DOVER DOWNS, INC



Video Lottery Advisory Council

Meeting Minutes

April 29, 2014

Members present: Kevin DeLucia - VP Finance - Delaware Park

Vernon Kirk – Director - Delaware State Lottery

Robert Neugebauer – DE Account Manager – Spielo International

Ed Sutor – President & CEO - Dover Downs Hotel & Casino

Kathy Wayne – General Manager – Scientific Games

Members absent: Patti Key – Chief Executive Officer - Harrington Raceway & Casino Tim Shortall – Vice President U.S. Eastern Region – Sales - IGT

Attendees: Jim Borden - WMS

Tim Centanzo - IGT

Tom Cook – Secretary of Finance – State of Delaware

Mark Casto – Bally Technologies

Jim Logue – Delaware State Lottery

Mike Nickolich – Bally Technologies

Anthony Sofran - IGT

Len Tranchitella – Harrington Raceway

Robert Willard – State of Delaware

Opening of the Meeting

• Ed Sutor

- The minutes of the previous meeting on October 29, 2013 were approved and posted on the State’s website. The date, time and location of today’s meeting, along with the other 3 meetings planned for 2014, have been posted on the State’s public meeting section of their website.

Update Regarding VLAC Membership Appointees

• Vernon Kirk

- As a result of the recent merger between Scientific Games and WMS, Brennan Lawrence is no longer with Scientific Games. Therefore, Kathy Wayne has been appointed as a VLAC member taking the spot of Brennan Lawrence as a representative of the central system provider.

Review of Competitive Situation

• Ed Sutor

- The end of the 1st quarter of 2014 marked the 29th consecutive quarter of year over year declines in Delaware slot revenues since the opening of Harrah’s Chester in 2007, with the most recent negative results being attributed to the opening of Maryland Live in June paring slot revenue for the state for the 1st quarter of 2014, Delaware is down more than any other state in our region compared to the 1st quarter of 2013.

Slot revenue 1st quarter 2014 compared to 1st quarter 2013:

▪ Delaware: -10.4%

▪ Atlantic City: -10.3%

▪ Pennsylvania: -7.2%

▪ West Virginia: -9.7%

▪ Maryland: -4.3

With regard to table game results, Delaware is down almost 25% for the 1st quarter of 2014 compared to the 1st quarter of 2013. Regional table game results for the 1st quarter of 2014 compared to the 1st quarter of 2013:

▪ Atlantic City: -7.8%

▪ Pennsylvania: +2%

▪ West Virginia: -29.2%

Last week Dover Downs released its public earnings statement for the 1st quarter of 2014, with our biggest loss in Dover Downs history; reporting a loss of over $1 million for the first quarter. If these results continue, it could have major negative implications with our bankers, as our debt deal runs out on June 17th. We, and our bankers, are hopeful for a legislative bill to be drafted with the recommendations of the Lottery and Gaming Study Commission and approved by the House, Senate, and the Administration before this legislative session ends in June.

• Len Tranchitella – Harrington Raceway

- Status quo at Harrington Raceway – trying to stay above water. We are also working with our bank on a daily basis. Our bankers have stated they want to see what type of relief will be granted to the industry before renegotiating our loan terms.

• Kevin DeLucia – Delaware Park

- Delaware Park had its worst first quarter since gaming commenced in Delaware. We are in a similar situation as Dover Downs and Harrington with operating results.

Update from Sec. Cook regarding recommendations of the 2013 Report to the State

• Tom Cook

- The Gaming and Lottery Study Commission has concluded its meetings and a bill including changes to the current Delaware gaming model based on the Commission’s recommendations will probably be introduced this week.

- With regard to the first recommendation in the 2013 VLAC Report to the State, it will be recommended in the bill that effective July 1, 2014, 75% of all vendor costs be moved to the top so that this cost is shared by the State and the video lottery agents. The horsemen will be held harmless with this change. We estimate that this change will have an approximate $9.9 million impact on the State’s share of gaming revenue in fiscal 2015. The other part of the first recommendation, related to changing the revenue share model, was not considered now due to the State’s economic situation.

- In response to the second recommendation (to modify the table game revenue share model and remove the $3 million annual license fee) it will be included in the bill as a recommendation of the Gaming and Lottery Commission that effective July 1, 2015 the State’s share of table game revenue be decreased from 29.4% to 15%. We estimate that this will have an approximate $10 million annual impact on revenue the State receives from the gaming industry. It will also be recommended that the $3 million annual table game license fee be removed. The effective impact to the State’s bottom line from the recommended table game and video lottery adjustments is approximately $20 million in fiscal 2016.

