement
original 400 permitted by the West Virginia Video of VLT’s between the lodge and racetrack resulted
Lottery Act in 1994 to 3000 by the end of the in the VLT lodge-to-track ratio being increased
study period. This increase in the number of VLT’s from the government imposed 1 : 1 in 1994 to the
was estimated to result in a 107.1% increase in VLT customer determined 3.4 : 1 after the restriction
handle.19 was lifted. This ability to change the relative VLT
The effects on VLT handle of lifting restrictions on placement from racetrack to lodge resulted in
machine types with associated changes in their a 23.0% increase in VLT handle.22 Finally,
relative distribution over time are given in Table 2.20 the effect of changing the government restricted
Upon passage and implementation of the West maximum bet per play from $2 to $5 is computed
Virginia Lottery Act in 1994, all of the VLT’s were to be 11.0%.23
16
Long-run impact of one live day computed as: [exp(( 25/(1  1))LIVECARD{1/7})  1]100.
17
Long-run percent change in handle computed as: [exp(( 25/(1  1))(LIVECARD{1}  LIVECARD{0})  1]100, where 1
and 25 are given in Equation 1 with corresponding values in Table 1.
18
To test the robustness of the positive relationship between the parimutuel variables and VLT handle, Equation 2 was re-
estimated without LVLTS. The coefficients of LDAYSPARI, LFULLCARD and LIVECARD, all remained positive and
significant.
19
Long-run percent change in handle computed as: [exp(( 15/(1  1))(LVLTS{3000}  LVLTS{400}))  1]100, where 1 and
15 are given in Equation 1 with corresponding values in Table 1.
20
Long-run impacts computed using: exp(( i/(1  1))(si,2002si,1994))  1, i ¼ 16, 20, where i and 1 are given in Equation 1
with corresponding values in Table 1. Si,2002 and si,1994 are shares of each machine type as shown in Table 2.
21
Joint long-run percent change computed as: [exp(( i/1  1))(si,2002si,1994))  1]100, i ¼ 16, 20, where 1 and i are given in
Equation 1 with corresponding values in Table 1. Si,2002 and si,1994 are shares of each machine type as shown in Table 2.
22
Long-run percent change in handle computed as: [exp(( 21/(1  1))(VLT_LODGETOTRACK{3.4})  VLT_LODGE
TOTRACK{1}))  1]100, where 1 and 21 are given in Equation 1 with corresponding values in Table 1.
23
Long-run percent change in handle computed as: [exp(( 22/(1  1))(VLT_BETLIMIT2TO5{1}  VLT_
BETLIMIT2TO5{0}))  1]100, where 22 and 1 are given in Equation 1 with corresponding values in Table 1.
Demand for casino and parimutuel wagering 783
Table 3. Parimutuel wagering demand model (dependent variable: LRPCHAND_PARI)

Variable Coefficient SE t-Statistic Prob.


C 11.7675 2.5982 4.53 0.0000
LRPCHAND_PARI(1) 0.0999 0.0309 3.23 0.0013
JAN 0.0417 0.0245 1.70 0.0897
FEB 0.2304 0.0256 9.00 0.0000
MAR 0.2356 0.0255 9.24 0.0000
APR 0.2467 0.0254 9.71 0.0000
MAY 0.1785 0.0325 5.50 0.0000
JUN 0.2152 0.0288 7.46 0.0000
JUL 0.3289 0.0278 11.85 0.0000
AUG 0.3025 0.0282 10.72 0.0000
SEP 0.1829 0.0246 7.42 0.0000
OCT 0.1481 0.0235 6.32 0.0000
NOV 0.0912 0.0240 3.80 0.0002
HOLIDAY 0.1346 0.0144 9.37 0.0000
LDAYSPARI 0.4867 0.1097 4.44 0.0000
LFULLCARD 0.1490 0.0310 4.81 0.0000
LIVECARD 0.7129 0.0445 16.02 0.0000
RLIVEPURSE 1.46E-06 4.68E-07 3.12 0.0019
STAKE_WVDRBY 0.2599 0.0458 5.67 0.0000
STAKE_KYDRBY 0.3942 0.0406 9.71 0.0000
STAKE_PREAK 1.86E-01 0.0403 4.60 0.0000
STAKE_BELMONT 1.49E-01 0.0378 3.95 0.0001
STAKE_BRCUP 0.2472 0.0334 7.41 0.0000
VLTS 1.74E-04 2.91E-05 5.97 0.0000
VLT_BETLIMIT2TO5 0.0236 0.0237 1.00 0.3196
VLT_LODGETOTRACK 6.27E-02 1.25E-02 5.00 0.0000
LRPCI 0.7781 0.2733 2.85 0.0046
BADWEATH 0.7661 0.0970 7.90 0.0000
Summary statistics:
Observations 443
Observations – adjusting endpoints 442
Adjusted R2 0.850
F-statistic 93.5
Prob(F-statistic) 0.00
Breusch–Godfrey LM test statistic 1.81
Prob(LM test statistic) 0.18

Parimutuel demand model capital improvements made over the period, had a net
positive effect on parimutuel handle. Parimutuel
The parimutuel wagering demand model is given in
wagering was found to increase at a decreasing rate
Table 3. The estimated equation fits the data well
with an increase in market area per capita personal
with an adjusted R2 of 0.85. The equation is income. The long-run elasticity of market area per
statistically significant. The Breusch–Godfrey LM capita personal income was 0.86.24
statistic indicates the absence of serial correlation. Parimutuel wagering was found to increase at a
