Gaming revenues are rebounding

Summary: As happened to most industries, Pennsylvania’s casinos took a big hit during the pandemic.  But the losses were not as heavy as they could have been thanks to the advent of internet gaming, which cushioned the blow created by mandated casino closings. As COVID vaccinations become more prevalent, people are returning to the casinos and revenues, and gaming tax dollars, are beginning to rebound.

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Gaming revenues in Pennsylvania have become an important source of government funding.  From property tax relief and contributions to general fund revenue to county and municipal host government payments, state and local governments are reliant on gaming.  In 2020 the pandemic closed casinos for nearly three full months (part of March, April, May and most of December) and restricted patronage for most of the year.  Total gaming revenue for the year fell from $3.41 billion in 2019 to $2.65 billion (22.2 percent), the lowest annual total since the first full year of table games play a decade ago ($2.89 billion in 2011). 

The Allegheny Institute has been documenting gaming revenues since the legislation to introduce slots gaming was ratified in 2004 (Vol. 4, No. 28) through the beginning of table games in 2009 and the latest addition of internet gaming, sports wagering, video gaming terminals and fantasy sports contests within the last few years (Vol. 20, No. 7) and how each option is taxed.

Revenues have continued to rise over the years in part because of the expansion of gaming options and the increase in the number of casinos in operation. 

The data for this Brief comes from the Pennsylvania Gaming Control Board.  This analysis covers the period from 2015 through April 2021, the most recent data available. 

Slot machines

In 2015 the 12 casinos operating within the commonwealth brought in $2.365 billion dollars in gross terminal revenue (GTR).  Over the period prior to the pandemic in 2020 GTR was relatively stable, ranging from $2.336 billion (2017) to a high of $2.369 billion (2018). GTR is taxed at a total rate of 54 percent—34 percent for property tax relief; a 2 percent assessment for the local share (with an additional 2 percent for the two smaller resort casinos); a 6 percent rate is added for economic development and tourism fund with the remainder allocated to the racehorse development fund. 

In 2020 the governor shut down casinos halfway through March, all of April and May and then again for most of December.  When they were open, they did so at dramatically reduced patronage levels.  However, the first new mini casino opened in Westmoreland County in November, bringing the number of casinos in operation to 13.  The statewide GTR for 2020 came in at $1.355 billion, more than $1 billion lower than what it had been over the last few years. 

In 2021 there appears to be a rebound to statewide GTR.  First, another mini casino in Philadelphia opened bringing the total to 14.  Secondly, as the pandemic began to wane as vaccinations increased, more players returned to the casinos. 

The average monthly GTR for January, from 2015 through 2019, was $180.74 million.  In January 2021, it was $140.74 million—$40 million below the four-year average.  By April, the difference between 2021 and the four-year average for the month closed dramatically to just over $4 million ($205.43 million vs. $201.39 million).  Through the first four months of 2021 statewide GTR is on pace to reach $2.061 billion in 2021—87 percent of the average annual total for the 2015 through 2019 period.  Granted this is with 14 casinos instead of 12. 

It is also worth noting that the number of slot machines available has decreased despite the addition of the two new mini casinos.  In 2015 there were an average of 26,300 slot machines in operation each month.  That dipped a bit by 2019 to 24,700—a decline of 6 percent.  In 2020 that number declined another 25 percent to 18,500.  Thus far in 2021 there has been a small bump back to 19,300. 

On a revenue per machine basis, in 2015 the average monthly GTR was $7,500.  It steadily grew to $7,950 by 2019 before falling to $7,200 in 2020.  However, in 2021 that number has jumped to $8,860 per machine owing in part to more intense play, both March and April had per machine play over $10,000 (the highest amount recorded), as patrons streamed back to the casinos. 

Table games

Tax money from table games revenue goes into the state’s general fund (12 percent) with another 2 percent going to the local share fund.  The only exception is for fully automated table games which are taxed at 34 percent, but there are far fewer of them. 

From 2015 through 2019, statewide table game revenue from all 12 casinos had been on an upswing from $808.14 million in 2015 to $903.59 million in 2019 before dropping 44 percent in 2020 ($504.31 million).  Through four months in 2021, table games revenue is on pace to reach $772.28 million—89 percent of the 2015-19’s average amount. 

In fact, it may be the case that the annual gap will close even more.  As with the slots’ monthly revenues through the first four months, the revenue difference between each month for table games in 2021 and the monthly average from 2015-19, not only got smaller, but surpassed the average in April.  January 2021 brought in $50.83 million while the four-year average came in at $71.03 million—a more than $20 million difference.  By March that gap fell to just $6 million.  In April, the amount was $4 million greater than the 2015-19 average ($77.84 million vs. $73.71 million).

