Excess of casinos irks Meadows executive
Number of operations irks executive at Meadows
by Rick ShrumBusiness reporter
Published Nov 23, 2013
Gambling problem? Call 1-800-OVERSATURATION.
Sean Sullivan should have that number on speed dial. He is casino vice president and general manager at The Meadows Racetrack & Casino. And like many industry peers and observers, he believes there are too many casinos in this region; too many slot machines and table games; way too many year-over-year revenue declines; and way, way too much supply for the demand.
It’s contemporary cannibalism, a latter-day Malling of America, with gaming sites chomping at each others’ bottom lines.
“There’s no question we’ve seen our business slow because of the casinos in Ohio and the one at Nemacolin,” said Sullivan, whose six-year-old casino is among the largest in the eastern United States.
“We’re getting into serious saturation discussion. We’ve seen the detrimental effect to Wheeling (Island) and Mountaineer. There’s no question the competition is hurting those properties.”
Eleven casinos stand within 171 miles of the Observer-Reporter offices, including The Meadows (see chart). Two – Rivers Casino in Pittsburgh and Wheeling Island Hotel-Casino-Racetrack in Wheeling, W.Va., – are a mere half-hour jaunt from Washington. Two others – Mountaineer Casino, Racetrack and Resort in Chester, W.Va., and newly christened Lady Luck Casino Nemacolin in Fayette County – are within 75 minutes.
Yet two more are en route and another may be.
One will open Dec. 18 at Northfield Park, a longtime harness track outside Cleveland. Ground was broken in May for a casino and thoroughbread track in Austintown, Ohio, near Youngstown, that is expected to open in mid-2014. And a proposal is before the Pennsylvania Gaming Control Board for a casino and harness track in Mahoning Township, outside New Castle. The racing license for Lawrence Downs Casino & Racing Resort has been approved.
Those latter two sites are about 20 miles apart and – amazingly – are owned and operated at least in part by the same entity, Penn National Gaming.
Regional competition, conversely, was minimal when The Meadows opened its temporary casino June 11, 2007. Just Mountaineer, which unveiled its gaming site in 1994, Wheeling Island (1999) and Presque Isle in Erie (Feb. 28, 2007) were operating within those 171 miles.
Now there’s an excess, and it’s growing. Add the games of chance that soon will be played at thousands of Pennsylvania bars, pending Gov. Tom Corbett’s signature, and the gambling dollar is being stretched tighter than Joan Rivers’ face.
Wary of growth
Sullivan is weary and wary of the regional overabundance – for The Meadows’ sake and for Pennsylvania.
Casino gambling was legalized in the commonwealth in 2004, under Act 71, the Pennsylvania Race Horse Development and Gaming Act. Slots play began in 2006, tables games in 2010.
There are 12 casinos statewide, all of them partners with the commonwealth and the Pennsylvania Gaming Control Board. Four are in the western third of the state and seven in the east, including four in or near Philadelphia.
Only one serves the middle third of the state, Hollywood Casino at Penn National in Grantville, outside Harrisburg.
Some, like The Meadows, are alongside and in partnership with a horse racing facility – a complex commonly known as a racino.
These casinos generate scads of tax dollars for the state. Pennsylvania gets 55 percent of the slots revenue and 15.5 percent of table games money, then devotes the funds to property tax relief (34 percent); the horse racing industry (12 percent); economic development and tourism (5 percent); and local and county governments (4 percent).
Revenue from The Meadows has benefited Washington County and North Strabane Township, the host municipality, for a number of years. The Local Share Account, which funds eligible programs countywide, exists solely because of it.
But with the continuing proliferation of casinos, in state and out, this cash stream could become shallower for Pennsylvania casinos and Pennsylvania coffers.
The Meadows experienced an increase in slots revenue last month compared with October 2012. That ended a horrific run: year-over-year declines for 11 consecutive months.
A number of other Pennsylvania casinos, especially Presque Isle, also have had to deal with a slots swoon over the past year or so. In 2013, the state has absorbed a year-over-year decline every month except October.
This is a concern because slots, by far, is the larger moneymaker in Pennsylvania, generally raising more than three times as much revenue as table games each month. (Table games are more labor-intensive, requiring more employees than slots.)
Table games revenue at the North Strabane casino was up in October, the most recent month for which figures are available. But year-over-year revenue from the games has been a mixed bag, up six months, but down six months
That hasn’t been the case statewide. Year-over-year revenue increased in October, but it was up 14 of the previous 16 months.
“We’ve seen a softening in slots numbers, but on the table games side, we see increases,” said Richard McGarvey, spokesman for the Gaming Control Board.
Gaming sites outside Pennsylvania also create financial peril within. All six contiguous states – Ohio, West Virginia, Maryland, Delaware, New Jersey and New York – have legalized casinos, Some did this after Pennsylvania. Many out-of-state sites are less than an hour’s jaunt from our commonwealth, and attract Pennsylvanians – and Pennsylvania bucks.
Of the 14 existing or planned casinos within 171 miles of here, nine are out of state.
“There is a worry in the air, especially if (Pennsylvanians) are going across state lines and (out-of-staters) are not coming in,” Sullivan said. “This is not just about The Meadows. You worry about tax revenues suffering and what this may do to the racing part of it (statewide).”
