Gaming Revenues Still Slumping

In early January, the Pennsylvania Gaming Control Board reported the final tally of gross revenue from slot machine gaming for 2014 at $2.319 billion.  This amount is about 2.7 percent lower than that for 2013 which in turn was about 3.5 percent lower than the 2012 total.  While the recent decline was smaller, this is not the trend the industry, or the Commonwealth, wants to experience.


Looking over the last five years (2010-2014) of slot machine performance, there has been a weakening pattern in gross gaming revenue statewide.  2010’s total ($2.273 billion) was more than 15 percent better than the previous year reflecting in part the addition of more capacity and the 2011 gain of just under six percent better than 2010 occurred in a much stronger economic environment.  2012 represented the high-water mark when $2.407 billion was realized—but was just under a three percent increase over 2011.  As noted earlier, 2013 showed the first decline from the previous year and 2014 the second when gross revenues fell to $2.319 billion.


Nearly all of the individual casinos are showing weakness in their slots revenues as well.  In 2014 only the resort casino at Valley Forge showed an increase to gross slots revenue (16 percent), but it has only been in operation for two full years after opening in early 2012.  The other resort casino at Nemacolin has only been open for one complete year, so a true comparison cannot yet be made.  The other ten casinos all reported drops to their gross slots revenues.  The range went from nine percent (Presque Isle) to just over one percent (Mohegan Sun).  Only the Rivers in Pittsburgh did not record two consecutive years with a decline.  In fact the Rivers has been perhaps the best performer as 2014 represented the only year it had a decline (2.5 percent) in gross slot revenues.  Harrah’s in Philadelphia has had decreases to their revenues for all five years while Penn National, Presque Isle, and the Meadows have had declines for four of the last five years.


Possible explanations for the decline in gross slots revenue could be the increased competition from neighboring states Maryland and Ohio, with the latter taking a heavy toll on Presque Isle in Erie.  Also, Pennsylvanians were subject to a slowdown in state growth in 2012 through 2014 that might have held down discretionary income growth.  And perhaps there was a shift from slot machines to table games at casinos when they appeared in mid-2010.


While the number of slot machines statewide did not vary significantly over the last five years, peaking at just over 318,500 in 2012 before settling in at 317,700 in 2014, table games came along in 2010 and they provided gamblers with another option.  But did table games provide the needed boost for casinos?


In their first full year, 2011, table games at Pennsylvania’s casinos brought in nearly $620 million statewide.  That amount grew by nearly eleven percent in 2012 ($687 million).  However, that growth slowed a bit in 2013 to just over six percent and for 2014 the rate of growth fell even further to 2.7 percent.  In 2014 the gross revenue from table games came in at $749.5 million.  The positive from this, from the casino and state perspective, is that there has been growth to table games revenue, albeit at a decreasing rate since they debuted.  Perhaps this is to be expected as table games settles into its steady state.


Interestingly enough the number of table games being offered (banking, non-banking, and electronic) has been expanding at about the same rate as revenues.  In the first full year there were over 10,800 table games statewide.  That amount grew to nearly 13,200 by 2014.   This 22 percent growth rate in the number of tables matches the growth rate of table game revenues since 2011 (21 percent).  Clearly casinos are reacting to players’ preferences in gaming.


For individual casinos, the results from table games are mixed.  Seven of the eleven casinos opened for at least two full years (excluding Nemacolin) posted total revenue growth from 2013 to 2014.  The only ones who did not were the Meadows (-18.5 percent), Harrah’s (-10.7 percent), Penn National (-8.3 percent), and Presque Isle (-3.28 percent).  Since table games were installed, four casinos (Mohegan Sun, Mt. Airy, Sands Bethlehem, and Sugar House) had increased total revenue from these games each year with the Rivers and Philadelphia Parx posting growth in two of three years.  Only Presque Isle, which has been hampered by its close proximity to casinos in Cleveland, Ohio, had decreases every year.


After four full years of table games play, the trend of decreasing growth rates overall may be cause for concern.  How much longer this segment of Pennsylvania gaming will continue to see revenue growth is difficult to say.  Moreover, it is not clear just how the profit margins of table games compares to those of slot machines. Nonetheless, considering the slide in slots play, it is the one area propping up gaming revenues in the Commonwealth.  And with so many programs relying on gaming revenues, from property tax rebates for seniors to host fees for municipalities, there is a lot riding on this industry.  The recent trend is not promising.

After Five Years Have Slots Revenues Hit the Jackpot?