Of the 27 variables, all but JAN and decreasing rate with the number of pari-mutuel
VLT_BETLIMIT2TO5 were significant at the 5% wagering days and the number of full-card simulcast
level or lower. VLT_BETLIMIT2TO5 was significant racetrack programs imported to the racino per
at the 9% level. wagering day. The long-run demand elasticities with
Parimutuel wagering is positively related to the respect to the number of pari-mutuel wagering days
stochastic trend variable. This indicates that variables and the number of full-cards simulcasts per day were
not specifically included in the equation, such as 0.54 and 0.17, respectively.25
24
Long-run elasticity computed as: 14/(1  1), where 14 and 1 are given in Equation 2 with corresponding values in
Table 3.
25
Long-run elasticities computed as: 18/(1  1) and 19/(1  1), where 18, 19 and 1 are given in Equation 2 with
corresponding values in Table 3.
784 R. Thalheimer
The number of pari-mutuel wagering days was Lifting restrictions on the relative placement of the
relatively constant over the study period. The impact VLT’s between the Lodge and racetrack resulted in a
on parimutuel handle from increasing full-card decrease in on-track parimutuel handle of 15.4%.33
simulcasts from 4 to 18 per day was estimated to be Finally, lifting restrictions on the maximum bet per
28.6%.26 play from $2 to $5 resulted in a 2.6% decrease in
Parimutuel wagering was found to increase with parimutuel handle.34
the number of live race days per week. The presence
of one live race day per week was found to increase
parimutuel handle by 12.0%.27 The maximum
impact on parimutuel handle from offering live race
wagering every day of the week relative to its absence V. Summary and Conclusions
was estimated to be 120.8%.28
On-track parimutuel wagering on all sources, live A pilot program with a limited number of VLT’s
and full-card, was found to increase with an increase conditionally permitted at Mountaineer Park
in average live race purse. The long-run live race racetrack in West Virginia was begun in 1990 under
purse elasticity at the mean was computed to be 0.076 the auspices of the State Lottery. Declaring the pilot
indicating that total (full-card plus live) handle is very project a success, the West Virginia Video Lottery
inelastic with respect to a change in live race purse.29 Act was passed in 1994 marking permanent
The presence of a stakes race of regional or national slot machine gaming at West Virginia parimutuel
importance was found to positively impact wagering racetracks, subject to local referendum.
demand in each case. The respective impacts on Demand models were estimated for the two racino
parimutuel handle, for the corresponding week products, video gaming and parimutuel wagering, at
during which the stakes races were conducted, were Mountaineer Park. Data were weekly from July 1994
estimated to be, 33.5% for the West Virginia Derby, to December 2002. Over that period real VLT handle
54.9% for the Kentucky Derby, 22.9% for the grew 1.580%. The demand models fit the data well.
Preakness Stakes, 18.1% for the Belmont Stakes Real per capita VLT handle was found to increase
and 31.6% for the Breeders Cup Stakes.30 at a decreasing rate with the number of VLT’s. Each
Relaxing restrictions on the VLT variables which of the VLT-specific demand factors included in the
were subject to government restrictions resulted in VLT wagering demand equation was subject to
decreases in parimutuel handle. Parimutuel handle government restrictions over the study period.
was found to decrease with an increase in the number Following is a summary of the effect on handle of
of VLT’s. The long-run demand elasticity with relaxing these restrictions on the VLT factors over the
respect to the number of VLT’s, valued at the study study period:
period mean, was 0.25.31 As a result of petition by
the racino to relax the restriction on the number Availability of VLT types 178.3%
Number of VLT’s 107.1%
of VLT’s increasing them from 400 to 3000 over VLT lodge-to-track placement ratio 23.0%
the study period, on-track parimutuel handle was Bet limit $2 to $5 11.0%
estimated to have decreased by 38.6%.32
26
Long-run percent change in handle computed as: [exp(( 19/(1  1))(ln(FULLCARD{18))  ln(FULLCARD{4}))  1]100,
where 19 and 1 are given in Equation 2 with corresponding values in Table 3.