A hedged bet
Plans for Lawrence Downs and the reality of its Ohio neighbor, Hollywood Gaming at Mahoning Valley, rankle Sullivan. He is upset that Penn National has an interest in both facilities and would be in position to exploit the tax advantages that Ohio has over the Keystone State.
Ohio gets 33 percent of slots revenue and 33 percent of table games money from in-state casinos, compared with 55 and 15.5 percent, respectively, in Pennsylvania. Sullivan pointed out that Penn National will own and operate the Austintown endeavor and would own “a fraction” of Lawrence Downs, but manage it. Endeka Entertainment LP, based in Philadelphia, would be the majority owner of Lawrence Downs.
Penn National will have “no advantage to promote slot machine business” at Lawrence, where 22 percent more revenue would go to Pennsylvania than Ohio would reap from Mahoning Valley, Sullivan said.
Slots players likely wouldn’t care about the difference in tax rates, but if a substantial number of Pennsylvanians go to the Austintown facility after it opens, as well as existing out-of-state sites, that could impact the revenue their home state realizes.
The PGCB’s McGarvey said the panel is aware of the oversaturation discussions.
“If you talk to gaming analysts, they say that’s the case here and the East Coast,” he said. “I think all of us are watching the competition to see the effect that adding more and more casinos has.
“Presque Isle has definitely been affected by the casinos that have opened in Ohio. (Three are in or near Cleveland, including Northfield Park). But you look at the Rivers’ and Meadows’ (revenue) numbers and the same thing cannot be said.”
Pennsylvania, McGarvey said, continues to appeal to gaming operators considering new sites, largely because of its formidable population base.
“There are certainly companies interested in opening (casinos in the commonwealth),” he said. “We had six applicants for one in Philadelphia for a half-billion to billion-dollar project.”
McGarvey, a Pennsylvania employee, touted the financial benefits the state realizes from legalized gambling.
“Casinos (statewide) generated $1.4 billion in tax revenue in 2012 and 2011, and we’re probably on track for something similar this year. There’s not another state over $1 billion in revenue.”
Legislator concerned
A Pennsylvania legislator, Tim Solobay has no say over where other states erect gaming sites. But the Democratic senator from Canonsburg is concerned about where casinos may go up in the commonwealth.
Solobay was an early proponent of legalized gambling in Pennsylvania as a probable boost for horse tracks, and while he still supports casinos statewide, he is opposed to expansion in the western third.
“There is an oversaturation here and it’s only going to get worse with Lawrence County and Youngstown,” he said. “I’m hoping the gaming board is smart and realizes that Lawrence County is not the best choice and that the commonwealth would be better served by placing a casino in an area that is underserved.”
That would be Central Pennsylvania, where population is sparse in the northern quadrant but significant in the lower half, including Harrisburg, State College, York, Hershey and Lebanon. A second site in the state capitol region would be feasible.
Speaking specifically of the Lawrence County site, Solobay said: “Why would you put one in an area (dominated by casinos) when you have only one in the middle of the state, where there is a large population. It’s not fair to folks interested in gaming and it’s not fair to communities that want to put dollars into it.”
The Lawrence County proposal, a $233 million project, has been criticized in some quarters for its proximity to the Mahoning Valley complex, for being still another casino in the region, and for the cost.
Penn National had said it would not be involved in that project without an infusion of bond money, and the Lawrence County Industrial Development Authority voted to sell $50 million in taxable bonds.
Alex Bumazhny, an analyst with Fitch Ratings, said on the website casinoconnectionac.com that the bond issue is “a sign that the project is too risky and/or the return prospects are not lucrative enough for the private investors to participate using 100 percent of their own money. It’s a pretty speculative project given the number of casinos in the region.”
It’s been a beleaguered project as well, delayed for a decade and frequently questioned. Then on Nov. 12, Presque Isle Downs Casino, a competitor 90 miles to the north, sued the Pennsylvania Harness Racing Commission and Endeka Entertainment over the Lawrence Downs project. This was after the commission did not act on a petition by the Erie entity in September to revoke the racing license conditionally awarded to Endeka in July 2012.
Representatives of Presque Isle, beset by large casino revenue declines for months, fear that a facility in Lawrence County would threaten their site and believe that putting a casino elsewhere would better benefit Pennsylvania.
If Lawrence Downs Casino & Racing Resort does become a reality, it will take awhile yet. McGarvey of the PGCB said the New Castle group has had to apply for two casino licenses, which involves submission of “boxes of information,” a background process and a public meeting before the board votes on them – “probably next year sometime.”
‘As the Wheel Turns’
The number of tri-state casinos increased July 1, of course, when Lady Luck opened in Fayette County under a limited license. Sullivan said Nemacolin’s casino “is not meeting publicized projections.” He said the original revenue projection there was $61 million a year, but “the first-quarter performance suggests” the annual figure will be around $30 million.
Nemacolin laid off about 75 casino employees Sept. 9, then a month later shut off table games from 3 a.m. to 10 a.m.
Its presence, though, has had an erosive effect on The Meadows, as have other tri-state casinos, as would those to be built.
This is a daily soap, “As the Wheel Turns,” that from Sullivan’s perspective continues to produce soap scum.
“Are we exposing ourselves to reduced revenues to the commonwealth because of oversaturation (of casinos)?” he asked, then answered: “I think the answer is yes.”
He’s dialing that number.
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