The number of table games available increased steadily from 2015 to 2019 rising from 1,130 to 1,276 and only fell back a bit to 1,171 after the pandemic started.  In 2021 the average number of monthly table games is up significantly to 1,370.  On a per table basis, the amount collected in 2021 has been increasing each month, but the monthly average of $46,876 is still below the monthly average from 2015-2019 which ranged from $57,460 (2018) to $59,737 (2017). 

Other forms of gaming

The other gaming options available to Pennsylvania gamblers are internet slots and table games (iGaming), each taxed at the same rate as its in-person counterpart (54 and 34 percent, respectively); video gaming terminals (VGT) at truck stops (taxed at 52 percent); fantasy sports contests (taxed at 15 percent) and sports wagering (taxed at 36 percent).  Sports wagering and fantasy sports contests began in 2018 while the others began in 2019. (The allocation of tax revenues can be found in Policy Brief Vol. 20, No. 7.)

iGaming debuted in mid-2019 and brought in $33.6 million in six months, an estimated $67.2 million annual rate. In 2020, the first full year, revenue rocketed to $565.8 million, largely thanks to the pandemic.  Thus far in 2021, it has brought in $346.6 million in total revenue and is on pace to reach $1.045 billion, surpassing the amount from in-casino table games. 

Sports wagering is the next largest category.  Wagering on sports brought in $84.1 million in its first full year (2019) and then more than doubled to $189.7 million in 2020 despite many sports leagues being shut down or having modified seasons due to the pandemic.  Thus far in 2021, with normality returning to sports, sports wagering has already reaped $106 million in four months and is on pace to reach $318 million by the end of the year. 

In all, these four new forms of gaming’s share of total gaming revenue increased from just 4 percent of total gaming revenues to 30 percent in 2020 and are likely to be one-third of all gaming revenues in 2021 (33.5 percent).  Whether or not they will continue to climb is a matter of speculation. As the coronavirus becomes less and less of a factor for in-person visits to casinos, they might enjoy a bit of resurgence in play relative to online activities.

It is probably too hard to tell what will happen as these online options are only a few years old and were boosted by the pandemic.  The convenience of gaming from home may be too hard to resist.  Or are people waiting to go back to the casinos?  Sports wagering, fantasy sports and VGTs are more likely determined by economic factors and disposable income.  It will likely be a few more years before the answer is known. 

But is the growth of gaming in Pennsylvania a good thing?  As noted above, nearly all of the commonwealth’s neighbors have legalized gaming (Delaware, Maryland, New Jersey, Ohio and West Virginia).  The implication is that a high percentage of gamblers are Pennsylvanians and not from out-of-state.  Online gaming can only be done by Pennsylvania residents to Pennsylvania registered casinos or companies.  Clearly, a dollar spent on gaming cannot be spent on other activities—either leisure or necessities.  That money goes to the state in taxes or to the casinos’ coffers as optional uses of discretionary income.

Should the government be this heavily dependent on gaming as a source of tax revenue?  The pandemic shows what can happen when the activity is impacted.  This time the federal government flooded the economy with stimulus money, direct government subsidies and supplemented unemployment compensation.  The drop in gaming revenue in 2020 was only 22 percent, in large part to the jump in online gambling revenue.  It could have been much larger.  The loss of tax revenues in general was likely made up by the federal government.   

What happens when the economy has a serious downturn, the discretionary spending ebbs and the federal government is unable to provide a bailout?  Politicians may be running out of ways to expand gaming options. What happens as Pennsylvania continues to lag much of the country in economic growth and jobs? Will the federal government always be able to provide billions of bailout dollars to the state?

Gaming as a recreational outlet must be kept in perspective.  Pennsylvania 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 gambling addiction.

The Rivers Casino after 10 Years

Summary: In August 2009 the Rivers Casino had a long-over-due grand opening.  After a tumultuous start, it gained its footing and recently celebrated its 10th anniversary.  We have documented the casino’s performance over the years and, in this Policy Brief, offer a summary of its 10-year performance versus expectations.

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Gaming in Pennsylvania was legalized in 2004 when the state passed legislation allowing slot machines at horse racing tracks along with a few stand-alone casinos.  The first casino, Mohegan Sun at Pocono Downs, began taking wagers in November 2006. 