27
Long-run percent change in handle computed as: [exp(( 20/(1  1))(LIVECARD{1/7}))  1]100, where 1 and 20 are given
in Equation 2 with corresponding values in Table 3.
28
Long-run percent change in handle computed as: [exp(( 20/(1  1))(LIVECARD{1}  LIVECARD{0}))  1]100, where 20
and 1 are given in Equation 2 with corresponding values in Table 3.
29
Long-run elasticity computed as: 21/(1  1)(RLIVEPURSE{mean}), where RLIVEPURSE{mean} is the sample mean,
21 and 1 are given in Equation 2 with corresponding values in Table 3.
30
Long-run percent change computed as: [exp( i/(1  1))  1]100, where 1 and i, i ¼ 22, 26 are given in Equation 2 with
corresponding values in Table 3.
31
Long-run elasticity computed as 15/(1 1)(VLTS{mean}), where VLTS{mean} is the sample mean, and 1 and 15 are
given in Equation 2 with corresponding values in Table 3.
32
Long-run percent change in handle computed as: [exp(( 15/(1  1))(VLTS{3000}  VLTS{400}))  1]100, where 1 and 15
are given in Equation 2 with corresponding values in Table 3.
33
Long-run percent change in handle computed as: [exp(( 16/(1  1))(VLT_LODGETOTRACK{3.4})  VLT_LODGE
TOTRACK{1}))  1]100, where 1 and 16 are given in Equation 2 with corresponding values in Table 3.
34
VLT_BETLIMIT2TO5 was not significant at the 10% level. Long-run percent change in handle computed as: [exp(( 17/
(1  1))(VLT_BETLIMIT2TO5{1}  VLT_ BETLIMIT2TO5{0}))  1]100, where 17 and 1 are given in Equation 2 with
corresponding values in Table 3.
Demand for casino and parimutuel wagering 785
It is interesting to note that lifting restrictions on elasticity over a combination of live and full-card race
the type of machines available resulted in the largest programs was also found to be highly inelastic at
impact on VLT handle. Allowing management to 0.15. In contrast to the effect of changes in average
more freely react to changes in consumer demand by purse, the presence of a stakes race of regional or
lifting government restrictions on each of the national importance was found to have a large
factors limiting VLT play resulted in large increases impact on parimutuel handle. The impact varied
in VLT handle over the study period. The joint or from 18% to 55% for total on-track wagering over
combined effect of relaxing all of these restrictions is the week in which the race was held. This is in line
estimated to be 687%.35 The finding that government with earlier studies of the demand for parimutuel
restrictions may severely limit growth in gaming wagering (Thalheimer and Ali, 1992, 1995a, b, c;
handle was also found to be the case in earlier studies Ali and Thalheimer, 1997, 2002; Thalheimer, 1998).
(Nichols, 1998a, 1998b; Thalheimer and Ali, 2003). It is important to note that while parimutuel
Availability and intensity of the parimutuel wager- wagering is highly inelastic with respect to average
ing product when offered jointly with VLT wagering purse, the large increase in purses at Mountaineer
product was found to result in significant increases in Park enabled the racetrack to sell the simulcasts of
VLT wagering. For example, increasing the number its live races to other racetracks throughout the
of full-card simulcasts at the racetrack from other country. Inclusion of the off-track component of
locations from 4 to 18 per day resulted in a 94.8% handle was beyond the scope of this study largely
increase in VLT handle over the study period. due to lack of data availability from the many off-
The presence of live racing each day of the parimutuel site racetrack locations. Prior to 2001, Mountaineer
wagering week relative to its absence would increase did not export the simulcasts of its live races to
VLT handle by 37.1%. other racetracks. Prior to 2001, Mountaineer did not
Parimutuel wagering demand was found to have a export the simulcasts of its live races to other
positive relationship to all of the parimutuel demand racetracks. In 2001, export simulcast handle was
variables. Product availability as reflected by the $186.5 million, increasing to $268.3 million in 2002,
number of parimutuel wagering days, the number of
reflecting the increase in quality of races and the
full-card simulcasts per parimutuel wagering day, and
associated interest of off-site locations in offering
the presence of live racing on a parimutuel wagering
those races to their patrons. This is a significant new
day were all found to have large impacts on
source of handle. On-track handle was just 1.5% of
parimutuel wagering demand. For example, increas-
total (VLT plus parimutuel) racino handle in 2002.
