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.

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.

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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The Rivers Casino Profitability Disadvantage

As we have documented in past Policy Briefs, the Rivers Casino has gotten off to a rocky start-first with ownership problems and then with weak gross terminal revenues from slots operations.  At the completion of its first full year (August 2009-2010) we noted that the $222.3 million earned in gross terminal revenues fell woefully short of its own projections of $428 million as well as the $362 million projected from the Pennsylvania Gaming Control Board (PGCB).  It did not even compare favorably to its southern competitor, the Meadows Casino in nearby Washington County, which had earned $252 million during the same time frame-above both its’ own projections and that of the PGCB. 

 

 

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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.

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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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.

Slots Revenue Flat

In a recent press release, the Pennsylvania Gaming Control Board noted that slot machine revenue in June 2010 was 8.2 percent higher than the June 2009 level. The data shows that in June 2009 the total slots revenue from statewide casinos was $165.1 million and in June 2010 that level reached $178.6 million-an increase of 8.17 percent.

But what they don’t detail is that the June 2010 figure counts the revenues from the Rivers Casino, which was not open in June 2009. The Rivers earned $19.1 million in June 2010. Furthermore the press release notes that the Meadows lost nearly 23 percent during that time or nearly $6 million. The Meadows’ total revenues in June 2009 were $26.1 million and in June 2010 fell to $20.1 million. There is no mention that the lower revenues at the Meadows having been the result of the nearby Rivers Casino opening. The net effect of the Rivers Casino on statewide slots revenues was only $13 million.

So what is the true story with slot machine revenues in Pennsylvania?

If the Rivers’ revenues are excluded from the June 2010 statewide totals and the Meadows revenues are excluded from both the June 2010 and 2009 statewide totals, the true story is revealed. Without the Meadows, the June 2009 totals are $138.97 million. Removing both the Rivers and the Meadows from the June 2010 totals reduced the actual amount to $139.3 million-total growth is a little more than $300,000. Thus the total revenues across the state, outside of the southwest, are essentially flat.

Of the seven casinos outside of southwestern Pennsylvania, three experienced a decrease and four had increases. The true picture of slots machine revenues is that there was no growth. June 2009 was of course in the middle of the recession and should have been a bad year for the gaming industry. Therefore there should have been substantial growth in 2010 as the economy began its recovery. That has not happened and should be cause for concern.