It is a dog eat dog world out there and there is no easy way out

One cannot put too much emphasis on comparisons between February 2012 and February 2013 – this year was not a leap year; in fact it is beginning to look more like a stumble year.   As the gaming results roll in for the month of February, one thing is clear – it is a dog eat dog world out there for the casino industry.  Not that there have been any surprises thus far; every state with significant cross border competition is reporting less revenues in February 2013 than it did in 2012.  And each state is blaming the competition from other states for the decline.

That is a valid claim for the most part in 2013, but over time the culprit causing the most damage could become in-state competition.  For example, Iowa, Pennsylvania and Ohio are adding more licenses, which in time will lead to more casinos and more slot machines; those new casinos and slot machines will steal some of their customers.  Las Vegas, too, is going to get another mega-casino, but that is different; different you ask, why is capitalistic competition different for casinos on the Las Vegas Strip than casinos in Pennsylvania for example?  The answer is simple, Nevada has an open system and low tax rate.  The other states limit casino licenses, sell them at a premium and charge a very, very high tax rate.

Illinois is starting to give us a sense of those dynamics; limited licenses, high tax rates and additional or expanded gaming.  Rivers Casino located in a suburb of Chicago and the last casino to open in Illinois it is picking up much of its business from existing casinos.  Rivers gets the lion’s share of the state’s gaming revenues and is showing growth, all other casinos are declining.  There is more to come, once again there is a bill in the state legislature to add more casinos, five this time with the ever-present suggestion of a license for the city of Chicago.

As if that was not enough, we are beginning to see a second problem, one that has been hidden in the mire of bureaucratic process – slot machines in taverns, restaurants, veterans clubs, fraternal clubs and truck stops; those revenues went up by over 30 percent.  Slot revenues in those locations in February were just under $14 million.  In the big scheme of things, that is not much money, but as more cities authorize slot machines and more locations are licensed that number will continue to grow; it could easily reach $100 million or more in time. Whatever the amount of money it turns out to be, it is certain to be partially derived from the revenue of existing casinos.

Ohio will be another state where the casinos will feel the addition of slot machines outside of casinos; besides the four casinos authorized by legislation, there will be seven racetracks with slot machines – or about another 15,000 slot machines. The first racino to open, Scioto Downs, generated $11 million in revenue from its slot machines in February; seven racinos with slot machines are going to have a big impact on the existing casinos.  There is one more gaming outlet that is causing some pain – Internet cafes.  They are not legal and they are not quite illegal either, but while the legislators debate the issue the money is rolling.  All in all, Ohio is going to have more than its share of gambling and each outlet is going to dilute the revenue in each other outlet and put even more pressure on neighboring states.

The neighboring states used to be an accepted strategy; Indiana purposely put its casinos near its borders to attract players from other states.  In New Hampshire the legislative debate on casinos is focused around the same strategy, put a casino close the Massachusetts border.  The strategy works for a while, but when the neighbor state opens its own casinos the strategy becomes not only outdated, but seriously flawed, as Indiana is discovering.  Indiana’s response is to change some of the rules to make casinos more profitable, but at the same time, it is considering allowing table games at racinos.  That will help the racinos, but not the casinos or the cities which depend on the gaming revenues.  See there is no easy way out of the dog eat dog world; there is simply too much competition and not enough gamblers to go around.

 Fewer people. Less money. That, in essence, summarizes the state of Indiana’s casinos, according to the Indiana Gaming Commission’s monthly revenue report for February. Attendance and revenue were down at all 13 of the state’s casinos.  And the worst may be yet to come.  Overall, casinos received 388,551 fewer visits compared to the same month last year — an 18 percent drop. Revenue fell $28.9 million, or 12 percent, to $211.3 million. The big declines are a troubling sign for Indiana’s gambling halls, which are facing a brand new threat this month — a new $400 million casino in Cincinnati. Tony Cook, Indianapolis Star, 3-11-13

 The metro-east’s two casinos in February saw another drop in revenue, compared to the same month last year. Meantime, statewide revenue for video poker and video slots at bars, restaurants, clubs and truck stops continued its fast growth, as more machines get licensed…the state’s 10 casinos saw a revenue decline in February. The average of the declines was a little more than 14 percent. …statewide revenue has grown solidly at the video poker and video slot machines at taverns, restaurants, veterans clubs, fraternal clubs and truck stops. Statewide revenue at those was $13.6 million in February, up from $9.8 million in January and $7 million in December. Belleville News Democrat, 3-11-13

 When the Horseshoe Casino in Cincinnati opened last week, competitors a short drive away in Indiana knew they could lose a lot of customers who had been traveling across the border for years. Thomas Ott, Cleveland Plain Dealer, 3-11-13

 Slot machines in Pennsylvania’s casinos have been on a winning streak since gaming was introduced in the state in 2006, with revenue increasing steadily each year. But a drop in slots revenue during the past three months might be a sign the luck is running out as competition grows from casinos popping up in neighboring states … Presque Isle Downs and Casino in Erie, where it dropped by 28 per cent in February …McGarvey said the losses are at least partially the result of the Horseshoe Casino, which opened in May in Cleveland. Tony LaRussa, Pittsburgh Tribune-Review, 3-11-13


1 Response to “It is a dog eat dog world out there and there is no easy way out”

  1. 1 rexdstock1 March 11, 2013 at 6:54 pm

    Leave it to the kid from Dayton to prove one can see the forrest for the trees… Nice analysis

    Sent from my Verizon Wireless Droid

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