ing the number of full-card simulcasts from 4 to
Even with the additional 9.3% of total racino
18 over the study period resulted in a 28.6% increase
in on-track handle. The presence of live racing each handle generated by wagering on export simulcasts
day of the parimutuel wagering week relative to its of Mountaineer’s live races, total parimutuel handle
absence would increase total (live plus full-card) (on-track plus export) was just 10.8% of total racino
handle 120.8%. handle. The revenue picture is very different since
Since a statutory portion of VLT revenue is revenue per dollar of export handle is much lower
dedicated to purses to promote the horse racing and than that for on-track revenue.37 In 2002, export
breeding industries, the effect of purses on parimutuel simulcast revenue was just 3.4% of total racino
handle is of particular importance. Live race purse revenue. On-track parimutuel revenue was 3.5% of
elasticity with respect to total (live plus full-card) total racino revenue.38 The sum of the two
handle was found to be 0.08, highly inelastic.36 In an parimutuel wagering revenue sources, on-track and
earlier study of a portfolio of live and full-card export, was just 6.9% of total racino revenue
simulcast programs at a single racetrack location reflecting the dominance of VLT gaming in the
(Ali and Thalheimer, 2002) median average purse overall racino operation.
35
The joint long-run percent change in VLT handle can be computed as: [exp( i/(1  1)(xi,2002  xi,1994))  1]100, i ¼ 15, 22,
where 1 and i are given in Equation 1 with corresponding values in Table 1. xi,1994 and xi,2002 are the variables of interest.
Due to the logarithmic equation specification, this formula can be also be written as: [(1 þ g1)(1 þg2 ).. (1 þ gn)  1]100, where
gi is the computed growth rate for variable xi: exp( i/(1  1)(xi,2002xi,1994))  1.
36
The elasticity of total (live and full-card) handle is computed relative to live race purse. It is expected that the elasticity of
live race handle relative to live race purse would be greater than elasticity relative to total handle.
37
Revenue per dollar of export parimutuel handle, approximately 3% of the amount wagered, is much smaller than revenue
per dollar from on-track handle.
38
On-track parimutuel revenue is computed using a weighted takeout rate of 21% (23% for live race wagering and 20% for
on-track simulcast wagering after payment of a 3% host fee to the sending racetrack).
786 R. Thalheimer
Parimutuel wagering demand was found to be is threatened because of a general decline in the racing
inversely related to the number of VLT’s. The industry and because of increasing competition from
long-run demand elasticity with respect to the racing facilities and lottery products offered by
number of VLT’s, valued at the study period mean, neighboring states; and that the survival of West
was 0.25. Relaxation of restrictions on the Virginia’s pari-mutuel racing industry is in jeopardy
VLT-specific variables resulted in significant unless modern lottery games are authorized at the
decreases in parimutuel handle. Following is a racetracks.’
summary of the effect on handle of relaxing
It should also be noted that while purses are an
those restrictions over the study period:
expense to the racino operator, in this case
Mountaineer Park, they are revenues to race horse
Number of VLT’s 38.6% owners and breeders. Revenues from purses for
VLT lodge-to-track placement ratio 15.4%
Bet limit $2 to $5 2.6% owners with horses at the racetrack support their
racing operations. The revenue of race horse breeding
operations is dependent upon yearling demand and
Lifting government restrictions on the number of supply and their direct relationship to purses
VLT’s, increasing them from 400 to 3000, resulted in (Neibergs and Thalheimer, 1997). Revenues from
the largest reduction in parimutuel handle. Allowing purses to owners and breeders of race horses result in
racino management to configure the VLT’s in race horse industry employment in accordance with
response to customers’ preferences resulted in lower the goal of the enabling racino legislation.
