Philadelphia – Is a New Casino a Good Idea?

The latest development in the ongoing wave of casino expansion in the Northeast took place in Pennsylvania on November 12th.. The Pennsylvania Gaming Control Board state gaming commission granted a second casino license for Philadelphia to Stadium Casino and its project Live! Hotel and Casino. The process of granting the two licenses authorized for Philadelphia has been long and arduous. The first license for Philadelphia was first awarded to Foxwoods in December 2006, but that project failed to move forward. A difficult financial climate and a lack of community support hampered that project and several others. In 2010, a license for Philadelphia was granted to SugarHouse casino and it opened in May of 2011, bringing to ten the number of casinos in Pennsylvania. The Live! license took two years and involved intense competition between some very well-healed and experienced operators. Now, there will be thirteen casinos in Pennsylvania and five in the Philadelphia market. It has not been a popular decision with the other applicants for the license, analysts and the competing operators in the Philadelphia area.

Pennsylvania gaming regulators this month drove another nail into the coffin containing Atlantic City’s gaming market. At the same time, they unwittingly damaged their own state’s casino industry…Analysts don’t believe a fifth Philadelphia-area casino can thrive in what’s becoming an over-saturated market…“One more property in Philly is incrementally bad for Atlantic City casinos, which still derive a significant amount of business from Pennsylvania,” Macquarie Securities gaming analyst Chad Beynon told investors. He said the mid-Atlantic gaming region, which includes Maryland, Delaware, Pennsylvania, Atlantic City and New York, generates almost $10 billion a year in gaming revenue. But the market is crowded. Atlantic City gaming revenue has declined more than 60 percent since 2008 because of competition. Howard Stutz, Las Vegas Review-Journal 12-1-14

The decision to award Philadelphia’s second and final casino license to Live! Hotel and Casino is drawing some harsh reactions from experts — with one saying it could spell serious trouble for the region’s other casinos. “I think we missed the boat on this one,” said Stephen Mullin, president and principal at Econsult Solutions, a consulting firm in Philadelphia. “We managed to simultaneously maximize cannibalization, clobber [Harrah’s in Chester], minimize pay revenue impact and minimize the economic development spinoff all in one decision here for Philadelphia.” Francis Hilario, Philadelphia Business Journal, 12-1-14

The critics all claim the market is saturated. And, they point out, it is not just the Philadelphia market that is saturated. The entire Northeastern region has too many casinos and there are more to come. The critics cite the year-long trend of decreasing revenue at the existing casinos in Pennsylvania and the epic disaster in Atlantic City. Five casinos will have closed in Atlantic City by the end of 2014. What more proof do the regulators need the critics ask?

The Pennsylvania Gaming Control Board posted on its web site today the monthly report for total revenue generated from the play of slot machines at casinos during November. According to the report, gross revenue from slot machines at the 12 casinos fell 3.44% in November of this year to $183,441,906 compared to the $189,970,652 in gross revenue generated in November 2013. Tax revenue generated by the play of slot machines during November of this year was $97,829,129. PRNewswire-USNewswire, 12-3-14

Well, there is more proof on the way. Soon the New York State gaming Commission will announce the locations approved for the newly authorized casinos in New York. It is expected that four locations will be approved now and an additional three possible after the first ones open and everyone gets a chance to evaluate their impact. New York is moving quickly, but it is also moving forward with more awareness of the status of the market than any jurisdiction up to this point. Traditionally, regulators, politicians and even the casino developers have only looked at the local market and not consider the regional context.

With the New York State Gaming Commission’s decision on where up to four new upstate casinos will be located expected in a couple of weeks, and nearly 20 gaming outlets already in operation, are there going to be enough gamblers to go around? A recent study commissioned by the American Gaming Association states that commercial casinos and legalized Internet gaming conducted in New York contributes $3.6 billion to the state economy and supports about 14,600 jobs. That’s not including casinos run by Native American tribes — such as Turning Stone Resort Casino that employs 4,500 and spent $82.1 million on local goods and services in Oneida County last year — and racinos at horse racing tracks such as Vernon Downs Casino Hotel, which employs 319 and generates about $24.4 million in tax revenue. Those are some major contributions to the state economy, but with four more casino licenses set to be granted on Dec. 17 in the Capital, Catskills/Hudson Valley and Eastern Southern Tier regions, is the market becoming too saturated? Philip A. Vanno, Utica Observer-Dispatch, 12-3-14

In the big picture, Live! Hotel and Casino in Philadelphia is not going to be the straw that broke the camel’s back. There are more straws to come for that poor, overly burdened camel. Massachusetts is going to have three, maybe four; Maryland is adding one more and New York will add its set of heavy straws. Counting the Philadelphia casinos, there could be as many as twelve additional casinos in the region in the next few years. First the good news – none of those will open next year. In 2016, we should see a couple new casinos opening. And then, we can expect five or six more by 2018.

And now, the bad news – when that latest round of expansion is done, the camel’s back will be straining indeed. If you wonder what that will look like, a camel with a broken back, look at Atlantic City as it enters 2015 and compare that picture with Atlantic City in 2006. No hurricane or economic depression ever caused as much damage as the casinos in Pennsylvania have caused for Atlantic City. So, to answer the question I posed earlier – is another casino in Philadelphia a good idea? No, it is not a good idea for the casinos in Philadelphia or the rest of Pennsylvania and it certainly is not good for Atlantic City. But protecting Atlantic City was not one of the Pennsylvania Gaming Control Board responsibilities when it awarded a license to Live! – was it?

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