Will Ohio Gaming Threaten Play at Pennsylvania Casinos?

The Pennsylvania Gaming Control Board released revenue figures for August 2012 and noted that total gross revenue increased by 3.7 percent from casinos that were in operation this time last year.   Adding in the new Valley Forge Casino ups the percentage gain to 5.7 percent.  Whether or not this will continue remains to be seen as neighboring Ohio has started rolling out its own slot parlors in 2012 and the question arises about the effect of competition on casinos in western Pennsylvania.


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The Rivers Casino Profitability Disadvantage

As we have documented in past Policy Briefs, the Rivers Casino has gotten off to a rocky start-first with ownership problems and then with weak gross terminal revenues from slots operations.  At the completion of its first full year (August 2009-2010) we noted that the $222.3 million earned in gross terminal revenues fell woefully short of its own projections of $428 million as well as the $362 million projected from the Pennsylvania Gaming Control Board (PGCB).  It did not even compare favorably to its southern competitor, the Meadows Casino in nearby Washington County, which had earned $252 million during the same time frame-above both its’ own projections and that of the PGCB. 



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Rivers Casino Revenues Up But Far Below Expectations

There is some moderately good news from the Rivers Casino–at least from the casino’s perspective. Gross terminal revenue has picked up 20 percent thus far in 2010 compared to the opening five months of August through December 2009.  Moreover, revenues this spring have been running at their best levels since the facility opened. If the historical pattern established by other casinos holds at Rivers, revenues will continue at current levels or improve somewhat through August, after which they will enter a much weaker fall season lasting until Christmas.  



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Not So Jolly News for Rivers Casino

Pittsburgh’s Rivers Casino received some not so jolly news this holiday season-a credit rating downgrade from Standard and Poor’s. The downgrade from a B- to a CCC amounts to a lump of coal in the casino’s stocking. But the official statement from management is that the reduction "was entirely anticipated". They rationalize the move as one that is affecting the gambling industry as a whole and not indicative of troubles at the North Shore facility. In keeping with the cheeriness of the holiday season the statement further comments the "Rivers Casino is posting market share gains and is becoming a destination of choice for gaming in Western Pennsylvania".

Management is correct in one facet-the downgraded was to be anticipated. As we have been documenting, the slots parlor has not lived up to neither its, nor the gaming board’s, revenue expectations. Through the second week of December the casino is on pace to earn $196 million in annual gross terminal revenues-far below their projection of $427.8 million and the gaming board’s projection of $362.4 million annually.

Of course, with the casino at only 45 percent of expected revenue, many people are worried because the City and region have pinned a lot of hopes on the success of the facility. Not only will the projected community payouts be in doubt-like the $7.5 million per year for the new hockey arena-but the future of the slots parlor itself could be in doubt. And that brings up a whole new set of questions. What happens if the Rivers Casino declares bankruptcy? Remember that one of its owners has already declared bankruptcy. Who takes over the casino and will they be required to pay for the new arena or will a bankruptcy judge relieve them of that obligation? While this is the season of giving, the Rivers Casino may need more than Santa can fit in his sleigh.

Good News for Pittsburgh’s Casino Fleeting

The run of good news for the Rivers Casino was fleeting. Last week we noted that things may be looking up for the beleaguered slots parlor as a potential rival filed for bankruptcy and Ohioans heading to the polls were not certain to pass that state’s referendum on gambling. What a difference a week makes.

On Election Day the referendum legalizing gambling in Ohio passed. While the ballot question only authorized slots casinos in the four major cities-Cleveland the closest to Pittsburgh, is more than two hours away-it opens the door to competition for Ohio residents and their gambling dollars. It will certainly have a negative impact on wagering and gross terminal revenues at Pennsylvania casinos.

And now news reports indicate that workers at the Rivers Casino are in the process of organizing. Security and surveillance employees are scheduled to vote on Monday to unionize while other unions are actively recruiting remaining casino employees. It seems many of the retirees who frequent the parlor are former union workers who are providing contacts for these employees.

For a facility whose revenues are running woefully under projections, this news may be the worst of all. Competition and low wagering can be combated with marketing, promotions, and advertising. Unionization will raise labor costs and further weaken the viability of this underperforming facility. With so much riding of this casino, payment for the new hockey arena and host fees for the City and County, the events of the last week are disappointing to say the least.

Good News for Rivers Casino?

Since its opening at the beginning of August, the Rivers Casino has been beset by one problem after another and has experienced much lower than forecast gross terminal revenues. These lower than anticipated revenues have been blamed on a variety of factors such as poor access on the North Side, the G-20 conference, and competition from not only the Meadows slots parlor, but from professional and college football games in neighboring Heinz Field. They have been threatened by the members of the State Legislature for not coming up with their obligation for the new hockey arena and have seen their credit rating downgraded. Not much has gone well for the new gambling parlor.

Maybe things will start looking up.

In what might be a reversal of fortune, a future competitor has announced it will enter bankruptcy protection. Centaur LLC, a company that specializes in gaming, has announced that it has sought court protection from creditors which will undoubtedly push back the opening of a Lawrence County race track and casino from its target of September 2010. The filing jeopardizes not only the company’s slots license, which it has been promised but not yet purchased, but its harness racing license as well.