parimutuel handle, as parimutuel customers found it The referee raised the question as to whether
more convenient to participate in the VLT games. revenues generated at the racino from subsidized
The joint effect of relaxing government restrictions purses exceed their cost, i.e. whether the subsidy is
on the number, location and maximum bet per play ‘efficient’. In 2002, purses totaled $39 million. Purses
of the VLT’s was estimated to have reduced on-track from VLT revenues were $31 million while the
remaining $8 million came from parimutuel wager-
parimutuel handle by 49%.39
While the effect of government restrictions on the ing. Payments to purses from VLT revenue resulted
demand for wagering is the focus of this article, a in an increase in average live race purse from $23 544
referee has pointed out that it would be useful to to $163 088 over the study period. The estimated
increase in on-track handle from this large purse
discuss the policy issue of subsidizing the race horse
increase was only 13%40 or $1 million.41 Rearranging
industry through dedicating a statutory percentage of
average purses to include more stakes races would
VLT revenues to purses. In granting a monopoly
increase on-track handle but the increase would still
gaming license to the West Virginia racetracks, the
not provide enough wagering revenue to cover the
intent of the State Legislature to preserve the racing
cost of purses. On the VLT side of the racino ledger,
industry is clearly stated in the enabling racino
VLT handle was not found to increase with an
legislation contained in the West Virginia Video
increase in purses. For these reasons, an increase in
Lottery Act of 1994 as follows (Chapter 29, Article
average purses would not generate sufficient revenue
22 A-2):
from racino wagering to offset their cost.
‘The Legislature finds and declares that the existing An additional consideration, however, must be
pari-mutuel racing facilities in West Virginia provide taken into account with respect to the VLT purse
a valuable tourism resource for this state and provide subsidy. Since purses are necessary to conduct live
significant economic benefits to the citizens of this racing, it is informative to examine what would
state through the provision of jobs and the generation happen if, in the extreme, the lack of subsidized
of state revenues; that this valuable tourism resource purses resulted in purses levels too low to fund

39
The joint long-run percent change in VLT handle can be computed as: [exp( i/(1  1)(xi,2002xi,1994))  1]100, i ¼ 15, 17,
where 1 and i are given in Equation 2 with corresponding values in Table 2. xi,2002 and xi,1994 are the variables of interest.
Due to the logarithmic equation specification, this formula can also be written as: [(1 þ g1)(1 þ g2) . . . (1 þ gn)  1]100, where gi
is the computed growth rate for variable xi: exp( i/(1  1)(xi,2002  xi,1994))  1.
40
Long-run percent change in handle from purses computed as: [exp(( 21/(1  1))(RLIVEPURSE{$90 659} 
RLIVEPURSE{$15 653}))  1]100, where 21 and 1 are given in Equation 2 with corresponding values in Table 3, and
the number in brackets, {}, are real average live purse at the end and start of the study period.
41
Computed as increase in 2002 on-track handle of $39 million multiplied by weighted average on-track takeout rate of 21%.
Demand for casino and parimutuel wagering 787
horsemen’s racing operations at Mountaineer. With References
no live racing at the racetrack, there would be a loss Ali, M. M. and Thalheimer, R. (1997) Transportation
of $3.7 million in on-track wagering revenue.42 A loss costs and product demand: wagering on
of $8.0 million in export simulcast revenue.43 and a parimutuel horse racing, Applied Economics, 29,
total parimutuel revenue loss of $12 million. Revenue 529–42.
Ali, M. M. and Thalheimer, R. (2002) Product choice for a
from parimutuel wagering would not offset the $31
firm selling related products: a parimutuel application,
million purse subsidy and as such the VLT purse Applied Economics, 34, 1251–71.
subsidy would be ‘inefficient’. However, it has been Association of Racing Commissioners International, Inc.
shown in this article that VLT handle increases on (2003) Pari-Mutuel Racing 2002, A Statistical
days when there is live racing. Using results of Summary, Lexington KY.
Equation 1, if live racing were to cease there would be Cargill, T. F. and Eadington, W. R. (1978) Nevada’s
gaming revenues: time characteristics and forecasting,
an 18% loss in VLT handle resulting in a $40 million Management Science, 24, 1221–30.
VLT revenue loss.44 To the extent that live racing is Christiansen, E. M. (1989) 1988 US gross annual wager,
preserved, then, the VLT purse subsidy of $31 million Gaming & Wagering Business, 10, 8–22.
would generate $52 million in racino revenue and as Christiansen Capital Advisors, LLC (2004) Gross Annual
such the VLT purse subsidy would be ‘efficient’. Wager of the United States, 2003, Table 1, New York.
Church, A. M. and Bohara, A. K. (1992) Incomplete
Under this scenario, the net revenue generated by the
regulation and the supply of horse racing, Southern
VLT purse subsidy could be used to offset other Economic Journal, 58, 732–42.
operating costs of the racino. Finally, while the Coate, D. and Ross, G. (1974) The effect of
preservation of the race horse industry is the intent of off-track betting in New York City on revenues
the enabling racino legislation, whether or not all or to the city and state governments, National Tax
part of the subsidy from VLT revenues is the ‘best’ Journal, 27, 63–9.
DeGennaro, R. P. (1989) The determinants of wagering
use of video lottery revenue among competing uses is behavior, Managerial and Decision Economics, 10,
beyond the scope of this analysis. 221–8.
