Pennsylvania raises the stakes on gaming

Summary: In 2018 the commonwealth authorized sports wagering at its casinos.  This new venture was rationalized on the grounds that those who like to gamble on sporting events should be captured and taxed by Pennsylvania rather than by out-of-state casinos.  That same rationale was used when authorizing slots over a decade ago and then table games a few years after.  This Brief looks at the last five years of data to see how gaming revenue has fared.


Act 42 of 2017 expanded gaming in Pennsylvania to include sports wagering.  License holders (defined as slot machine licensees) were notified in late May 2018 that they could begin collecting bets on professional and college sports (made possible with the removal of federal prohibition).  Sports wagering is being taxed at a 36 percent rate with 34 percent going to the state’s general fund and 2 percent for the local share.  In November the Hollywood Casino in Harrisburg took the first bets, handling $1.4 million and earning $508,997 in gross revenues and paying $183,239 in taxes.

In December, the Rivers and Sugarhouse casinos joined in.  The total handle across the state in December topped $16.17 million with just over $2 million in gross revenues for the casinos and $722,356 in taxes collected.  Statewide the handle doubled in January ($32 million) before sliding back a bit in February ($31.5 million) as three more casinos offered sports wagering (Parx casino, its South Philadelphia Sportsbook and Harrah’s casino—all in Philadelphia).  Taxes collected in January were $938,597 on $2.6 million in gross revenues and $700,854 in February on $1.9 million in gross revenues.

With more facilities surely on the way as 2019 unfolds it’s certainly too early to draw any conclusions about sports wagering. However, one thing is clear—the commonwealth is not going to generate a large percentage of its expected $34 billion in total general fund revenue from sports wagering even if it tops a couple million dollars per month in wagering taxes.  In fact, a recent news article notes that of the six states that have legalized sports wagering after the U.S. Supreme Court made it possible (Delaware, Mississippi, New Jersey, Pennsylvania, Rhode Island and West Virginia), only New Jersey has met its projections.  Pennsylvania’s haul has been about half of what it expected, thus far.

Then too, the history of taxes from slots and table games revenues shows the commonwealth should not bank on these gaming venues to account for a substantial share of state tax revenues.

After authorizing legislation was passed, slots gaming commenced in 2006 when the Mohegan Sun casino began operating.  The current count of 12 casinos was reached in mid-2013 when the final resort casino, Lady Luck at Nemacolin, opened.

For the last five years (2013-2018) there have been 12 casinos in operation.  In 2013 the gross terminal revenues (GTR) for all casinos across the state reached $2.38 billion.  The highwater mark overall was reached in 2012 ($2.47 billion) before falling 3.6 percent in 2013.  Over the last five years statewide GTR ranged from $2.32 billion (2014) to $2.38 billion (2013) with an average of $2.36 billion.  In 2018 it came in at $2.37 billion, up 1.4 percent from 2017.

Slot machine revenues are taxed at a rate of 54 percent of which 34 percent is dedicated to  property tax offsets;  2 percent for the local share assessment (with an additional 2 percent for the two smaller resort casinos), 6 percent for the economic development and tourism fund with the remainder allocated to the racehorse development fund.

With the peak of slots revenue in 2012, the state collected just over $840.1 million for the property tax offsets.  The range of revenue collected over the last five years runs from a low of $788.6 million (2014) to a high of $810.6 million (2013) with an average collection of $801 million.  Keep in mind that school property taxes collected across the commonwealth are roughly $13 billion (2016-17 school year, residential and commercial), so the taxes collected on slot machine GTR amounts to only about 6 percent of the property taxes paid to the state’s 499 school districts.  While something is better than nothing, taxes from slot machine GTR hardly scratched the surface as a way of lowering property taxes for homeowners. And with GTR basically flat over the last five years and property taxes continuing to climb (up $1 billion from the 2013-14 school year), the property tax reduction will become even less significant.

Table games’ revenue increased from 2013 ($729.8 million) through 2017 ($890.6 million) before sliding back a bit in 2018 ($878.8 million).  The average over the five-year span is $818.4 million.

The tax rate on table games is lower than the rate on slot machines at 14 percent with 12 percent going to the state’s general fund and another 2 percent for the local share.  Fully automated table games are taxed at 34 percent but there are much fewer of them.  At 12 percent, table games provided an average state tax revenue amount of $98.2 million per year over the last five years—or roughly 0.3 percent of general fund expenditures.