The fight for Pittsburgh’s stand-alone casino was documented in a series of Policy Briefs (Vol. 6, No. 11, Vol. 8, Nos. 27 and 48 and Vol. 9, Nos. 42 and 59).  There were questions about where the new casino would be located as three potential owners pitched their ideas for locations at Station Square, Uptown and the North Side.  The North Side was selected but the initial license recipient didn’t have the capital to complete the project (known then as the Majestic Star) and had to sell a majority stake to another investor.  The renamed and long delayed Rivers Casino had its grand opening in early August 2009.  

Even before it opened, there were grounds for being skeptical of revenue projections for the new casino.  Before the first slot machine wager was placed, ownership projected gross terminal revenues (GTR)—the amount of money wagered—would be $427.8 million annually.  The state Gaming Board’s estimate came in at $362 million for the casino’s first year.  Neither estimate was close to being correct.

And 10 years later, those estimates remain well above actual revenues. In its first 12 months, August 2009-August 2010, the Rivers took in just $222.3 million—an average of $4.3 million per week.  To reach management’s projections, the casino would have had to generate $8.2 million per week—almost twice as much as the GTR realized that first year.  

To put it in perspective, the only casino in the state that came close to realizing $8 million per week is Philadelphia Parx with a weekly average of $7.3 million over the last decade. The Rivers’ weekly revenue has improved and over the last 10 years averaged about $5.2 million. 

On a calendar-year basis, in its first full year (2010) the casino earned $242 million in GTR.  Of the nine casinos operating during the entirety of 2010, the Rivers’ GTR was sixth best—topping only the casinos at Mohegan Sun, Mt. Airy and Presque Isle.  The Rivers also finished behind neighboring Meadows Casino ($249 million) that first year. 

Annual revenues from slot machines gradually improved, reaching their highest yearly level to date at $284.3 million in 2013 before sliding back to $265 million in 2016, the lowest amount since 2010, and then rebounding to $281.4 million in 2018.  Keep in mind, of course, that the casino has failed to live up to the projections of either the Gaming Board or its own, even 10 years after opening.  However, of the 11full-sized casinos across the state, the Rivers typically finishes third in annual GTR behind only Philadelphia Parx and the Sands Bethlehem.

But these revenues are only from slot machines.  In 2010 Pennsylvania casinos were able to offer table games for the first time and the Rivers added them to the gaming floor.  Would this addition help push total revenues over the initial projections from just slot machines?

The first full calendar year of table games was 2011.  That year the Rivers realized $67.5 million in gross revenue from the table games. From 2011 to 2018 the annual table game revenues ranged from a low of $65.8 million (2017) to a high of $76 million (2018) with a yearly average of $69.6 million over the period 2011 to 2018. The Rivers casino had the fourth best table game revenue of any of the full-sized casinos.

Still, even when combined with slots revenues, the highest revenue year was in 2018 when gamblers played $357.4 million—slightly less than the Gaming Board’s prediction of $362 million but well short of casino management’s estimate (both were based on slots only and for the first year).  The lowest revenue total was collected in 2016 ($334.2 million) while the 2011-2018 average was $346.1 million. 

However, it is important to keep in mind these are not profits but only gross revenues.  Payouts and expenses must be accounted for before profits can be realized.  As Policy Brief, Vol. 10, No. 53 noted,table games require greater expenditures per dollar of revenue than slot machines.  Each table game requires several employees to operate and their salaries and benefits consume a significant portion of gross revenues, whereas only a handful of people could be responsible for maintaining dozens of slot machines each day. 

So, has the Rivers Casino been a “success” during this first decade?

It depends on how it is viewed.  The casino has met its civic obligations, which at the onset was in doubt.  This includes providing the annual $7.5 million payment to retire the debt on the new hockey arena and paying millions to government in both state and local share taxes. 

But it has not done much to aid the Pittsburgh region’s economy, at least in terms of jobs.  It has employed people in the leisure and hospitality sector, but it is not clear these are net new jobs added to the economy.  Total non-farm employment growth in the Pittsburgh metro area from July 2009 to July 2019 was just 6.2 percent. The growth of non-farm job levels at the state (8.3 percent) and nation (16 percent) outpaced the local level. 

Bear in mind, however, that much of that growth was a rebound from the low level reached in the recession year of 2009.  Indeed, private-sector jobs from the pre-recession level in July 2008 are up only 44,700 or 4.4 percent and 25,000 of those have occurred in the last three years after averaging a mere 2,500 per year from 2008 to 2016. Meanwhile, leisure and hospitality jobs in the Pittsburgh area have risen by 16,000 since July 2009 but 10,600 of those were in accommodations and food services, all fairly low-paying jobs. Arts, recreation and entertainment account for the other 5,400 jobs gained but that category includes museums, sports teams, concert halls and movie theaters in addition to casinos.