In early August, the Rivers Casino celebrated its fifth anniversary.  Before opening on August 9, 2009, the casino’s owner at the time projected they would earn $427.8 million in gross terminal revenues (GTR) in the first year of operations while the Pennsylvania Casino Gaming Board dialed that forecast back to $362 million.  As we wrote after the casino completed its first twelve months of operation, GTR for the Rivers fell well short of either of those figures—only $222.3 million as of August 9, 2010 (Policy Brief Volume 10, Number 43).  Revenues have grown since then, but have those initial lofty forecasts been reached?


In calendar year 2013 the Rivers Casino had the third best GTR of any of the ten regular casinos and two resort casinos in the state, trailing only Parx in Philadelphia and the Sands Bethlehem.  After the slow start for its first full calendar year in 2010 ($242 million), the Rivers’ GTR rose steadily to $275.6 million in 2011 to $282.1 million in 2012 to $284.3 million in 2013.  While the steady growth has been encouraging for the casino, the pace of gains has slowed. The increase from 2010 to 2011 was a healthy 14 percent, but the following year the pickup was only 2.3 percent and then from 2012 to 2013 was less than one percent.  For 2014, the Rivers is on pace to collect $282.8 million which would be a decline of about one half of a percent from 2013’s mark.


Of course there have been a couple of developments over the last five years that have impacted the entire gaming industry in Pennsylvania along with the Rivers.  The first was the advent of table games, which debuted in July 2010 and offered gamblers an alternative to slot machines.  In 2010, the Rivers installed 86 table games and realized roughly $25.7 million over those first six months.  The average number of Rivers slot machines fell from just under 3,000 in 2009 (the maximum allowed by the gaming law) to 2,920 in 2010.  Presumably this was to accommodate the tables.  But as of 2013 the Rivers operated an average of 2,940 slot machines and 114 table games.


Table game revenues for the Rivers  have been steady since the first full calendar year of 2011 when they hit $67.5 million.  In 2012 they rose to $69.7 million before falling to $67.7 million in 2013.  Projections for 2014, based on the first six months, come in at around $69.6 million.  The main difference with table games is that they are more labor intensive than slots as each table requires a dealer and perhaps more security to oversee many tables full of gamblers.  Thus, while the revenues from table games are a welcome addition for the casino, they have also raised the cost of operations.  Nonetheless total revenues from the two gaming streams—which reached $352 million in 2013—has, after five years, still not reached the gaming Board’s original revenue forecast and remain well below the Casino’s own prediction.   Indeed, the early revenue was so far under forecast, the Casino asked to delay its $7.5 million payment to cover bond service for the Penguins’ arena, a payment it agreed to in order to get the license to operate in Pittsburgh.


Another, and very important, development has been the legalization of slots gaming in neighboring Maryland and Ohio.  The authorization of slots gaming in Maryland occurred first (2010) and provided competition for Pennsylvania casinos mainly to the east near Philadelphia as three casinos were opened in the Baltimore area.  The Rivers should have not been affected much by the Maryland casinos as the closest facility to Pittsburgh is located just outside of Cumberland, opening in 2013.


Ohio slot parlors opened in 2012.  Again as was the case in Maryland there wasn’t a casino near enough to provide serious competition to the Rivers.  The nearest facility was in Cleveland which cut into the revenues of the Presque Isle Casino in Erie (down 23 percent from 2010 to 2013) but did not pose much of a threat to the Rivers.   However, a new casino along the Ohio-Pennsylvania border near Youngstown will be opening in September.  How much competition the new Ohio casino will present to the Rivers remains to be seen, but it will provide another alternative to gamblers north and west of Pittsburgh and could possibly cut into revenues for the Rivers.  Then too, many Ohio gamblers from areas near the new Youngstown casino will now have a much closer option, particularly those gamblers who are slot players only.


After five years the Rivers Casino in Pittsburgh has still yet to reach the original slots revenue projections.  The advent of table games has helped them inch closer to their original revenue goal, but that has come with higher operating costs.  In the last five years new casinos have debuted in neighboring states, as well as in western Pennsylvania, with at least one more hoping to open soon as an investment group is seeking authorization for a casino in Lawrence County.  Media reports note how the Rivers has lived up to its community responsibility by providing funds for the hockey arena, paying their city and county host fees, and other community obligations.  Keep in mind that these obligations were part of the deal for winning the Pittsburgh license in the first place and not just a benevolent gesture.


On the other side of the coin, we do not have any data on the possible effects of problem gambling in the region, but the lack of news likely means the impact has not been very large, as of yet anyway.


It will be interesting see how the Rivers Casino, and the industry overall, performs over the next five years.

PA Gaming Revenues Slowed in 2013

Has luck run out for Pennsylvania’s casinos?  In 2013, annual gross terminal revenue (the casino share of slots play) from the state’s twelve casinos was three percent lower than in 2012.  And while table games revenue was up 6.2 percent over 2012, this represents a sharp slowing from the nearly eleven percent increase 2012 enjoyed over 2011. Are these numbers a cause for alarm or just an indication that the industry is settling in to a steady state?


