Pennsylvania’s once red-hot slots market has fallen into a slump amid some of the same challenges that grip the struggling Atlantic City casino industry.
A sluggish economy, intense competition from casinos in surrounding states and a cutback in consumer spending caused by higher payroll taxes are being blamed for the Keystone State’s recent slide.
“The bottom line is, I think the economy is soft,” said John Kempf, a casino analyst for RBC Capital Markets. “We’ve reached a level where we have a decent amount of play, but I think consumers are holding back a little bit.”
Pennsylvania slot revenue has declined three months in a row and in four of the past five months compared with the year before.
There are 11 casinos in Pennsylvania. Revenue results are even worse if slot winnings from the newest casino, Valley Forge Casino Resort, are removed from the totals. Among the 10 casinos that have been open for the past year, slot revenue is down industrywide the past six months in a row.
In February, slot revenue at all 10 of the older casinos was down, the first time that all properties had a decline in the same month since casino gambling began in Pennsylvania in late 2006, according to the Pennsylvania Gaming Control Board.
Figures compiled by the Pennsylvania Gaming Control Board indicate a struggling slots market across the entire state. For instance, there have been six straight months of declines at the Parx Casino and at Harrah’s Philadelphia Casino and Racetrack in eastern Pennsylvania. Mohegan Sun at Pocono Downs, another eastern Pennsylvania casino, has been down eight months in a row. Slot revenue at the Hollywood Casino, in the middle of the state, has declined eight consecutive months. Presque Isle Downs and Casino, in the western part of Pennsylvania, is mired in an 11-month slots slump.
Parx Casino and Harrah’s Philadelphia are part of an ultra-competitive, four-casino cluster within the Philadelphia area. Presque Isle, in Erie, is feeling the pressure from newly opened casinos across the border in Ohio.
“Clearly in western Pennsylvania, the Ohio slots are having some sort of impact,” Kempf said.
Mohegan Sun’s management says customers in its big feeder markets of Wilkes-Barre, Scranton and Hazelton, Pa., have been pinched by higher local property taxes.
Mario Kontomerkos, chief financial officer of the Mohegan Tribal Gaming Authority, owner of Mohegan Sun, said 15 of 50 municipalities in surrounding Luzerne County that have more than 2,000 people saw an average increase in property taxes of between 20 percent and 27 percent starting Jan. 1.
“So there’s definitely an impact being felt by our customers there in northeastern Pennsylvania,” Kontomerkos explained of Mohegan Sun’s lower results during a conference call with casino analysts.
In addition to intrastate competition, the eastern Pennsylvania casinos also have to fight with Atlantic City for gambling customers. Philadelphia’s SugarHouse Casino is only about an hour’s drive away from Atlantic City. SugarHouse has suffered a drop in slots revenue in five of the past six months compared with a year earlier.
Wendy Hamilton, SugarHouse’s general manager, issued a statement saying her casino continues to increase its market share. She also said she is “pleased with the overall performance of the casino,” but she did not address questions about SugarHouse’s declining slot revenue in recent months.
Parx Casino, in Bensalem, Pa., and Harrah’s Philadelphia, in Chester, Pa., battle with SugarHouse for the Philadelphia market. Competition grew even fiercer in the Philadelphia market when the $150 million Valley Forge Casino Resort opened March 31, 2012.
Parx did not respond to requests for comment about its recent slide in slots revenue. Caesars Entertainment, owner of Harrah’s Philadelphia, also did not respond to messages seeking comment. Caesars Entertainment also owns the Bally’s, Caesars, Harrah’s Resort and Showboat casinos in Atlantic City.
Like the rest of the Atlantic City casinos, the Caesars Entertainment properties have struggled with declining revenue for six years in a row. Atlantic City’s downturn began in 2007, the first full year of Pennsylvania casino gambling. Since then, Atlantic City has lost a major share of its eastern Pennsylvania feeder market. Pennsylvania customers simply stay closer to home to gamble these days instead of making the trip to Atlantic City.
A huge shift in the competitive landscape occurred in 2012, when Pennsylvania overtook Atlantic City in total gambling revenue for the first time to become the nation’s second-largest casino market behind Nevada.
Last year, Pennsylvania’s total revenue from slot machines and table games came in at $3.1 billion, compared with $3 billion for Atlantic City. With competition from Pennsylvania and other surrounding states growing stronger, Atlantic City’s gambling revenue has plunged more than 40 percent from its 2006 peak of $5.2 billion.
Beginning in 2008, Pennsylvania’s slots revenue increased at a double-digit rate for three straight years as more and more casinos came online. But the growth rate slowed to 6 percent in 2011, indicating the industry had begun to mature. For 2012, Pennsylvania had $2.47 billion in total slots revenue, up nearly 3 percent.
Although the slots market has begun to fade, Pennsylvania continues to benefit from robust growth in its table games revenue. Since it legalized table games in 2010, Pennsylvania has watched revenue in that category surge from $212.5 million in 2010 to $687.4 million in 2012.
“That’s a very strong area for Pennsylvania, and we would expect to continue to see growth,” said Doug Harbach, a spokesman for the Pennsylvania Gaming Control Board.
Harbach said much of the industry’s recent struggles in slots revenue can be attributed to Presque Isle’s trouble with new competition in Ohio. Presque Isle had the biggest slots decline among Pennsylvania casinos in 2012, down nearly 10 percent.
“They readily admitted that competition from the Cleveland property has hurt their revenues, and that has hurt overall state revenue numbers,” Harbach said of Presque Isle.
New casinos or expanded gambling in Maryland, New York and Delaware have also cut into Pennsylvania’s slots revenue, Harbach explained. Other factors include the fragile economy, Hurricane Sandy in October and the nation’s higher payroll taxes that began Jan. 1, he said.
“Certainly, the additional payroll tax deduction, which will take away possibly hundreds of dollars per month in family income, will have an effect down the road,” Harbach said.
Overall, Harbach dismissed any concerns of serious weakness in the Pennsylvania market. To boost revenue and make themselves even more competitive, some of the Pennsylvania casinos have been adding Atlantic City-style attractions, such as hotel towers, gourmet restaurants and upscale retail shops.
“It’s the No. 2 market in the United States,” Harbach said. “It’s a very strong market. I think that a lot of the casinos are positioned very well going forward, especially with their plans to expand in different areas.”
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