Gaming in Pennsylvania continues to be strong

Overview: Pennsylvania’s gaming industry was quick to rebound from the COVID lockdowns of 2020.  Internet gaming led the way during the pandemic year when virtual gaming provided an alternative to being with the crowds on the casino floor.  In addition, Pennsylvania welcomed three new mini casinos in 2021.  As a result, total gaming revenues quickly increased and surpassed pre-pandemic levels. 

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Policy Briefs have been documenting gaming revenues since slot machines were introduced to the commonwealth with legislation in 2004 (Vol. 4, No. 28).  Shortly thereafter, table games were added and recently other forms of gambling— internet gaming, sports wagering, video gaming terminals and fantasy sports contests—debuted.  Policy Brief Vol. 20, No. 7, explored how each method is taxed and how those dollars are divvied. 

The data for this Brief comes from the Pennsylvania Gaming Control Board. 

Slot machines

For 2021, casinos across the state realized $2.29 billion in gross terminal revenues (GTR).  While this is 68 percent higher than 2020’s pandemic-year total, it still is 3 percent behind 2019’s total of $2.36 billion. The high-water mark for slot machine GTR occurred in 2012 when 11 casinos garnered $2.47 billion. 

Through May 2022, the monthly average of over $200 million is the highest monthly average since 2012.  Casinos are on pace to realize $2.40 billion, the third-largest total behind only 2012 and 2011 ($2.41 billion).  

It is also worth noting that in 2019 there were just 12 casinos in operation.  In 2020 the first mini casino debuted in Westmoreland County and in 2021 three more opened their doors in the eastern part of the state (Philadelphia, York and Berks counties). 

But while 2022’s GTR is spread over 16 casinos instead of 11 from a decade ago, the number of slot machines available is not much greater.  From 2011 through 2016 the average monthly number of slot machines in operation was over 26,000.  That started to decline in 2017 when it fell to 25,971 and continued to fall to 24,722 in 2019.  The pandemic in 2020 dropped that number to just 18,515 as social distancing had casinos remove machines and place them farther apart.  In 2022 that number has bounced back up to over 26,000, reflecting the larger number of casinos.

Interestingly, not one casino that had been open in 2019 had GTR in 2021 that surpassed the pre-pandemic level of 2019.  For example, the Rivers Casino in Pittsburgh had GTR in 2021 of $251.3 million, the lowest total since 2010 and 15.6 percent less than the $297.7 million in 2019.    The top casino in Pennsylvania is Parx Casino Philadelphia.  In 2019 that casino earned $421.9 million, 3.2 percent higher than the $408.3 million earned in 2021.  Hollywood Casino at The Meadows in Washington County was off by 23.3 percent. 

The gains to GTR were made solely because four new casinos had opened in 2020 and 2021.  While they were physically placed far enough away from existing casinos due to legislation, they undoubtedly provided some competition. 

Internet gaming

Internet gaming became a reality for Pennsylvanians in 2019.  Internet gaming consists of both slots and table games.  Players must be physically located within the commonwealth and play through existing state casinos. 

That first full month, August 2019, garnered $3.4 million in total revenues across the state.  From August 2019 through February 2020, the monthly average was $9.5 million.  In April 2020, the first full month of the lockdown, that number jumped to $43.1 million and rose steadily throughout the year with December’s revenues topping $71.6 million.  In 2021 the average monthly revenues topped $92.7 million and the annual total topped $1.1 billion.  Thus far in 2022, revenues are $111.1 million per month and on pace to exceed $1.3 billion. 

Internet gaming revenues surpassed those from casino-based table games in November 2020 ($59.8 million vs. $52.3 million) and widened the gap substantially since then.  Internet gaming in 2022 now accounts for 26 percent of all gaming revenues.  In 2021 it was 23.5 percent. 

Table games

Total table games revenues had their best year in 2021 when they reached $924.9 million.  With the exception of the pandemic year, table games revenues have steadily increased since the first full year of 2011 ($619.9 million).  Through the first five months of 2022, table games revenues, averaging $85.4 million, are on pace to surpass $1 billion for the first time.

Much like slot machines, more tables are in play as the number of casinos has expanded.  In 2019 there were an average of 1,276 tables in operation each month.  The average revenue per table was $59,026—the fourth highest behind the years from 2015-2017.  In 2021 the monthly average number of tables increased to 1,377 with a per table revenue just shy of $56,000.  Through May 2022 there is an average of 1,421 tables drawing in about $60,000—a new per table high. 

However, unlike slot revenues, there were three casinos that had 2021 revenues top those of 2019, including Philadelphia’s Parx (8.2 percent higher), Pittsburgh’s Rivers (2.5 percent) and Mt. Airy (13.2 percent). 

Total revenues—all gaming methods

In 2011 total gaming revenue from slots and table games came in at just over $3.03 billion.  In 2018, when fantasy contests joined the gaming ranks, that amount ticked up to $3.23 billion.  In 2019 other forms of gaming debuted—internet gaming, sports wagering and video terminals (truck stops) —and revenues rose slightly to $3.40 billion.  Post-pandemic 2021 had three new mini casinos open and total revenues jumped to $4.73 billion.  Through the first five months of 2022, total revenues from all sources of gaming are projected to hit $5.13 billion. 

Conclusion

Each method of gaming is taxed at a different rate with tax revenues going to different coffers (Vol. 20, No. 7).  For example, taxes on slot gaming, both casino-based and internet-based, primarily benefit property tax relief efforts.  Table games tax proceeds go into the general fund.   But also keep in mind that for every dollar in revenue brought in by the casinos it represents a dollar lost from other areas of the economy. 