Slot machine gross terminal revenues (GTR) had been increasing statewide from 2006 through 2012 as the industry grew and new casinos were debuting annually.  As we wrote in a previous Policy Brief (Volume 13, Number 52) from 2009, when both the Sands Bethlehem and Rivers opened, through 2013, when the Nemacolin resort casino debuted, a new casino had opened  every year (except in 2011) which undoubtedly contributed to the steady increases in statewide GTR.  But 2013 was an exception as Nemacolin’s opening failed to prevent the statewide GTR from falling three percent from the 2012 performance.


Looking at individual casinos, nearly all suffered a drop in slot revenue with the lone exception being the Rivers in Pittsburgh which managed a very slim one percent gain.  In 2012 half of the state’s casinos posted dips in their annual GTR from the previous year.  For five casinos (Parx in Philadelphia, Harrah’s Chester Downs, Presque Isle in Erie, the Meadows in Washington County, and Penn National in Harrisburg) the slide in GTR stretches back to 2010.  One explanation is that some of them may have swapped slot machines for table games when table games were authorized in 2010.  Other explanations include new competition from Maryland and Ohio and a sluggish economy that is holding down discretionary income growth.


But if a casino traded slot machines for table games, has that paid off?  It would appear that might be the case based on the 6.2 percent rise in revenue for table games last year. But as mentioned above, the increase from 2011 to 2012 was nearly eleven percent.  Keep in mind that Nemacolin opened in 2013 while Valley Forge enjoyed its first full year of operations, so these two casinos certainly contributed to the rise in table games revenue. Note that in 2011, the first full year of table game play there were ten casinos operating.  Looking at the gains for these ten, table games revenue growth is significantly slower than the totals for all casinos including the recent additions. The gain at the ten was just under 7.5 percent from 2011 to 2012 (compared to 11 for all casinos) and about 4.25 percent in the subsequent year (compared to 6.2 percent for all casinos).  It is a virtual certainty that the new casinos were a major factor in boosting table game revenue statewide.


Individual casino results show that five of the ten operating in 2011 saw a reduction to their table games revenues from 2012 to 2013—Harrah’s Chester Downs (-4.6 percent), Presque Isle (-26.5 percent), Meadows (-2.5 percent), Penn National (-5.6 percent), and Rivers (-2.9 percent).  The casino with the highest jump was the Sands Bethlehem with more than 20.5 percent, but they did increase the number of tables by 20 percent, thus on a per table basis they netted no change.


As mentioned above, Sands Bethlehem increased the number of tables by twenty percent, but that is a bit of an anomaly as eight of eleven casinos either reduced the number of tables available or held the number steady—Valley Forge (20 percent) and Sugar House (six percent) joined the Sands in adding tables from 2012 to 2013.  This was most likely in reaction to the per table revenue results from 2011 to 2012 as seven of the ten casinos at the time experienced declines in per table revenues. Only the Sands (eight percent), Mohegan Sun, and Mount Airy (each less than two percent) posted gains in per table revenues from that first year to the next.  From 2012 to 2013, nine of the eleven operating casinos either showed lower per table revenues or held steady on a per table basis (Parx (15 percent) and Mohegan Sun (2.4 percent) were the exceptions).


While it is still too early to say whether table games are losing some of their luster, recent results are not encouraging.  Is the state reaching a saturation point with respect to gaming?  There are still active plans to place a casino in Lawrence County and one in Philadelphia.  The former will compete with the other three western Pennsylvania casinos as well as Ohio casinos. What’s more the Lawrence County facility would be a racino offering horse races gambling as well as casino play. That would not be a welcome development for the Meadows.  The Philly facility would certainly impact the three existing casinos in the Philadelphia area (Parx, Sands, and Harrah’s).  There is also speculation that internet gaming may find its way into the mix in Pennsylvania in light of the fact that both Delaware and New Jersey allowed online gaming in 2013.  Will Pennsylvania join this gaming “arms race” and follow its neighbors’ lead?


In sum, whatever the reasons, gaming revenue growth statewide has certainly slowed down considerably, with slots machine revenue actually down and table games revenue growth decelerating abruptly. With so many programs riding on gaming money, from property tax rebates for seniors to host fees for municipalities, there is a lot riding on the gaming industry not faltering. Even a leveling out could be problematic.

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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Pittsburgh’s Casino Posts Strong Gains in 2011

To say that the Rivers Casino in Pittsburgh had a tumultuous start is an understatement.  As we have documented in previous Policy Briefs, since it won the gaming license for Pittsburgh the casino has undergone an ownership change, a reduction in its credit rating, and its revenues have come in been well below pre-opening projections.  But after beginning operations in mid-2009 and now having experienced two full years of slots operation–and one full year of table games– has Pittsburgh’s gaming parlor risen to its hoped for potential? 