Eadington, W. R. (1999) The economics of casino
gambling, Journal of Economic Perspectives, 13,
Acknowledgements 173–92.
Gruen, A. (1976) An inquiry into the economics of race
This article was accepted for publication, subject to track gambling, Journal of Political Economy, 84,
final edit, while the author was at the University of 169–77.
Louisville, Louisville KY, USA. The author would Hunsaker, J. (2001) The impact of riverboat casinos on the
like to thank the West Virginia Racing Commission demand for gambling at casino resorts: a theoretical
and empirical investigation, Managerial and Decision
for making available the volumes of paper output on
Economics, 22, 97–111.
wagering statistics over the study period as well as McQueen, P. A. (2001) North American gaming at a
providing historical information on events that glance, International Gaming & Wagering Business, 22,
occurred over that period. I would also like to 45–6.
thank the West Virginia Lottery Commission for Morgan, W. D. and Vasche, J. D. (1979) Horseracing
making data available. Special thanks are due to demand, parimutuel taxation and state revenue poten-
tial, National Tax Journal, 32, 185–94.
Mountaineer Park Racetrack & Gaming Resort for Morgan, W. D. and Vasche, J. D. (1982) A note on the
allowing access to detailed company data. Special elasticity of demand for wagering, Applied Economics,
thanks are also due to Dr M. M. Ali, Department of 14, 469–74.
Economics, University of Kentucky, for his valuable MTR Gaming Group, Inc., United States Security and
input with respect to methodology. Finally, the Exchange Commission, Form 10-K, Annual Report
(various).
author gratefully acknowledges the helpful comments
Neibergs, J. S. and Thalheimer, R. (1997) Price expecta-
of an anonymous reviewer. As is customary, the tions and supply response in the thoroughbred yearling
author assumes full responsibility for the analysis and market, Journal of Agricultural and Applied Economics,
the remaining errors. 20, 419–35.

42
Computed as actual 2002 live race handle of $16.2 million at a takeout rate of 23%.
43
Computed as 2002 export handle of $268.3 million evaluated at a payment to Mountaineer of 3% of handle wagered at the
receiving racetrack.
44
Computed as 2002 VLT handle of $2.6 billion multiplied by the percent reduction in VLT handle from reducing the number of
live races per wagering day from 0.63 (4.4 days per week) to 0 evaluated at the win percent of 0.085. The long-run percent
reduction in VLT handle from elimination of live racing is computed as: [exp(( 25/(1 1))(LIVECARD{0} 
LIVECARD{0.63))  1]100 ¼ 18%, where 25 and 1 are given in Equation 1 with corresponding values in Table 1.
788 R. Thalheimer
Nichols, M. W. (1998a) Deregulation and cross-border Thalheimer, R. and Ali, M. M. (1995c) The demand for
substitution in Iowa’s riverboat gaming industry, parimutuel horse racing and attendance, Management
Journal of Gambling Studies, 14, 151–72. Science, 41, 129–43.
Nichols, M. W. (1998b) The impact of deregulation on Thalheimer, R. and Ali, M. M. (2003) The demand for
casino win in Atlantic City, Review of Industrial casino gaming, Applied Economics, 35, 907–18.
Organization, 13, 713–26. The National Association of State Racing Commissioners
Simmons, S. A. and Sharp, R. (1987) State lottery effects on (1983) Pari-Mutuel Racing 1982, A Statistical
thoroughbred horse racing, Journal of Policy Analysis Summary.
and Management, 6, 446–8. US Department of Commerce, Economics and Statistics
Suits, D. B. (1979) The elasticity of demand for gambling, Administration, Bureau of Economic Analysis-
Quarterly Journal of Economics, 9, 155–62. Regional Information System, Personal Income,
Thalheimer, R. (1998) Parimutuel wagering and video Total Population, & Per Capita Personal Income by
gaming: a racetrack portfolio, Applied Economics, 30, County and Metropolitan Area, available at http://
531–43. www.bea.gov/regional/reis
Thalheimer, R. and Ali, M. M. (1992) Demand Vasche, J. D. (1990) The net revenue effect of California’s
for parimutuel horse race wagering with special lottery, Journal of Policy Analysis and Management, 9,
reference to telephone betting, Applied Economics, 24, 561–4.
137–42. West Virginia Code, Chapter 29, Article 22A, Racetrack
Thalheimer, R. and Ali, M. M. (1995a) Exotic betting Video Lottery Act, available at http://
opportunities, pricing policies and the demand for www.legis.state.wv.us
parimutuel horse race wagering, Applied Economics, West Virginia Lottery (2003) Comprehensive Annual
27, 689–703. Financial Report, Charleston, WV, pp. 1–51.
