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.

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.

Rivers Money Dries Up

"PITG’s commitment to the community included a $1 million contribution per year for three years to a neighborhood redevelopment project in Pittsburgh’s Hill District, a $7.5 million contribution per year for 30 years toward the funding of a new arena in Pittsburgh and a $1 million per year contribution for three years to the Northside Leadership Conference"-Adjudication of the Gaming Control Board, 2008.

We won’t know if the Rivers Casino lived up to its obligation for the hockey arena until the Penguins’ star center is the ripe old age of 53, but the time is up on the three year community redevelopment agreements, and it does not look like the casino is looking to extend what was agreed to by the original winner of the slots license. It noted in a prepared statement that "Rivers will continue supporting Pittsburgh’s neighborhoods through its ongoing community outreach programs." It has met its commitment, and there have been projects undertaken with the money from the agreement, and it should not be expected to do more.

That’s not going to stop the beneficiaries of the agreement from making the case for more and, one could argue, they are free to make an appeal to the casino the same way they would the state, the Federal government, the URA, the County Redevelopment Authority, etc. that their good and noble work needs to continue. One official stated "What they said is not a surprise. That doesn’t mean to our minds that that’s the end of the conversation. That doesn’t preclude future plans. So we’re happy to talk to them about the future". But it is fair to ask if community groups could become addicted to gaming money-if so, do we need to start "Redevelopers Anonymous?"

Has the Rivers Casino Hit Its Stride?

 

Much rides on the success of the Rivers casino-a new hockey arena, community projects, and payments to the City of Pittsburgh and Allegheny County. In past Policy Briefs, we have documented the progress of the casino from its tumultuous start.  In its first full year, 2010, we noted that revenues from slot machines fell very short of both the Gaming Board’s and the casino’s own projections.  Then in 2011, after two full years of slots and one full year of table games, the casino posted stronger gains, although still short of the initial projections.  This Brief looks at the casino’s performance in 2012 to see whether it has at long last achieved its original projections.

 

 

Before the first slot machine was installed the casino’s management predicted that the first full year of operations would yield $427.8 million in gross terminal revenues (GTR) from slot machines (table games were not even proposed at the time).  The Gaming Board weighed in with a projection of $362 million.  In its first full year (2010) the Rivers’ GTR from slot machines only reached $241.6 million.  The addition of table games in July of that year lifted overall revenues to only $267.3 million-still well short of initial projections which were predicted solely from slot machines.  2011 was a much better year for the casino as the yearly take from slot machines reached $274.8 million and added another $67.5 million from their table game revenues.  The combined revenue from these two sources pushed the casino closer to the Gaming Board’s initial predictions ($342.3 million vs. $362 million). 

 

A possible explanation for the weak start at the Rivers could be the national recession of 2008-2009 and the very sluggish recovery that has followed.  As the area grappled with this economic weakness, the amount of discretionary income available to spend on recreational activities such as gambling was being limited.  With recovery, and the boom in Marcellus Shale activity underway, employment levels in the area began to rise significantly.  This could explain the nearly fourteen percent increase in slots revenues at the Rivers casino in 2011.  So how did the casino fare in 2012?

 

The Rivers’ GTR from slot machines reached $280.1 million in 2012, an increase of just less than two percent over 2011. Compared to the other nine established casinos across the Commonwealth open for the whole year (a tenth, Valley Forge, opened in 2012), the Rivers had the third highest total slots revenue behind only Parx in Philadelphia ($381.4 million) and Sands Bethlehem ($288.5 million).  Meanwhile, only two other casinos (Mount Airy and Sugar House), in addition to the three above, had increases to their slots revenue during this time.  The area’s other casino, Meadows, had held relatively level revenue with very slim decline of less than a quarter of a percent.

 

Nearly all casinos, including the Rivers, showed improvement in the second full year of table games operations. Revenues from table games at the Rivers increased three percent to $69.7 million-the fifth highest annual total in the state. Combining with the slots revenue, the Rivers gross revenues from both gaming options totaled $349.9 million for 2012.  While they are inching closer to the Gaming Board’s pre-opening prediction, they are still woefully short after more than three full years of operation and the addition of table games. 

 

But what are the odds the Rivers can continue its steady climb in revenues?  As we noted in a previous Brief (Volume 12, Number 45) casinos in neighboring Ohio began operating in 2012, with Cleveland’s casino opening in May.  As mentioned above, nearly all Pennsylvania casinos had an increase to table games revenues.  The only exceptions are Parx (-4.8 percent) and Presque Isle in Erie (-12.4 percent).  Presque Isle not only had the largest decline in table games revenue, but also the largest decline in slots revenues from 2011-2012 (-9.6 percent).  Presque Isle’s is the casino closest to the Ohio border and less than a two hour drive from Cleveland.  Undoubtedly the reduction in revenues at Presque Isle is directly related to this new and close competition as Ohioans are now able to gamble closer to home. 

 

While the Rivers Casino in Pittsburgh has apparently not as yet been impacted significantly by the Cleveland casino, as evidenced by the increase to gaming revenues, the experience of Presque Isle could be a harbinger of things to come as more Ohio casinos begin operations. As we reported in the 2012 Brief, there are plans to locate a casino in the Youngstown area as well as the Akron-Canton area pending state approval (which as of this writing has not been granted).  If they were to open, there will be two casinos very close to the western Pennsylvania border which could seriously impact the Rivers Casino.  This would not only hinder their ability to grow revenues it might even cut into them.

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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Was the Rivers Casino A Lemon of an Investment?

During an assessment hearing one of the Rivers Casino’s owners, seeking to have the facility’s assessment lowered, commented that the Casino has been a “terrible investment”.  He lamented that the Casino has not met initial revenue projections and will be adversely affected when casinos begin popping up in neighboring Ohio. However, despite its disappointing performance to date, the Rivers has enjoyed a pickup in revenue recently as have most of the other casinos across the Commonwealth. 

 

 

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Oh Joy, Free T Rides on the North Shore Connector

With agreement reached between the Port Authority (PAT) and the Steelers and Rivers Casino to provide free light rail service from the North Shore to Downtown in exchange for the payment of $200,000 this year, $205,000 next year and $210,000 the year after that, all rides between North Shore stops and center city will be free.

 

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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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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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Hold the Excitement for Table Games

Much is being made of the Rivers Casino’s success with table games. Through the first two full months of action, table games has brought in $4.2 million and $4.9 million in gross revenues respectively in August and September. These totals rank them in the top three or four table games earners among the state’s ten casinos. Undoubtedly, casino management is feeling pretty good about the situation.

But before the excitement gets too out of hand and we’re ready to pronounce the casino a success, keep in mind that even with the additional revenues brought in by table games, the casino is still not reaching its lofty revenue projections as a slots parlor. To recall, before its opening the Rivers Casino was forecasting to earn $427 million per year in gross terminal revenues-about $8 million per week. Even the more tepid Gaming Commission forecast of $362 million breaks down to nearly $7 million per week. Thus far through 2010, gross terminal revenues from slots are $4.7 million per week.

Combining the two revenue sources-table games are averaging about $1.1 million and slots about $4.7 million-the weekly total is approximately $5.8 million and still falling woefully short of initial projections. Also keep in mind that table games bring with them higher costs of operations which will cut deeply into those revenues. Thus, while on the surface, table games are helping casino revenue, the casino is still far below revenue expectations and now has higher costs to absorb. A reason to tamp down the excitement.