[toc]After posting strong numbers throughout the first half of 2016, the Pennsylvania land-based casino market has entered what has now become a prolonged slump.
For four consecutive months, the industry has generated less revenue than it did the year before. In January, the state’s 12 land-based casinos combined for $252,914,549 in gross gaming revenue, down nearly 1.2 percent over January 2016, and representing a 1.7 percent drop compared to December.
Although there are a few positive takeaways from last month’s report, the big picture suggests that the industry’s moment in the sun is setting.
And that without a new infusion of revenue, stagnation may be the theme of 2017.
PA slot revenue continues to nosedive
Slot revenue has taken a beating of late.
In December, gross gaming revenue from slots was down an alarming 6.2 percent ($180,304,670) year-over-year. The situation wasn’t quite as dire in January, but slot revenue still dipped 2.4 percent.
The poor performance on the slots side was partially balanced by another solid performance by table games, which generated $72,609,879 (+2.1 percent year-over-year) in January.
However, slots still represent a large majority share (71.3 percent in January) of Pennsylvania’s land-based casino industry, so any decrease would have to be matched by a nearly three-fold increase on the table games side.
And that’s just for the industry to trend neutral.
Worth noting is there doesn’t appear to be a correlation between the poor performance of slots and the launch of stadium gaming (which counts as table gaming) at Sands Bethlehem.
Surprisingly, the format, which went live at Sands last July, appears to be hurting the casino’s table game revenue instead.
In January 2017, Sands’ table game revenue dropped precipitously, down -13.1 percent y-o-y. That was the industry’s second biggest falloff behind Valley Forge (-20.6 percent).
Yet its slot revenue was up 1.8 percent.
More likely, the general decline of slot revenue can be attributed to the state’s oppressive 54 percent tax rate on slots — a rate so high that it all but forces land-based casinos to set their slot returns at approximately 90 percent.
When players are given little or no opportunity to win, some will eventually take their gambling dollars elsewhere.
Winners and losers
Losers far outweighed winners last month, but there were a few notable upticks:
- Parx Casino continued its winning ways, boasting stellar gains (+28.0 percent) on the table games side. The casino generated an industry-leading $46,532,228, up 6.7 percent year-over-year, and beating out top rival Sands by nearly $4.5 million. Interestingly, Sands edged out Parx by almost $800k in January 2016.
- SugarHouse Casino had another up month, posting y-o-y gains for both table games (+3.4 percent) and total revenue (+2.2 percent).
- Penn National also posted modest gains (+2.3 percent), but they were unbalanced, driven exclusively by table game growth (+21.8 percent).
- Lady Luck revenue was up 5.7 percent y-o-y, although given the casino’s smallish revenue, that can be linked to volatility.
Eight casinos announced losses in Jan. 2017, compared to the year prior.
In four of those instances, the drop off exceeded 4.5 percent:
- Sands Bethlehem took the biggest monetary hit, with revenue dropping $2.33 million to $44.41 million, down 5.3 percent.
- It was an awful month for slots at Harrah’s Philadelphia. Gross gaming revenue was down 7.6 percent year-over-year, despite a 3.4 percent increase for table games.
- Same story for Mohegan Sun Pocono, which saw table games revenue rise 10.4 percent, but experienced a 5.7 percent downswing overall.
- Meadows also experienced a dismal month for slots, contributing to the casino’s poor performance in January (-4.7 percent year-on-year).
Can online gambling in PA turn the tides?
Online gambling is currently a hot topic in the Pennsylvania Legislature, with a gambling reform bill (HB 392) having been introduced by the House last week, and indications from the Senate that it will be introducing a bill of its own.
Revenue generated from online gambling could have both an immediate and long-term impact on Pennsylvania casino revenue.
What’s more, the impact will likely be significant enough to turn the industry’s recent ill fortunes on their head, similar to the situation in New Jersey.
Our internal estimates show that Pennsylvania online gambling will generate $230 million in first year revenue. This figure does not include the nearly $100 million that it will likely produce via operator and supplier fees.
Let’s assume nine casinos jump on board (we’re leaving Sands and Lady Luck out), and for simplicity, that each one grabs an equal piece of the pie. On a monthly basis that works out to approximately $1.92 million per casino per month.
Add this figure to the Jan. 2017 totals, and now every single Pennsylvania casino that supports online gambling comes out a winner. Even Harrah’s turns a 7.6 percent loss into a 1.1 percent gain.
As Pennsylvania online gambling operators tweak their methods, and expand their game libraries, we can expect even higher revenue tallies in subsequent years.
The explosive growth of the New Jersey market all but verifies this.
Thus, it’s not inconceivable that Pennsylvania could spark multi-year industry growth, even if land-based revenue continues to hold steady, or even trend slightly downward.