Thalheimer, R. and Ali, M. M. (1995b) Intertrack wagering West Virginia Lottery Commission, on-line data, available
and the demand for parimutuel horse racing, Journal at http://www.state.wv.us/lottery/ridsum.htm
of Economics and Business, 47, 369–83. West Virginia Racing Commission, Charleston, WV.
Appendix

Table A1. Data definition and sources


Variable Definition Source
Market area population* Population of counties lying within 100 mile radius of US Department of Commerce, Economics and Statistics
Mountaineer. Administration, Bureau of Economic Analysis,
Regional Information System – Annual.
RPCHAND_VLT** Real VLT handle per unit of market area population. West Virginia Lottery Commission – weekly handle.
Population as defined above.
RPCHAND_PARI** Real parimutuel handle per unit of market area population. West Virginia Racing Commission – weekly handle.
Population as defined above.
JAN, FEB, MAR, APR, Month: binary (0, 1) seasonal variables. Standard calendar.
MAY, JUN, JUL, AUG,
SEP, OCT, NOV, DEC
HOLIDAY National holiday: binary(0, 1) variable, 4 July, Labour day, Standard calendar.
Memorial day, Martin Luther King day, New Year’s day,
President’s day, Thanksgiving, Christmas.
Demand for casino and parimutuel wagering

RPCI** Real personal income per unit of market area population. US Department of Commerce, Economics and Statistics
Administration, Bureau of Economic Analysis, Regional
Economic Information System – annual county income.
Population as defined above – annual
VLTS Number of VLT’s West Virginia Lottery Commission – weekly
VLT distribution by type and
date permitted:
VLT_T_SINGLE_VID Ratio of pilot project-ticket out- single game video machines to Mountaineer Park Racetrack & Resort, internal VLT floor
(pilot: card, keno, or slot) total VLT’s. layout data on dates of change.
VLT_T_MULTI_VID Ratio of pilot project replacement ticket-out, multi-game video Mountaineer Park Racetrack & Resort, internal VLT floor
(card, keno) machines to total VLT’s. layout data on dates of change.
VLT_T_MULTI_VID Ratio of ticket-out, multi-game video machines to total. Mountaineer Park Racetrack & Resort, internal VLT floor
(card, keno, slot) Slot game option added to existing ticket-out VLT’s. layout data on dates of change.
VLT_C_SINGLE_VID Ratio of coin-out single-game spinning reel Las Vegas – style Mountaineer Park Racetrack & Resort, internal VLT floor
(classic slot) slots to total. layout data on dates of change.
VLT_C_MULTI_VID Ratio of coin-out, single game multi-pay line video slots to Mountaineer Park Racetrack & Resort, internal VLT floor
(multi-line slot) total. layout data on dates of change.
VLT_C_MULTI_VID Ratio of coin-out, multi-game video machines to total. Mountaineer Park Racetrack & Resort, internal VLT floor
(card, slot) layout data on dates of change.
VLT_LODGETOTRACK Ratio of VLT’s in the Lodge to VLT’s at the racetrack facility. MTR Gaming Group, Inc., Form 10-K, U.S. Securities
and Exchange Commission (various years) and
Mountaineer Park Racetrack & Resort, internal data.
VLT_BETLIMIT2TO5 Lifting of statutory restricted bet limit from $2 maximum to $5 Mountaineer Park Racetrack & Resort for effective date.
maximum.
(continued )
789
790

Table A1. Continued


Variable Definition Source
DAYSPARI Total parimutuel wagering days per week, full-card or West Virginia Racing Commission – daily/weekly
full-card and live.
FULLCARD Total number of full-card simulcast programs per week West Virginia Racing Commission – daily/weekly
divided by DAYSPARI
LIVECARD Total number of live race days per week divided by West Virginia Racing Commission – daily/weekly
DAYSPARI.
RLIVEPURSE* Real total live race purse per week divided by the number of West Virginia Racing Commission – daily/weekly
live race days per week.
STAKE_W Stakes race. Binary (0, 1) variable. Live: West Virginia Derby. West Virginia Racing Commission.
VDERBY,STAKE_ On-Track Simulcast: Kentucky Derby, Preakness, Belmont,
KYDERBY, STAKE_ Breeders Cup.
PREAKNESS,
STAKE_BELMONT,
STAKE_BRCUP
BADWEATH Bad weather day outlier (0, 1) for the winter week of 9 January Mountaineer Park Racetrack & Resort.