Furthermore, the legalization of slots gambling in Ohio will be placed in front of the voters in the upcoming election. Lawmakers had passed a law but Ohio courts put it before the people in a referendum and it’s no sure bet to pass. If it does then casinos in western Pennsylvania, Rivers, Meadows, and Presque Isle, will see their customer base shrink as Ohio residents will no longer have to cross state lines to lose money.

All of this could be good news for Rivers Casino. However, it underscores the fact that legalized slots parlors are not the savior they were promoted to be.

As Leaves Fall so do Gaming Revenues

Pennsylvania’s slots parlors are now deep into gambling’s fall slow season. This coupled with the impacts of a national recession has caused one area casino to announce that up to 100 employees will be laid off. Instead of the beleaguered Rivers Casino laying off workers as might have been expected, it was its southern neighbor, the Meadows.

That the Meadows Casino made the announcement came as a bit of a surprise. Their Gross Terminal Revenues (GTR) to date had been well above expectations-they are averaging $5.9 million per week since the beginning of June which gives them a pace of more than $307 million. Even though wagering and GTR at the Meadows had declined slightly with the opening of Pittsburgh’s casino, they should easily beat their initial forecast of $236 million in annual revenues.

Compare these results with those of the Rivers Casino. Since opening to much fanfare in August, the Rivers is averaging just more than $4 million for annual pace of $210 million-well below their projections of $427 million. Their performance to date has been so worrisome that they renegotiated their annual payment for the new hockey arena when it was clear they would be unable to pay the full $7.5 million by the end of October. Instead they made a partial payment of $2.35 million with the balance due in April. (It’s worth noting that the Meadows’ has no such community benefits obligation.) Standard and Poor’s also lowered the Rivers’ credit rating from a B to a B-. It’s fair to say that things are not working as the owners (and politicians) had imagined through the first few months.

However, true to their all-is-well mentality, management at the Rivers insists everything is fine. In fact they claim to be in hiring mode to staff their newest restaurant with several more open positions at the facility. Is this whistling past the graveyard or do they expect activity to pick up? As we noted in a recent Policy Brief (Vol. 9, No. 52), the fall season has typically been low for Pennsylvania’s casinos and activity remains low through early spring.

Pittsburgh’s Casino on Thin Ice

Pittsburgh’s Rivers Casino is on thin ice. Their gross terminal revenues have been woefully under projections and as a result they are having difficulty making their obligated $7.5 million payment for the new hockey arena. This payment was due September 15th. They have been in negotiations with the arena’s owner, the Sports and Exhibition Authority, to alter this obligation. They have recently come under fire from the State’s Gaming Control Board for being delinquent on the payment of nearly one month.

The Gaming Control Board’s Bureau of Investigation has filed a complaint stating the Rivers has violated a condition of its gaming license by not making the payment by October 1st. The Gaming Board will look at the complaint and decide whether a fine or other action is warranted. Negotiations with the SEA continue with the possibility of splitting the payment into smaller amounts, but no agreement has yet been reached.

Furthermore the Casino’s problems will only get worse when Allegheny County performs a property assessment on the facility. Once completed the slots parlor could end up paying property taxes of about $12 million. If they are struggling to make a $7.5 million bond payment, coming up with an additional $12 million may plunge them through the ice, unless something dramatic or unexpected happens to enhance their revenue.

Pittsburgh Casino’s First Week Disappointing?

In its first full week (8-10 through 8-16) of operation, the Rivers Casino earned $5.3 million in gross profit-out of which over 50 percent goes to taxes with the remainder used to cover operating and financial costs. The average daily take was $0.76 million. This has to be disappointing for an opening week that should be one of the casino’s biggest weeks of the year, newness and all that.

It must be disappointing because the owner is projecting gross profits of $420 million the first year of operation. That requires the casino to average $1.15 million per day. If the first week’s actual daily rate is sustained, the casino will bring in only $276 million. That will hurt not only the casino but the projected tax revenues for the state and County. Pittsburgh is guaranteed $10 million so it will not suffer.

When the president of the casino says "we’re satisfied" with the first week performance, it is important to read between the lines. If things had gone as hoped, the comment would have been much more effusive-such as "we are very happy" or "we are ecstatic".

Still, since the opening, 20,000 visitors have lost $6.5 million, meaning the average gambler dropped $325. Obviously, some lost a lot more than $325 to lift the average to that level. Every week a new set of folks willing to leave behind hundreds of dollars must be found to replace those who will quickly get tapped out at that loss rate.

Bluhm on the Hook but Squirming: Taxpayers May Get Tab

With less than a month until the Rivers Casino opens in Pittsburgh the slots parlor is facing a $7.5 million payment due this October for its share of the hockey arena debt service. Predictably, casino owner Neil Bluhm is balking at making his first payment so quickly. Instead he insists that his first installment is not due until 2010 at the earliest and possibly not until 2012. Will this be settled amicably or through the courts?

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