A Sample Case Study of Math for a Casino Business Proposal

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 Slot Machine Revenues at Nearby Flamboro Downs

Historic Revenue per Slot Machine at Flamboro Downs : image by Mike DeHaan

The Ernst & Young report states that they compared their projections of slot machine revenues for Toronto with historic earnings by other casino operators.

This author did the same, based on slot machines at Flamboro Downs and the OLG Proposal for a Hamilton Casino. (See reference #3).

The Ernst & Young report notes that each Woodbine slot machine generates more revenue than those farther away from Toronto. Since Flamboro Downs is near Hamilton, a city about an hour’s drive from the southwest corner of Toronto, this spreadsheet’s conclusion is plausible.

Page 12 of the OLG proposal states “The municipality must endorse the Municipality Contribution Agreement”, and then states the “new Hosting Fee structure” in the first spreadsheet. The language here suggests that Toronto should not count on OLG‘s cooperation in a “50-50 partnership”.

The language here and elsewhere also states that “slots revenue” is the basis for the Hosting Fee. The Ernst & Young report also notes that the formula disregards gaming table revenue, which is a disadvantage to Toronto.

The Flamboro Downs Slot Machines are open 24/7. (See reference #4).

Comparing Slot Machine Revenue in Flamboro with Toronto

Comparison of Toronto Slots with Flamboro (Click for Larger Image): Image by Mike DeHaan

 

This spreadsheet clearly shows that the Toronto slot machines must generate considerably more revenue than those at Flamboro Downs, in order to meet the projected Hosting Fee target of $50 million/year.

Ernst & Young claim this is reasonable for a casino in Toronto.

This case study makes the point that expressing the difference in two ways can be helpful. Subtraction shows the difference in dollars/hour. Dividing “Toronto / Flamboro” shows the ratio: Toronto slots must be two to four times more productive.

Business Proposals Require Detailed Foundations

One in a Billion Poker Hand : Image by Images_of_Money

The first conclusion we can draw from this case study is the need to pursue the detailed foundation for the business proposal. The “$168 million hosting fee” is a prime example of a number that seemed completely unsupported in the Toronto summary. Only the detail that a “50-50 partnership” is under discussion supports this estimate. Yet further research, as found in the Hamilton proposal, makes this possibility seem doubtful.

Even more important is finding the OLG‘s “proposed” formula. Their documents make that seem to be a fait accompli, rather than the less likely Hosting Fee structure.

Presentation Development: Powerfully Persuasive

The second conclusion we can draw from this study is that developing one’s own presentation in a spreadsheet can be a powerful tool of persuasion. Toronto’s citizens might easily focus on the larger Hosting Fee estimates. Apparently they have no way of knowing that the more likely fee is only $18 million. Besides, that small number is not credible given that it is so much smaller than the publicly-acknowledged estimates. Showing the calculation might be more persuasive; as might the revelation that gaming revenues must be six or seven times larger than expected for the target hosting fee of $50 million to be realized.

Business Plan Evaluation

Finally, it’s important to evaluate the compete business plan. We did not evaluate long-term trends for in-person casino gambling versus competition from any online casino. Ernst & Young mention “international high rollers”, but do not discuss how one Toronto casino could compete against over two dozen on the Las Vegas strip. We did not explore potential hosting fees for popular casino games such as poker or blackjack. Nor were the business models for casino hotels or live theatre discussed.

Business Case Study Using Math

Want to use this guide to do your own business case study, or to evaluate an upcoming project? Follow these recommendations: pursue the underlying details, develop your own spreadsheets, and always evaluate the complete business plan.

References

City of Toronto. Toronto City Wide Analysis. (2012). Referenced January 17, 2013.

Ernst & Young. Potential Commercial Casino in Toronto. (PDF) (2012). Referenced January 17, 2013.

Ontario Lottery and Gaming Corporation. OLG Proposal for a Hamilton Casino (PDF). (2012). Referenced January 17, 2013.

Great Canadian Gaming Corporation. Flamboro Downs Slot Machines. (2013). Referenced January 17, 2013.

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