In the last 13 years or so gaming in the commonwealth has grown substantially—from slots to tables to sports wagering—and will continue to grow with smaller regional casinos opening soon.  It was originally sold as a way to keep Pennsylvania gamblers from spending their money in other states while attracting gamblers from neighboring states and then using the tax money to offset property taxes or supplement the general fund.  However, our neighboring states (Delaware, Maryland, New Jersey, Ohio and West Virginia) have either authorized its own gaming parlors or expanded to keep up with Pennsylvania.  The competition of out-of-state gaming has undoubtedly lowered the number of out-of-state gamblers, meaning that the bulk of the state’s gaming revenues are coming from Pennsylvanians.  Keep in mind that money spent at the casino is money that is not spent on other goods, be they recreational, luxuries or necessities.

Furthermore, the amount of tax revenue being realized just isn’t enough to keep pace with the growth in expenditures.  Promoting the use of gaming revenues to shore up the general fund in a substantial way is proving to be a foolish venture.  A better way to bring in higher tax revenues would be to improve the business climate by rolling back tax rates and reducing the burdensome regulatory environment to encourage new firms to locate, or existing firms to expand, in Pennsylvania.

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.

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.

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.

Will Table Games Solve Rivers Casino Revenue Problems?

The Pennsylvania Gaming Control Board has released revenue data for the first full month of table game operations at the state’s casinos.  Recall that when table games play commenced in July, not all casinos started at the same time. Thus August provides the first reliable indication of what table games are contributing to the revenue of the casinos.  What is of most concern in Pittsburgh is whether table games are adding to the Rivers Casino income, which has been running well below expectations with just slot machines.



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Gaming as a Way to Fund Spending a Sure Bet

No cards have yet been dealt, not a roulette wheel spun, and no dice have been tossed, yet several stakeholders are counting on table games to fund their budgetary needs. In Allegheny County this includes the Carnegie Libraries and the Allegheny County Library Association, as well as the tourism agency in Monroeville. Statewide there will be many others.

And this should come as no surprise: the original 2004 slots bill allowed for economic development handouts for debt at Pittsburgh International Airport, to pay off debts related to subsidy programs administered by Pittsburgh and Allegheny County, for a hockey arena, for the convention center, etc., etc.

Of course the state needs the licensing fee money for this year’s budget and then when the table game enterprise is up and running it can count on recurring revenue. As one state representative noted, using slots for budgets and economic development projects is the worst way to raise revenue "’except for all the other worst ways."

This all raises a line of inquiry: how would the state and the region fund its "needs" without the slot money? Would the absence of $150 million for debt at the airport have forced the County and the Airport Authority to raise fees or possibly look at turning the facility over to a private operator to raise money and achieve efficiencies to retire the debt? Would the City of Pittsburgh, caught in the quagmire of legacy costs, be able to find the money to pay off the Pittsburgh Development Fund? How would the hockey arena be built?

As much as it would be desirable to witness, it seems awfully unlikely that the City and the County would have cut general spending in order to save money to devote annual allotments to these projects.

Slots Law Giveth, Table Games Law Taketh Away

The above refers to the subsidy for building the long-elusive convention center hotel. Back in 1997 when the center plans were being drawn up many were convinced that it would have tremendous spin-off effects, including the construction of adjacent hotels to serve the center. That never came to pass, so in 2004 when the slots law was passed there was a set-aside of $44 million for "retirement of indebtedness and financing of a hotel or convention center in a City of the Second Class…"

There have been no takers on building the hotel, and the one interested development outfit wanted to build 300 rooms, not the 500 sought by the visitors’ bureau. So members of the County’s legislative delegation seem ready to move the subsidy for other purposes as debate over the table games continues. As described in a news article, the money intended for the hotel would instead go for "economic development, job training, infrastructure development, community development, public safety and other projects ‘in the public interest’ in Allegheny County."

Here are the problems with goal of using the money for some other purpose: if the language is codified as described above it is overly broad and basically gives the County a blank check to use the money as it sees fit, possibly injecting it into its general fund and continuing the trend of the County using gaming money and one-time infusions of cash to meet its budgetary needs.

Recall too that the 2004 slots law already provides $6.6 million per year for a "community infrastructure development fund"-money that should be sufficient to meet the County’s needs, especially in light of the additional Federal and state monies that aid infrastructure.

And it is not like the door is completely closed on getting the hotel a subsidy if a deal eventually materializes. The article notes that the money will be held in a restricted account by the state, able to be accessed by a developer if there is a deal and the funds have not been exhausted. But even if it were to be spent, is there anyone who honestly believes that the state and County would not use one of the multitude of its economic development incentive programs to subsidize the hotel at some future date?