Twin River presentation to House Finance Committee (H 6266) OCTOBER 3 RD , 2019 1
Click to edit Master title style Discussion Topics 1. The biggest risk for RI taxpayers is 85% monopoly control over slot machines 2. The State is paying IGT a premium of ~$300M above competitive rates for their 20-year contract 3. Camelot/Twin River offer RI a significantly better deal 4. The State could make significantly more money for taxpayers if it followed industry benchmarks and trends 5. This proposed IGT deal is worse than the 2003 GTECH deal 2
The biggest risk for RI taxpayers is 85% monopoly control over Click to edit Master title style slot machines ➢ 79% of the State’s gaming revenues are Lottery General Fund Transfer FY19 generated from the slot machines ➢ Biggest threat to the State is the 85% control of the casino floor by one vendor Efficiency process is broken and does ➢ not protect the State when one company controls more than 50% of the machines Conflict of interest for IGT to decide ➢ which and how many of their competitor’s machines enter the State IGT’s dominant share of VLTs is commercially ➢ unreasonable, unprecedented and unsustainable against New England competition State needs to maintain competitive checks ➢ and balances that will drive desired investment/performance Data based on RI Lottery report 3
Click to edit Master title style Critical provision of Rhode Island Law RIGL§42-61.2-1(2) Proposed Legislation 4
IGT’s machines significantly underperform competition in Click to edit Master title style Rhode Island, delivering ~$31,400 less per machine FY19 Income Generated FY19 State’s Revenue per Machine per Machine 59.91% Lottery % Source: Analysis based on RI Lottery Video NTI reports 5
IGT has abused its monopoly power and minimized Click to edit Master title style investment to the detriment of the State and Twin River Scientific Games replaces machines Scientific Games converts machines 3.5x more than IGT 6.5x more than IGT Replacements/New Units Game Conversions/Existing Units Source: Twin River reports 6
Even with mostly new machines IGT is significantly Click to edit Master title style underperforming competition at Tiverton Tiverton Daily Net Terminal Income per Machine Avg: $350 Avg: $253 Source: Analysis based on RI Lottery Video NTI reports 7
The efficiency program fails to protect the taxpayers if one Click to edit Master title style vendor has more than 50% of the machines A vendor at 85% may perform 17% below competition and still be deemed “efficient” (i.e. $55 a day less per slot machine, or $12,000 less for the State per machine annually) Group 1 has 85% and Group 2 has Both groups have 50% of machines on the casino floor 15% of machines on the casino floor Note: $277 represents the NTI per unit per day for FY2019 [Data based on RI Lottery reports] 8
IGT’s monopoly control in RI makes Twin River uncompetitive Click to edit Master title style with new Massachusetts facilities Plainridge Park Casino MGM Grand Casino Encore Casino Source: Data based on casino survey by Twin River staff 9
IGT’s machine performance is suffering throughout North Click to edit Master title style America and IGT has fallen to third place in many categories “While IGT still had the second strongest expansionary share in the period, operators seem to not be employing as much IGT content across new floors as they have in the past.” Eilers: Gaming Supplier KPIs – 1Q19 (June 25, 2019 page 21) Source: Eilers Report 10
Click to edit Master title style Discussion Topics 1. The biggest risk for RI taxpayers is 85% monopoly control over slot machines 2. The State is paying IGT a premium of ~$300M above competitive rates for their 20-year contract 3. Camelot/Twin River offer RI a significantly better deal 4. The State could make significantly more money for taxpayers if it followed industry benchmarks and trends 5. This proposed IGT deal is worse than the 2003 GTECH deal 11
The State is paying IGT a premium of ~$300M above Click to edit Master title style competitive rates for their 20-year contract VLT (slot machine) central system Lottery central system fee comparison fee comparison (Please reference slide 13) (Please reference slide 14-15) per year per year Source: Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents 12