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Washington County Gets Lots from Slots

Just having written about the off ledger nature of the Redevelopment Capital Assistance Budget, how its debt ceiling has been raised often since the 1990s, and the projects it has funded we have to give some attention to the economic and community development industry that is being created by gaming money.

We have written before about the money that was handed out from Act 53 to Pittsburgh and Philadelphia but just today Washington County got $11 million in funding for development projects from audio/video equipment at California University to the Washington County Marketing Initiative to soccer fields to sanitary sewer improvements. There’s money for municipal plans, traffic plans, and home repair.

None of the $11 million is directed at property tax relief, which is a separate pot of money from gaming.

Gaming as a Way to Fund Spending a Sure Bet

No cards have yet been dealt, not a roulette wheel spun, and no dice have been tossed, yet several stakeholders are counting on table games to fund their budgetary needs. In Allegheny County this includes the Carnegie Libraries and the Allegheny County Library Association, as well as the tourism agency in Monroeville. Statewide there will be many others.

And this should come as no surprise: the original 2004 slots bill allowed for economic development handouts for debt at Pittsburgh International Airport, to pay off debts related to subsidy programs administered by Pittsburgh and Allegheny County, for a hockey arena, for the convention center, etc., etc.

Of course the state needs the licensing fee money for this year’s budget and then when the table game enterprise is up and running it can count on recurring revenue. As one state representative noted, using slots for budgets and economic development projects is the worst way to raise revenue "’except for all the other worst ways."

This all raises a line of inquiry: how would the state and the region fund its "needs" without the slot money? Would the absence of $150 million for debt at the airport have forced the County and the Airport Authority to raise fees or possibly look at turning the facility over to a private operator to raise money and achieve efficiencies to retire the debt? Would the City of Pittsburgh, caught in the quagmire of legacy costs, be able to find the money to pay off the Pittsburgh Development Fund? How would the hockey arena be built?

As much as it would be desirable to witness, it seems awfully unlikely that the City and the County would have cut general spending in order to save money to devote annual allotments to these projects.

County Gaming Money Sees a Shake-Up

As we have pointed out since the slots gaming law was passed and the disbursement of economic development money was codified into law, the language allowing for Allegheny County to receive $80 million for the "construction, development, improvement, and maintenance of infrastructure projects" was overly broad. The County receives the money in annual installments of $6.6 million and funneled the money through the Redevelopment Authority of Allegheny County to a special entity created within the Authority known as the "Allegheny County Economic Development, Community Infrastructure, and Tourism Board (CITB)".

Just this past week Council acted on a measure that would allow the Redevelopment Authority to act as the agent for handling the money since the CITB plans to "dissolve itself, which shall take place on or before March 31, 2010". The decision to end the CITB must have came quickly as the measure was introduced on December 1st and approved on the 15th.

Given the broad statutory language, some of the awards made by the CITB included disbursing $250k to Point Park University for its academic village, $50k to Monroeville for a traffic signal (the money was moved to help research on a site plan for a health club), as well as to construct a parking lot in Lawrenceville, for new housing in Manchester, for a fountain in Allegheny Commons park, for promotional work in Monroeville, and for a retaining wall in Shaler to help prevent flooding along Girty’s Run.

It is unclear why this change was made and what it will mean when the remainder of the money is handed out in the coming years.

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 Rough Beginning Continues

In its sixth full week (Sept 14 to Sept 20) of operations, the Rivers Casino in Pittsburgh turned in its worst week to date with gross terminal revenue (casino’s take from wagers) falling to $3.584 million. This continues a pattern of decline since the grand opening week when the casino had $5.3 million in terminal revenue.

Bear in mind that the owners’ projection for their first year of operation showed gross terminal revenue of $420 million. The latest week’s take, if continued for the next twelve months, would bring in only $186 million. Undoubtedly, at this level, the casino would have a lot of trouble paying all its bills, starting with the $108 million in gaming taxes it is required to pay before any other expenses are met.

The bad news for the casino is that the fall season is the weakest part of the year for wagering. So the next few months hold little promise of a substantial turnaround in the casino’s revenues.

If it is any solace for the Pittsburgh casino, the other casinos across the state face the same slowdown in gambling activity. However, the owners cannot be very happy about the fact that their latest weekly decline at 14.4 percent was nearly double the drop in play at the nine casinos currently operating in Pennsylvania.

And the Rivers Casino still owes $7.5 million to the Sports and Exhibition Authority for Penguins Arena bonds and at some point will be hit with a big property tax bill when the County gets around to assessing the property. All told, this cannot be what the owners and managers had envisioned or hoped to see.