1999.
Notes: *Used in construction of per capita demand and income variables.
**Variable defined in real terms using monthly CPI-U (1982–1984 ¼ 100), US Department of Labour, Bureau of Labour Statistics.
R. Thalheimer
Demand for casino and parimutuel wagering 791
Table A2. Summary statistics

Mean Mean
Variable Mean Minimum Maximum (first 12 mo.) (last 12 mo.)
POP* 8 442 262 8 393 334 8 478 657 8 471 860 8 393 334
CPI* 165.1 148.4 181.3 150.4 179.9
Demand variables
HAND_VLT* $21 715 533 $961 507 $63 664 048 $2 503 118 $49 780 988
PCHAND_VLT* $2.5790 $0.1135 $7.5751 $0.2954 $5.9310
RPCHAND_VLT* $1.5011 $0.0765 $4.2116 $0.1960 $3.2964
LRPCHAND_VLT 0.0538 2.5703 1.4365 1.6998 1.1849
HAND_PARI* $783 840 $203 502 $1 290 760 $735 065 $758 600
PCHAND_PARI* $0.0928 $0.0241 $0.1527 $0.0868 $0.0904
RPCHAND_PARI* $0.0564 $0.0147 $0.0966 $0.0577 $0.0502
LRPCHAND_PARI 2.9024 4.2209 2.3374 2.8724 3.0198
Demand determinants
LRPCHAND_VLT(1) 0.05160 2.5703 1.4365 1.7064 1.1825
LRPCHAND_PARI(1) 2.9010 4.2209 2.3374 2.8734 3.0141
JAN 0.0790 0 1 0.0784 0.0769
FEB 0.0722 0 1 0.0784 0.0769
MAR 0.0813 0 1 0.0784 0.0962
APR 0.0767 0 1 0.0980 0.0769
MAY 0.0790 0 1 0.0784 0.0769
JUN 0.0790 0 1 0.0784 0.0962
JUL 0.0880 0 1 0.0784 0.0769
AUG 0.0903 0 1 0.0784 0.0962
SEP 0.0880 0 1 0.0784 0.0769
OCT 0.0880 0 1 0.0980 0.0769
NOV 0.0880 0 1 0.0784 0.0962
DEC 0.0903 0 1 0.0980 0.0769
HOLIDAY 0.1535 0 1 0.1569 0.1538
PCI* $25 689 $21 510 $29 033 $21 901 $29 033
RPCI* $15 525 $14 369 $16 600 $14 561 $16 139
LRPCI 9.649 9.573 9.717 9.586 9.689
VLTS 1313 165 2987 358 2626
LVLTS 7.0278 5.1059 8.0020 5.8376 7.8680
VLT_T_SINGLE_VID 0.0196 0 1.0000 0.1706 0.0000
(pilot: card, keno or slot)
VLT_T_MULTI_VID(card, keno) 0.2932 0 1.0000 0.8294 0.0000
VLT_T_MULTI_VID(card, keno, slot) 0.4714 0 1.0000 0.0000 0.2462
VLT_C_SINGLE_REEL(slot) 0.1223 0 0.3943 0.0000 0.3679
VLT_C_SINGLE_VID(multi-line slot) 0.0411 0 0.3360 0.0000 0.2265
VLT_C_MULTI_VID(card, slot) 0.0523 0 0.2110 0.0000 0.1593
VLT_BETLIMIT2TO5 0.1806 0 1 0 1
VLT_LODGETOTRACK 1.9720 0.4 3.4 0.69 3.4
DAYSPARI* 6.89 5 7 6.37 6.98
LDAYSPARI 1.9287 1.6094 1.9459 1.8492 1.9429
FULLCARD* 9.95 2 21 3.99 18.36
LFULLCARD 2.1781 0.6931 3.0727 1.3529 2.9069
LIVERACEDAYS* 4.3 0 7 4.43 4.40
LIVECARD 0.6210 0 1 0.6975 0.6300
LIVEPURSE $79 411 $0 $242 500 $23 544 $163 088
RLIVEPURSE $46 591 $0 $134 052 $15 653 $90 659
STAKE_WVDERBY 0.0113 0 1 0.0000 0.0192
STAKE_KYDERBY 0.0181 0 1 0.0196 0.0192
STAKE_PREAK 0.0181 0 1 0.0196 0.0192
STAKE_BELMONT 0.0181 0 1 0.0196 0.0192
STAKE_BRCUP 0.0203 0 1 0.0196 0.0192
BADWEATH 0.0023 0 1 0 0
Number of observations 443 443 443 51 52
Note: *Informational, not in demand models.