- The third recommendation in the 2013 VLAC Report to the State, related to modifying the iGaming revenue share model was not addressed by the Gaming and Lottery Study Commission at this time. I will state that I agree that the current model requiring the first $3.75 million in iGaming revenue to go to the State is disincentivizing to the 3 tracks to make the program successful. I agree that we should work towards removing the $3.75 million requirement and reexamine the revenue share model for iGaming. The Gaming and Lottery Study Commission is slated to reconvene in July of 2015 to reevaluate these issues, so look for this issue to come back up.

- The administrative recommendation included in the 2013 Report, to improve directional signage, was not addressed by the Gaming and Lottery Study Commission, but I am willing to meet with representatives from the tracks, namely Delaware Park who is most impacted by signage issues off of interstate 95, and Secretary Bhatt (Secretary of Transportation) to discuss options.

• Ed Sutor

- For years, the VLAC has made recommendations to the Secretary of Finance through the format of our annual report to improve the ability of Delaware’s gaming industry to compete with our ever-increasing regional competitors. We have been granted 24-hour operations, the ability to issue promotional credits, legislation for sports betting and table game operations, among others. Our Report was referred to over and over again during the meetings of the Gaming and Lottery Study Commission. Under the current circumstances, given the State’s financial situation, we appreciate the consideration given by the Secretary of Finance and the Gaming and Lottery Study Commission; we support the legislative bill that will be introduced to address these issues and look forward to continuing to work together with the reconvened Gaming and Lottery Study Commission in July 2015 and with the Legislature and the Administration to ensure the viability of Delaware’s gaming product and industry.

Review of Lottery Initiatives:

• Vernon Kirk

- iGaming revenue has consistently grown over the past 4 months, and is up 24% in March compared to February. We have a lot of ideas on the table to improve site functionality and game content, and are close to being able to announce some new advancements with the program. We are in the technical stage of discussion with Nevada and 888 in terms of a shared liquidity inter-state agreement, and we are sharing information with New Jersey in hopes of New Jersey joining our interstate iGaming group in the near future.

• Jim Logue

- We are happy with the new game content that has been brought to the tracks as a result of new vendor contracts with Aristocrat and Ainsworth. The Lottery very recently received the signed contract from Spielo, which will enable the tracks to bring Konami games to the floor within a couple of months.

Review of Scientific Games Initiatives:

• Kathy Wayne

- Scientific Games has completed testing with the new Aristocrat products, we are currently working with Ainsworth, and anticipate working with Konami at the end of the month.

Review of Video Lottery Agents Recent Activities

• Kevin Delucia – Delaware Park

- Delaware Park has been busy with the installation of new games, and has recently completed a project replacing ticket redemption and ATM machines.

• Len Tranchitella – Harrington Raceway

- Harrington has also been working on reconfiguring the slot floor to make room for new games.

- Our live racing season is about to start, so we have updated our menu and specials at Murphy’s Grill.

• Ed Sutor – Dover Downs

- Dover Downs has only spent a fraction of its proposed capital expenditure budget, mostly on emergency-type items. Everything else has been put on hold. We have also been working with vendors on updating machines on the casino floor.

Review of Manufacturers New Products:

• Tony Sofran – IGT: IGT has been working on installing our new G23 and universal slant machines on the casino floors in Delaware. We have also been installing our new themes Sex & the City Platinum and Back to the Future.

• Mark Casto – Bally & ShuffleMaster: Bally has been working with the three Delaware tracks to bring in new product, and we feel that the Delaware casino floors are as relevant as any other casino in the country. We are able to install some new product that’s not yet available to the Delaware regional competitors (Maryland, Pennsylvania, and New Jersey). Bally also has a wealth of marketing materials available to assist with marketing the new gaming products to the masses.

Bally with continue a relationship with GTech/Spielo in representing the ShuffleMaster product.

• Jim Borden – WMS: WMS has builds going on at all three tracks, installing the new Blade cabinet. We are also installing the new themes Monopoly and Oz, and we have Beetlejuice and Clue coming soon.

• Robert Neugebauer – Spielo International / Konami: As Jim stated, the Spielo / Konami contract has been signed and we will be fast-tracking some builds to have product available, possibly, as early as June.

We continue to update the Spielo platform to the Prodigy Vue cabinet.

Close of meeting

• Ed Sutor

- The next VLAC meeting is scheduled for July 29th, and will be held in the Festival Buffet at Dover Downs.

- Having no other business for discussion, the meeting adjourned.

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