If the Rivers Casino was going to boost area job growth, it would certainly have occurred in the first seven years of operation.

In sum, there is little evidence to indicate the casinos (Rivers, along with the Meadows and the resort-based Lady Luck at Nemacolin) had a significant impact on job growth in the metro area. 

Also, it helps to remember that for every dollar spent by area residents on gambling at a casino, is a dollar that was not spent on other goods or services, be they necessities or luxuries, at area businesses.  And casinos have not been much of a draw for gamblers from out of state as our closest neighbors, Ohio and Maryland, legalized gaming not long after Pennsylvania.  West Virginia, where gaming was already legal, added table games to keep pace.  In fact, the gaming arms race has been in full force as the next level of gaming, legalized sports betting, has been available in Pennsylvania since late 2018.  The other states are likely to follow suit. 

One thing is certain: gaming is now part of the fabric of Pennsylvania’s economy and the Rivers Casino is part of the Pittsburgh landscape.  The economic impact of gaming on the Pittsburgh area, and the state, will be debated and we will continue to monitor it.

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.

Online Gaming in Pennsylvania? Not Worth Pursuing

Recently the Pennsylvania House of Representatives’ Committee on Gaming Oversight considered a bill to allow internet gaming in the Commonwealth.  While the idea of internet gaming in Pennsylvania has been bandied about for a couple of years, House Bill 649 lays out specific details as to how it could work.  For the time being the bill seems to be in a holding pattern.

 

We broached this topic late last year (Policy Brief Volume 15, Number 51) by looking at the experience in New Jersey, which had authorized internet gaming in 2013.  It is worth noting that HB 649 was first introduced to the Committee in February 2015 and had been laid on the Committee’s table four other times before being laid on the table once again and promptly removed in late May of this year.  Nonetheless, we can use the scheme spelled out in HB 649 along with data from New Jersey to answer the question as to whether or not the bill deserves any further consideration.  This Brief evaluates what the legislation would mean in terms of revenue as well as potential downside risks.

 

In 2006 the Unlawful Internet Gambling Enforcement Act was passed by Congress, and signed into law by the President, prohibiting the use of financial instruments for interstate internet gambling.  However, it did not prevent intrastate internet gambling.  This law opened up the concept of internet gaming within states.  Currently only three states sanction online gaming:  Delaware, Nevada, and New Jersey.

 

According to the New Jersey Casino Control Act, only New Jersey residents, physically located in New Jersey at the time they decide to gamble online, can access internet gaming.  Their presence is to be verified through an IP address, local wireless connections mapping, and cellular data.  Also, the physical servers and equipment used to conduct internet gaming must be located on casino property.  In order to not run afoul of national law, Pennsylvania would have to follow New Jersey’s lead and limit internet gaming to Pennsylvania residents, who are physically in state at the time of wagering.

 

Since only Pennsylvania residents would be permitted to gamble online, there will be no inflow of money from outside the state. When gaming was first approved in Pennsylvania, the argument was that it would not only keep Pennsylvanians from spending their gaming money out of state, but also entice out of state residents to gamble in Pennsylvania.  At that time (2005) Pennsylvania joined neighboring New Jersey and West Virginia in permitting gaming parlors.  Since then two other neighbors, Maryland and Ohio, have joined the gaming ranks.  While gamblers can physically cross state lines to visit a casino, this is not an option for online gamblers.

 

HB 649 requires that online gamblers set up an online account and that “no account shall be established for an individual under 21 years of age.”  Furthermore, the bill states that mechanisms shall be developed to “…exclude from interactive gaming persons not eligible to play by reason of age, identity or location…”  But the question is how will this be accomplished?  When someone gambles in the casino, they can be visually checked by casino security.  What is to prevent someone who is underage from gaining illegal access into the system?  What is to prevent a person who is over 21 from setting up an account, logging in and letting a minor gamble? How many minors have had persons of legal age buy alcohol or tobacco for them? While fake IDs exist, it is much easier to prevent those under age from entering a casino than it is to monitor them online.

 

There will be costs associated with online gaming including; monitoring the system that could involve tens of thousands of online gamers, acceleration of the creation of compulsive gamblers, and preventing minors from using this form of gaming to name a few.  These costs have not yet been estimated by proponents.