Among RI’s comparable VLT (slot machine) central systems, Click to edit Master title style RI has the highest fee, overpaying on average by 5x The VLT (slot machine) central system pricing for comparable states/systems is $2.4M annually, ~$10M lower than RI Source: Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents. *For MA, FY19 Slot GGR was used since MGM did not open until August 2018 and Encore opened in June 2019 13 Represents fixed fee contracts
FY18 total sales (excl. slot machine and sportsbook revenues) Click to edit Master title style for US Lotteries Based on total sales for US Lotteries, the peer group for RI is Lotteries with sales of $200M - $400M All US lotteries between $200M - $400M of sales Source: Data based on LaFleur’s World Lottery Almanac 14
Among RI’s comparable Lottery systems, RI has the highest Click to edit Master title style fee, overpaying on average by 2x The peer group on average pays 2.4% for vendor fees (excl RI) – ~$6.7M lower than RI Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents *OK Lottery pays 3.99% of total sales to the Lottery central system provider, the $2M extra paid to the vendor in FY18 is not clearly explained. It seems to be a combination of fees, equipment and one- 15 time development effort for new services
Administration selected West Virginia and Delaware as Click to edit Master title style comparable to RI Comparing total fees paid for the two systems (Lottery and VLT) against WV and DE, RI is overpaying IGT ~$300M over the 20-year contract extension Central system vendor fee $300M+ lower $285M+ lower over 20 years over 20 years Source: Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents 16
Using the number of retailers enables suppliers to test their Click to edit Master title style rates as competitive In a lottery contract, most costs for a supplier are closely correlated with the number of retailers it serves. Product/Service Capital Investment Ongoing Expense Retailer Based ✓ Central Computer System ✓ Computer Operations ✓ ✓ Software Development and Maintenance ✓ ✓ ✓ Data Communications ✓ ✓ Terminals ✓ ✓ Terminal peripheral equipment ✓ ✓ Terminal and Peripheral Equipment Repair ✓ ✓ Field Services ✓ ✓ Call Center Services ✓ ✓ Paper ✓ ✓ Supply Chain Services ✓ ✓ Sales Force ✓ Marketing Support 17
Click to edit Master title style Lottery system vendor fee per retailer for comparable States RI is paying 300% more than the average Source: Data based on LaFleur’s World Lottery Almanac and Lottery Annual reports and state documents Note: Average excludes RI 18
Click to edit Master title style Discussion Topics 1. The biggest risk for RI taxpayers is 85% monopoly control over slot machines 2. The State is paying IGT a premium of ~$300M above competitive rates for their 20-year contract 3. Camelot/Twin River offer RI a significantly better deal 4. The State could make significantly more money for taxpayers if it followed industry benchmarks and trends 5. This proposed IGT deal is worse than the 2003 GTECH deal 19
Click to edit Master title style Camelot/Twin River partnership formed to bid on RI contracts Camelot Lottery Solutions (Camelot) is wholly owned by Ontario Teacher’s Pension Plan which has Net Assets of $142 billion Camelot has decades of lottery experience and has delivered outstanding results on several contracts including the UK, Illinois and Arkansas In Illinois, Camelot successfully delivered the largest transition (from IGT) in US lottery history , rolling out 50,000 pieces of equipment across 7,200+ retailers and seamlessly converting the lottery gaming system Other notable recent achievements: Illinois Lottery: First full year of operations resulted in delivering a record of $731M for Illinois Public Schools Arkansas Lottery: Camelot partnered to help grow net income by over 35% since 2014; last year delivered a record $98.4M to scholarships Irish National Lottery: Camelot has partnered to help grow sales by over 20% since 2014 and INL is on target to have a record year Camelot/Twin River Key Partnership Elements Partnership is binding through 2022 and requires Camelot and Twin River to jointly bid any RFP in RI that combines lottery systems and VLTs Camelot and Twin River have committed to investing the necessary capital and creating 1100 jobs in RI Camelot will be primarily responsible for all lottery and systems components; Twin River will lead VLTs 20
Recommend
More recommend
