[toc]If it weren’t for the solid performance of table games, the Pennsylvania land-based gambling industry would be in a tough spot.
That’s because May marked the eighth-consecutive month that year-on-year slot revenue was down. The numbers all but hammer home the notion that interest in reel games is past peak.
Top line numbers for Pennsylvania gambling
In May, the Pennsylvania gambling industry generated $277.7 million, marking a modest year-on-year decline of 0.89 percent. Compared to last month, revenue was down 2.64 percent, or a rather alarming 5.78 percent when normalizing for May’s padded length.
Among the state’s 12 land-based casinos, losers outnumbered winners seven to five. One casino (Valley Forge Casino) posted a double-digit percentage loss.
On a more positive note, table games continued to perform admirably for the industry, up 4.38 percent year-on-year. However, that’s a far cry from the uptick experienced in April, when table game revenue spiked just over 10 percent.
Table games revenue was down 9.41 percent from April, after normalization.
As for slots, the narrative was far gloomier. Revenue dipped 2.68 percent compared to last month. It was also down 1.19 percent (4.38 percent on an equivalency basis) from April. Only three casinos experienced year-on-year gains. Not a single winner was among the industry’s biggest players.
Last month, slots were down just 1.58 percent year-on-year, and were actually up a tad (1.23 percent) after normalization.
Winners and losers in the Pennsylvania gambling industry
After experiencing a rare year-on-year decline in April, SugarHouse Casino rebounded in a big way. The upstart Philadelphia-based casino had a mammoth month at the tables. Revenue was up 26.42 percent over last May.
That was a big enough growth margin to more than offset a 4.09 percent decline on the slots side. Overall, SugarHouse revenue was up 6.85 percent compared to last year.
Other winners included:
Lady Luck Casino Nemacolin: +6.53 percent year-on-year
Mount Airy Casino: +5.26 percent
Parx Casino: +2.63 percent
Lastly, Sands Bethlehem continued its winning ways, with revenue climbing 1.56 percent over last May. As was the case for most winners, Sands’ gains came from table games revenue. Those were up an impressive 11.05 percent year-on-year.
Category III casino Valley Forge had the undesirable distinction of being the industry’s biggest loser. Total gaming revenue nosedived 14.09 percent. Plus, table games revenue down a whopping 43.27 percent.
Smaller casinos, like Valley Forge, are subject to far more violent swings in revenue than their larger counterparts. So, the drop off is not necessarily cause for concern, yet.
Other losers included Mohegan Sun Pocono, which saw its year-on-year revenue plummet 9.27 percent, and Meadows Casino, which experienced a 7.90 percent nosedive. Rivers Casino, Harrah’s Philadelphia, Presque Downs, and Penn National were all down by smaller margins: less than four percent.
Why is revenue shifting to table games?
It’s presumable that one of the reasons slot revenues are falling while table games are thriving is because land-based operators are placing a stronger emphasis on their lower-taxed games.
In Pennsylvania, table games and poker and taxed at a reasonable 16 percent, while slots are subject to a nation-high 54 percent tax rate.
Another possible reason for the shift is that patrons may be getting fed up with the industry’s slots. The machines return considerably less, on average, than they do in New Jersey and other surrounding states. Again, these low slot returns are also a byproduct of the stifling tax rate.
Implications for online gambling
Recently, the PA Senate passed a bill that would see a 54 percent tax rate imposed on slots and table games. Should this rate, or something similar, end up in a final bill, operators will be all but forced to apply the same low returns that they do on slots to table games.
Given the recent trajectory of the land-based market, this doesn’t seem like a winning strategy for operators. Online entities may get off to a strong start. However, eventually patrons would disappear thanks to the poor returns, pedestrian loyalty programs, and diminished kickbacks.
Ultimately, revenue would fall off, and fall off sharply. Operators wouldn’t be able to offer patrons a fulfilling experience — or at least one where they’d get their money’s worth.
On the flip side, a counter-proposal passed in the House calls for a 16 percent tax rate on online gambling across the board, which would allow operators a great deal more flexibility in their marketing spend and game return.
Under this rate, it’s the patrons, and by extension, the operators and the state, that will ultimately win out.
Pennsylvania lawmakers are expected to pick up online gambling again before the month is out, with passage of a bill dependent on the two legislative chambers coming to an agreement on licensing fees and tax rates.