 

What benefits will the state obtain from online gaming? The obvious and most important reason for Pennsylvania lawmakers to pursue online gaming is tax revenue.   Another reason is the money the state will receive from the sale of licenses.  The language of HB 649 would set the gaming authorization fee at $8 million.  If all twelve current casinos opt to get into the online gaming business, the state will garner $96 million for the initial authorization fees.

 

Considering that the casinos typically do not have internet gaming expertise, they usually pair with an online gaming company (as is the case with casinos in New Jersey) to offer the service.  HB 649 goes on to say that “each interactive gaming operator or an affiliate of an interactive gaming certificate holder…shall pay a one-time nonrefundable authorization fee in the amount of $2,000,000.” Assuming one provider per casino adds another $24 million in upfront fees.

 

HB 649 has taken a cue from New Jersey as it will also impose an annual renewal fee for an interactive certificate holder (casino) of $250,000 and each interactive gaming operator will be charged a $100,000 renewal fee.  The Pennsylvania fees will be deposited into the general fund.

 

HB 649 stipulates a tax rate of 14 percent on gross interactive gaming revenue, which will be deposited into the state’s general fund. It also mandates a two percent local share tax for a total tax rate of 16 percent. A portion of the state tax will be deposited for compulsive and problem gambler treatment programs—$2 million or 0.002 multiplied by the gross interactive gaming revenue, whichever is greater.  A similar amount will be used for alcohol and drug addiction.  The two percent local share tax will be distributed by the state “…to be used exclusively for grants to all counties in this Commonwealth, to economic development authorities or redevelopment authorities within each county…”

 

New Jersey’s tax rate is 15 percent on internet gaming gross revenues.  The first full year of internet gaming, the total gross revenue was $122.8 million (2014) which then climbed by 21 percent to $148.9 million in 2015.  Through the first four months of 2016, gross revenues from online gaming are projected to reach $185.6 million—an increase of 24 percent over the 2015 level.  The total tax collections for 2014 and 2015 were $18.5 million and $22.4 million while 2016 collections project out to $27.9 million.

 

We can use per capita gaming revenue from New Jersey (population of 8.9 million) to estimate Pennsylvania’s state revenue collections (population 12.8 million).  In 2014, the per capita gross revenues for New Jersey came in at $13.80.  For 2015 that number was $16.72 which is projected to grow to $20.85 in 2016.  Generously using the highest figure of almost $21 per capita and multiplying it by Pennsylvania’s population, total gross revenue from online gaming is projected to be $269 million.  A tax rate of 14 percent (the state share) will generate a mere $38 million in revenue for the state’s general fund with another two percent or $5.4 million collected for grants to counties. Keep in mind these revenue projections will depend on how many Pennsylvanians decide to participate in online gaming and how much they play.  Then too, how much the tax collections will add on net to the general fund will depend on the level of costs incurred in administering and monitoring what will be a complex system.

 

Some additional questions that need to be answered before the state goes down this road:  How will participation in online gaming affect attendance and the amount of play at the state’s twelve casinos?   Will it pull gaming out of the casinos, where taxes are higher on slots and table games and reduce the casino contribution to state coffers? Will casinos need fewer employees?

 

To be sure, the never ending quest to find more sources of state revenue will keep the notion of online gaming alive. But there are many issues of major concern that must be answered before this legislation proceeds any further. Most importantly, the prospect of bringing in a net increase of annual revenue of no more than $40 to $45 million from a revenue source with the potential to have very negative unintended consequences makes online gaming a low payoff, high risk gamble.

 

Consider that the state budget is $30 billion.  A spending reduction of 0.01 percent (one thousandth of the budget) would obviate the need for the meager revenue online gaming promises to bring in.

 

Logic tells us this is an idea whose time has passed.

Gaming Revenues Rose in 2015

Combined Gross Terminal Revenues (GTR) for Pennsylvania’s slot parlors came in at $2.366 billion in 2015, edging the 2014 total by about two percent.  While this ends a two-year skid for GTR statewide, the 2015 value still fell below that of the three years preceding 2014;  2013 ($2.384 billion), 2011 ($2.407 billion) and 2012 ($2.47 billion).  The rebound may or may not signal the start of an upward trend, but the news should be welcome for the industry.

