[toc]Pennsylvania casinos had another landmark year in 2016, with the state’s 12 brick and mortar venues combining for $3,213,422,178 in total gross gaming revenue.
The tally represents the industry’s highest since land-based casino gambling was introduced in 2006, skirting by last year’s then high-water mark of $3,173,789,771.
It was the sixth consecutive year that Pennsylvania casinos managed to crack the $3 billion barrier, illustrating a level of stability not often seen in today’s saturated US casino industry.
Yet, that hardly means Pennsylvania can rest on its laurels, as there are at least a few signs that the state’s casino industry could be headed toward a decline.
And the key to circumvent that downfall may just be online gambling.
PA table game revenue strong, but…
Pennsylvania’s table games had the best of it in 2016, with revenue climbing 5.6 percent to $853.2 million.
Table game revenue has been rising steadily since the format was first introduced in Pennsylvania back in mid-2010, with revenue from blackjack, roulette, and other table gaming variants exhibiting 37.9 percent growth over the past five years.
There are some concerning signs, however:
- The year-on-year increase for 2016 is markedly lower than the one for 2015, when table game revenue shot up 7.8 percent.
- An influx of table games were added to PA casinos in 2016, most notably at Sands Bethlehem, where stadium-style table gaming with seating for 150 was added in July. Thus, on a per table basis, revenue is not nearly up as much as the overall picture portrays.
However, there is at least one positive sign that revenue will continue to grow. Sands is planning a $90 million expansion that will include the rollout of 81 new table games, and a dedicated poker room.
On a side, this pushes Sands well above the currently allocated table game limit (250) under state law, and requires special approval from the Pennsylvania Gaming Control Board.
The hope is that by displaying more table games in prominent locations, and increasing the number of high roller tables, Sands will draw and capitalize on big spenders.
Then again, table game saturation could result in the tables going dark outside of all but peak casino hours.
Slot revenue hits a bump
After peaking in 2012, slot revenue has hit a bit of a snag the past few years.
From 2015 to 2016 it was down just a slither (0.2 percent) to $2,360,184,122. But over the past four years, PA has watched $110 million of its slot revenue disappear.
On something of a positive note, some slot machines have been retired to make space for other forms of entertainment. At the close of 2012, there were 26,476 total slot terminals in the state, versus 26,074 at the end of 2016.
In this context, the $110 million drop-off since 2012 isn’t quite as alarming. Still, it’s difficult to see a path for growth, for a few reasons:
- New York has begun opening commercial casinos. Over the next several years, PA casinos will likely see some of their foot traffic from the northern parts of Pennsylvania and New Jersey cannibalized. Already, year-on-year table game revenue was down 0.48 percent in December.
- Atlantic City appears to be in the midst of a modest revitalization, primarily due to a record setting year from online gambling, but also as a result of renovation efforts at land-based properties.
- Pennsylvania casinos are at a severe disadvantage, thanks to an oppressive 54 percent tax rate on slot machine revenue. Savvy slot players know to spend their gambling dollars elsewhere. And even recreational players will eventually feel the weight of an average 10 percent hold, versus lower holds in nearby markets.
Worth noting is that the quality of table games may also take a hit, albeit a minor one, thanks to a tax hike on table games from 14 to 16 percent.
Already, PA poker rooms charge $5 max rake at the $1/$2 level, versus $4 max at the Borgata in Atlantic City.
So, how does PA prevent what almost seems like an inevitable downturn? The answer may lie in something the legislature is already actively exploring: online gambling.
Online gambling in PA represents a path forward
Online gambling would create an immediate and impactful revenue stream for Pennsylvania, and undoubtedly bolster PA casino revenue to its highest point since going live over a decade ago.
In a recent memorandum by Sen. Jay Costa, he estimates that online gambling will generate $125 million in licensing fees alone, assuming a $10 million internet gaming license fee and a $5 significant vendor fee.
Of course, those rates are not set in stone, and likely to come down during negotiations. But even half that figure is a more than immaterial percentage of total industry revenue.
Perhaps more importantly, Pennsylvania online casinos stand to generate significant tax revenue for state coffers, beginning in the industry’s first year.
It wouldn’t be unfathomable for PA to produce $200 million in gross internet gaming revenue during in its first twelve months. Splitting the different between Costa’s proposed 25 percent tax rate, and the 16 percent rate offered by John Payne in a 2016 bill (HB 649), that works out to roughly $40 million in tax revenue.
What’s more, is that online gambling revenue will continue to grow as it matures. We’ve witnessed this in NJ, where revenue spiked from $122.9 million in 2014 to $196.7 million last year.
Given this, it wouldn’t shock if Pennsylvania online gambling revenue topped out at over $300 million. That represents a nearly 10 percent increase to total industry revenue.
There are fears that online gambling will cannibalize land-based casino revenue, but they are misguided. If anything, multiple studies show that online gambling complements the brick and mortar industry, driving younger, more financially secure demographics to the casino.
The inclusion of online gambling also allows Pennsylvania to get a leg up on surrounding states, many of which are already considering the merits of some form of real-money wagering on the internet.