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R.I. braces for revenue loss from Mass. casinos

Twin River Casino has slot machines and table games such as roulette. The Plainridge slot parlor will not have table games.

Debee Tlumacki for The Boston Globe

Twin River Casino has slot machines and table games such as roulette. The Plainridge slot parlor will not have table games.

LINCOLN, R.I. — The decision to award Massachusetts’ slot parlor license to Plainridge Racecourse left officials in Rhode Island as cold as the state’s famous Del’s lemonade, and facing a budget disaster they can do little to stop.

The Plainville harness racing track is just 20 miles by car from Twin River Casino in Lincoln, a cash cow that pours about $300 million a year into the Rhode Island state treasury.

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About half of that money comes from Massachusetts residents, many of whom now drive past the Plainville site on the way to Rhode Island — and probably will not want to do that when they have a choice.

“It was the worst-case scenario,” said Gary Sasse, Rhode Island’s former director of administration and revenue, who would have preferred if the slots license had gone to a Leominster proposal in north-central Massachusetts.

Rhode Island’s dilemma is a relatively recent side effect of the gambling industry’s relentless US expansion. New casinos are now much more likely to steal customers from existing casinos than they were in the past.

Debee Tlumacki for The Boston Globe

Many of Twin River Casino’s patrons travcl to Rhode Island from Massachusetts.

“If you take Interstate 95 from Rhode Island down to Maryland, the market really hasn’t grown over the past couple of years,” casino consultant Frank Fantini said. “It’s just been a shifting of revenue.”

The Plainville slot parlor, to be developed by Penn National Gaming at the junction of Route 1 and Interstate 495, will be in a strong location to intercept traffic to Rhode Island when the slots open next spring.

And the competition is only going to get tougher for Rhode Island, which also makes money from a slot parlor in Newport. Massachusetts plans to license gambling resorts this year in Springfield, the Boston area, and possibly Southeastern Massachusetts, where tribal and commercial casino plans are pending.

Casino expansion in Massachusetts is expected to cost Rhode Island state coffers $422 million from fiscal 2015 through fiscal 2019, according to a forecast from Governor Lincoln Chafee’s administration. The anticipated loss is going to have a significant impact on the ability of the state to finance its services, Sasse said.

Once gambling customers are lost to newer properties it is extremely difficult to get them back, specialists say.

Part of the problem is that casinos generally offer similar games, so day-trip gamblers tend to default to the closest, most convenient casino, said Mark W. Nichols, a professor and casino expert at the University of Nevada Reno.

“It’s tough for casinos to respond to increased competition that has a locational advantage,” Nichols said. “They will try with marketing to differentiate themselves, but if you’re a casino 10 miles from a population, you have a huge advantage over a casino that’s 30 or 40 miles away.”

Nowhere is the effect of competition more dramatic than in Atlantic City, the modern casino industry’s East Coast beachhead, which opened for gambling in 1978. Atlantic City was a whopping $5.2 billion gambling market in 2006, but casino expansion in Pennsylvania, Maryland, and elsewhere has ravaged the city’s bottom line. It was a $2.9 billion market last year, according to the Center for Gaming Research at the University of Nevada Las Vegas. The decline continues despite an improving economy.

A more relevant harbinger for Rhode Island may be the southeastern Indiana market, which historically relied heavily on business from Ohioans.

In March 2013, a casino opened in downtown Cincinnati, undercutting profits at the casinos over the border. Last month revenue at three properties in southeastern Indiana was down more than 30 percent, compared with February 2013.

“You’re going to have a lot of states relying on their own citizens for gambling revenue and the tax revenue it generates,” Nichols said. “Because the days where you can get it from other states are — by and large — over.”

Twin River’s vast parking lot was busy this week with what looked to be an equal number of cars registered in Massachusetts and Rhode Island.

Several Massachusetts residents visiting the property agreed they probably will patronize whatever casino is most convenient once the new facilities open.

“It’s about travel time, really,” said Karen, 68, from Grafton, who declined to give her last name because she did not want her friends to know she was at the casino. Travel time is so important that she has measured her drive to Twin River: exactly 32 miles, she said.

Grafton to Plainridge, depending on the route, can be slightly shorter.

Rhode Island and Twin River officials have been planning for competition from Massachusetts since 2010, said John E. Taylor, Twin River’s chairman.

The Rhode Island casino has strengthened its staff training to improve customer service, worked with state leaders to win a 2012 ballot question legalizing table games, and “got our balance sheet in order,” so the company would be poised to act on attractive investment opportunities, said Taylor.

Twin River’s parent company struck a deal to acquire the Hard Rock Hotel & Casino in Biloxi, Miss., and supports gambling expansion in Colorado, where the company has a horse track. In announcing the Hard Rock deal in December, Twin River said the acquisition “strengthens the company at an important time in our history as we brace for the eventual impact of Massachusetts casinos and racinos.”

“We’re focused on the things we can control,” Taylor said. “No one is going to be able to take away our convenient location,” off Route 146, about 40 minutes from Worcester and an hour from Boston.

“Obviously, this will be a more competitive market,” he said. “We do believe the market will expand. We think we’re going to be able to compete, as we have been competing with two of the biggest casinos in the world,” Foxwoods and Mohegan Sun.

Fighting toe-to-toe against the massive Connecticut casinos, Twin River has increased its share of the regional slot market from 18 percent in 2007 to 28 percent last year, according to the company.

Twin River offers about 4,500 slot machines and 80 table games.

The Plainridge slot parlor will be limited to no more than 1,250 slot machines and will have no table games, which will mitigate the initial damage to Twin River’s bottom line, said Clyde Barrow, a casino specialist at the University of Massachusetts Dartmouth.

“Given the number of customers that Twin River draws out of Massachusetts, even at full capacity Plainridge could only capture about half that traffic,” Barrow said.

But planned resort casinos in Springfield and in Southeastern Massachusetts would pull additional customers from the Rhode Island facility, Barrow said.

The Massachusetts gambling commission expects to award the license it controls for Western Massachusetts in May. An MGM proposal for Springfield is the only project in the region.

The license for Greater Boston will be awarded in May or June. Two proposals are competing: Mohegan Sun in Revere and Wynn Resorts in Everett.

The license for Southeastern Massachusetts is on a later timetable.

Barrow believes the gambling expansion planned in Massachusetts will bring the region to the brink of its capacity, even as New Hampshire flirts with casino legalization.

“At what point is new market growth less than the cannibalization?” Barrow asked. “I think once Massachusetts is up and running, we’re at that point.”

Mark Arsenault can be reached at mark.arsenault@globe.com. Follow him on Twitter @bostonglobemark
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