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.

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.

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.