 

The highest yearly GTR statewide occurred in 2012 when the average number of operating slot machines stood at 26,550, the most for any year since gaming commenced in Pennsylvania.  Ten casinos were in operation at the beginning of 2012 and climbed to eleven when the resort casino at Valley Forge opened.  Then halfway through 2013 another resort casino opened in Fayette County, bringing the count to the current total of twelve.  Interestingly, there hasn’t been much movement in the average number of slot machines operating at the casinos.  After peaking in 2012, the average number of machines dipped slightly to 26,400 in 2013, remained relatively constant in 2014 (26,470), before dropping to just below 26,300 in 2015.

 

On a per machine basis, the highest revenue also occurred in 2012 at $7,756.  It slid to $7,526 in 2013 and even further in 2014 to $7,300—the lowest total since 2009.  In 2015, per machine revenues rose slightly to just shy of $7,500.

 

As for performance at the individual casinos, GTR growth rates were mixed in 2015. The largest year to year increase was reported by the resort casino at Nemacolin (12%), followed by the Sands Bethlehem (6.6%), and the resort casino at Valley Forge (6.21%).  It is worth noting that 2015 represents the Nemacolin casino’s second full year of operating and this increase may be the product of its “newness” and it might be difficult to sustain such rapid gains.  Presque Isle in Erie had the weakest performance, likely because of the startup of nearby casinos in Ohio. While it has posted revenue declines for the past five years, the drop in 2015 of 1.6 percent was its smallest of the five years. Other casinos with revenue changes of less than one percent, either up or down, include Mount Airy (-0.62%), Mohegan Sun (-0.35%), Rivers (-0.09%), Sugar House (-0.06%), Harrah’s (0.24%), and Penn National (0.76%).

 

The Rivers casino in Pittsburgh, not only pays a minimum host fee of $10 million to the City, but also is required to pay $7.5 million toward the debt service on bonds used to build the Consol Arena—home of the Penguins. Thus, its success is very important to Pittsburgh. As we wrote years ago, the revenue projections for the Rivers at the time of the licensing process were too high to be credible, and indeed, they were not. The Gaming Control Board projected the casino would realize annual GTR from slot machines of about $362 million in its first full year, while casino management at the time predicted annual revenue of about $427 million.  The Rivers casino’s best year for slot revenues was $284 million in 2013—far below either projection.  In fact since the first full year in 2010 through 2015 they averaged only $273 million in annual GTR.  Over the last two years they have realized about $277 million each year.

 

Casinos across the state began table games play in 2010 and quickly made room for the new form of gaming—and the Rivers was no exception.

 

Unlike slot machine revenues, which have bounced around over the last six years, table games revenues statewide have been rising steadily. In the first full year of play, 2011, table games gross revenues across the state hit $619.9 million.  That year an average of 900 tables were in use in the ten casinos then operating.  By 2015, the gross revenues had steadily increased by thirty percent to $808.1 million as the number of tables expanded twenty five percent to an average of 1,130 at twelve casinos.  The addition of table games has been a success for Pennsylvania’s casinos—at least as measured on a gross revenue basis.  Keep in mind that table games require more workers and as such have higher costs associated with them than do slot machines.  But obviously they are quite popular as evidenced by the growing gross revenues.

 

Has the addition of table games helped the Rivers casino reach its original revenue projections?

 

The Rivers began table games in July 2010 with 85 tables per month and quickly earned $25.5 million from July to the end of the year.  The average number of tables in play increased in 2011 to 104 then to 113 in 2012 and it has been stable ever since.  The gross revenues from table games in the first full year, 2011, reached $67.5 million.  Revenue over these first five (full) years ranges from a low of $67.5 million to a high of $71.4 million in 2015 a six percent increase over the period. The casino averaged about $69 million over these five years with some years up and some down.  Taking the average annual revenues from table games over the last five years and combine it with the average amount of slot machine GTR during that time, total gross revenues from both forms of gaming are $342 million for the casino—still short of the Gaming Control Board’s projections of $362 million (from slots alone) and very short of the then-management’s prediction of $427 million.

 

On balance it appears that the gaming industry in Pennsylvania is healthy with some weak performers and some strong. While revenues from slot machines have stumbled a bit since the peak in 2012, gross revenues from table games have steadily risen—perhaps signaling a shift in gamblers’ preferences. It is not clear whether this trend will continue indefinitely.  Undoubtedly, the industry will continue to look for new ways to expand its operations in the Commonwealth.  With the introduction of internet gaming in neighboring New Jersey (see Policy Brief, Volume 15, Number 51), this may be their next step.  One thing is certain, with state and local tax coffers relying on receipts from gaming revenues it is a form of entertainment that is now entrenched in the Commonwealth.