Pennsylvania Gaming Revenue: Interesting Patterns

In earlier Policy Briefs we analyzed the growth in gross terminal revenues (GTR) for slot machines in Pennsylvania and how it has fluctuated from year to year.  Within the Commonwealth there are twelve casinos including the so called racinos where horse racing also occurs. The first casino, Mohegan Sun, debuted in the fall of 2006, and the last, the Nemacolin resort casino, opened in the summer of 2013.  From 2009, the year that the Rivers Casino opened in Pittsburgh, through 2015, slots play statewide GTR climbed from $1.96 billion to $2.37 billion—a 20.4 percent increase. Some of the early growth was due to more casinos opening and later because of a recovery in the state’s economy. With the advent of table games in 2010 slots GTR gains slowed a bit.

 

By way of background, starting in 2009 there were an average of 21,455 slot machines per month. The number of machines rose to a monthly average of 26,550 in 2012, before declining slightly to 26,300 in 2015.

 

In addition to the early growth and then flattening of slots GTR, a seasonal pattern in slots play has become apparent over the period 2009 through 2015.  This is especially pronounced for GTR per slot machine.

 

The average monthly GTR per slot machine in Pennsylvania was $7,749 in 2009; it has been as high as $7,753 (2012) and stood at $7,497 in 2015. The figure has fluctuated in a fairly tight range of $7,753 to $7,302.

 

When slot revenues are calculated on a per machine basis, the seasonality becomes more readily visible because per machine revenue eliminates the complications created by new casino openings on total slots revenue that occurred several times over the 2009 to 2015 period. On a per machine basis, the months with the highest revenues are March (2009, 2012, 2013, and 2014) and July (2010, 2011, and 2015).  On average the four years of March peak revenue was $8,721 and 16.6 percent higher than the other eleven months for those years.  Similarly, the July peak average $8,253 was eleven percent above the other eleven months for those three years. Cleary, for the peak months (March and July) per machine revenues are significantly above the rest of the year.

 

For the same period, the months with the lowest GTR on a per machine basis are January (2011, 2014, and 2015), December (2009, 2010, and 2013) and October (2012).  The October anomaly was caused by the massive impact of Hurricane Sandy on the eastern seaboard. Absent the hurricane, January would have been the lowest monthly GTR for 2012 (it was only $78 higher than October).  For those three years for which January had the lowest monthly revenues, the average GTR was $6,643 and 11.8 percent below the other eleven months and the average for the three December lows was $6,455 and 15.8 percent below the other eleven months for those three years. Again, like the highs, these lows are significantly different from the other months’ average.

 

Meantime, table games have been in Pennsylvania casinos since 2010 with their first full year of operation in 2011.  As with slots, in determining whether there is a seasonal pattern to table games revenue we began by calculating the per table revenue in order to remove the impact of new casinos beginning operations over the period as well as the replacing of slots with tables in some casinos.

 

On a per table basis the highest revenue months are March (2011-2014) which averaged $62,638 for the four years and 10.4 percent higher than the other eleven months for those years. December recorded the highest monthly per table revenue for 2015 ($63,645)—7.4 percent higher than the average of the other months that year.  The lowest revenue months are the deep winter months of January (2011 at $51,499) and February (2013-2015, average of $54,000).  In something of an outlier, May, for no obvious reason, registered the lowest in per table revenues for 2012 ($53,564).  Even with this outlier, four of the five lowest months for revenues per table occur in the dead of winter.

 

Literature on seasonality in gaming is sparse.  One theory is that March is typically a high revenue month because it is the month when the most Federal income tax refunds are issued.  Thus armed with a boost in discretionary income, more gamblers, with more to money to play, visit the casinos.  On its face this theory seems entirely credible. However, we offer a supplement to this theory.  Perhaps this pattern happens because Pennsylvania is a relatively hard winter state with numerous episodes of very inclement weather. Adverse weather conditions likely deter gamblers, especially slots players who are older, from venturing out to the casinos. But when March arrives and the weather is less threatening, casino patrons may be more likely to venture out to their favorite casinos.

 

An addendum to this would be that many folks travel to sunnier climes in the winter to avoid the cold altogether and are not in Pennsylvania.  Moreover, most cruise ships offer gaming for the winter traveler who likes to gamble. Then too, Christmas and the NFL playoffs are in full swing in late December through early February. A lot of betting on those games could be a factor in slower slots play as well.

 

Whatever the reasons, the seasonal pattern is well established.

 

No doubt casino operators are well aware of the somewhat seasonal patterns of gambling activity and have positioned their marketing efforts accordingly.

Numbers Improve at Rivers Casino

As the second full year of operations came to a close, the Rivers Casino received some good news in the form of an upgrade in its credit rating by Moody’s Investors Service.  An upcoming decision by Standard & Poor’s is also expected to raise the Casino’s credit rating.  While the rating improvement from Caa3 to Caa2 will help the Rivers’ cost of borrowing, Moody’s remains cautious about the Casino’s long-term future because of high debt levels.

 

 

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Casino Anniversary: A Disappointing Year

August 9th marked the one year anniversary of the Rivers Casino opening.  While the Casino and its supporters claim the last year was a success, analysis of their gross terminal revenues (slot machine proceeds) and credit rating say it is not a time for celebration. To say that the first year was rocky is an understatement. 

 

 

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Casino Has a Long Way to Go

News that the Rivers Casino enjoyed its best week of gross terminal revenues since it began operations is hardly worth celebrating. The casino has not lived up to its hype and still faces a long struggle to earn the money toreach theirrevenue target.

From February 15th through 21st, the casino had its second best week with $4.8 million in gross terminal revenues (GTR). During its first full week of operation in early August, the casino earned $5.2 million in GTR. Since opening, the casino is averaging a little more than $3.8 million in GTR. At this pace the casino’s first year will earn less than $200 million in GTR-not nearly enough to cover its costs and other obligations. This projection will certainly fall well short of management’s initial prediction of $427 million.

While wagers did hit a record of nearly $61 million, beating the opening week of $60 million, how much did the casino pay in promotions to get people in the door? They have been ramping up promotions and advertising to bring in gamblers, but that only raises costs and cuts into profits.

Considering how poorly the casino has performed when compared to projections, any good news is welcome. But they still have a long way to go toreach their hoped for revenue levels.

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.