Stimulus money pumped into the economy by the federal government, and the resulting and current inflationary crisis which has pushed up wages, most likely made its way to the casinos as people had more discretionary spending available.  While the local governments that rely on gaming tax revenues are reaping the rewards, what will happen when the economy has a serious downturn and this wave of discretionary spending grinds to a halt?  Politicians may be running out of ways to expand gaming options.

Gaming as a recreational outlet must be kept in perspective.  State and local governments should not count on the gaming industry to sustain its economy or keep its tax coffers full.  And certainly, it cannot afford to ignore the social ills and costs that can accompany gaming addiction.

Gaming Revenue’s Slight 2016 Rise in Perspective

Summary:  News reports of the recently released 2016 gaming revenue in the Commonwealth noted that it was a record breaking year for the industry.  While it is true that the combined revenues (table games and slot machines) did reach the highest level to date, some perspective on the number is needed.

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While gross gaming revenues reached $3.213 billion in 2016 that represented only a small gain of 1.25 percent over 2015, the previous high. And, notwithstanding last year’s increase, gaming revenue has risen by a mere 1.7 percent from the $3.16 billion figure posted in 2012. To put this in context, consumer prices have climbed just under five percent over the four years which means  that in real, inflation adjusted terms, 2016 revenue was about three percent below the 2012 reading.

Clearly, whatever momentum there is in the gaming industry is due to table games that have been the driving force behind these revenue gains. Note that the number of table games has grown steadily since 2012 when there were 1,016 tables in operation.  Ongoing increases in the count boosted the total table games in operation to 1,196 in 2016, a jump of 17 percent since 2012.

Looking at the last five years of data (2012-2016), table game revenue across the system grew 14 percent, rising from $687.4 million to $853.2 million.  On a per table basis, the growth has been more modest rising just six percent.

While table game revenue climbed at a fairly solid pace over this time frame, revenues from slot machines fell from $2.47 billion in 2012 (the highest annual reading to date) to $2.36 billion in 2016—a 4.5 percent dip.  Still, despite declining slot play, the machines account for the bulk (73 percent) of gaming revenues in Pennsylvania.  The number of slots machines, and the revenue per machine, has dropped slightly over the period.

It is important to note that while the popularity of table games are driving the gaming revenue gains, the tax rate on table games is about a third of the rate leveled on slots revenue.  Table games revenue is taxed at a rate of 14 percent with 12 percent going to the state’s general fund and the rest (2 percent) goes to the local share assessment.

Meanwhile, slots revenue pays a tax of 54 percent.  Of this amount, 34 percent goes into the State Gaming Fund for, among other things, property tax relief for homeowners.  Eleven percent goes to the state Race Horse Development Fund and five percent to the Economic Development and Tourism Fund with municipalities and counties getting two percent each.  The funding for host municipalities is being reworked by the Legislature as ordered by the State Supreme Court in a decision from 2016.

Setting aside the different allocations of the table games revenue and slots revenue, it is must be borne in mind that each dollar decline in slots revenue results in a 54 cents drop in tax receipts for the Commonwealth.  By the same token, a dollar increase in table games revenue generates only 14 cents in additional tax receipts. Therefore, on a net basis, the $110 million decline in slots revenue and the $170 million gain in table games revenue have lowered the total tax receipts from the gaming industry over the last five years. And the trend seems to point to further erosion.

Finally, how have the Pittsburgh area casinos, the Rivers and the Meadows fared, over these last five years?

Looking at their table game revenues, neither local casino has fared well in comparison to the statewide numbers. In 2012 the Rivers Casino earned $69.7 million from table games while the Meadows took in $35.4 million.  In 2016, they each generated less than in 2012 with the Rivers earning $69.1 million, only a slight falloff, while the Meadows take of $31.4 million represents a drop of eleven percent.

There were similar changes regarding slot gross terminal revenues (GTR) for both casinos.  In 2012, the GTR for the Rivers came in at $282.13 million, but by 2016 had fallen to just over $265 million—a decline of six percent.  For the Meadows, the drop was more severe.  In 2012 they posted GTR of $248.9 million but by 2016 it had fallen to $221.6 million (11 percent).

One possible explanation is that the Meadows’ customer base may have been hard hit by the decline in the gas drilling industry as many of those firms which are based in Washington County reduced their workforce.  Meanwhile, both casinos have seen competition arise from casino facilities in Ohio and that has been coupled with the sluggish employment gains in the Pittsburgh region in recent years.

At this point, it appears gaming activity in Pennsylvania is topping out as growth gets harder and harder to come by and that is all generated by table games that produce much less revenue for the state and are most likely more expensive for casinos to operate than slots per dollar of revenue produced.

More Foot-Dragging

Say it isn’t so. A newspaper report today pointed out that the oversight board is ready to wield its stick against the City if the City does not get moving on a financial management system, also known as an "Enterprise Resource Planning System" which manages an organization’s accounting, payroll, human resource functions, etc. and which the City lacks.

The Act 47 amended plan-adopted in 2009-said "the City shall continue to work with the County to merge its ERP functions to the County’s platform by December 31, 2009". There was no midnight marathon session like we saw with the pension bailout this past New Year’s Eve. For those keeping score at home, we are now 421 days past the Act 47 deadline for the integration. If the City was willing to ignore that directive, what hope is there that the oversight board’s admonishment will fare any better?

There should be no surprise, after delays in moving purchasing to the County took longer than it should have, the study to answer the question of whether to merge the City and County took longer than it should have, and now this. The City claims it wants to look at other options, including going onto the Water and Sewer Authority’s management platform.

It is especially galling since the City has already appropriated the money ($10 million) but says it is reluctant to move ahead because the sale of the Municipal Courts building somehow figures into the financing of the deal. Instead they prefer to stick with the "fragmented" and "obsolete" system as described by the Act 47 team.