Allegheny Institute: Casino Revenues Face Uphill Struggle

Member Group : Allegheny Institute

Earnings for the third week of operations at the Rivers Casino were lower than the already disappointing levels of the first two weeks. This pattern is rapidly becoming a problem for Pittsburgh’s stand alone slots parlor. During the first two full weeks of business, the casino had weekly gross terminal revenues of $5.3 and $4.7 million respectively while in the third week revenue fell to only $4.3 million—nearly $1 million off the first week’s take. While casino management tries to downplay this trend of declining revenues, claiming it is too early to be worried, they have to be concerned about the profitability of the slots parlor.

Why should they be worried? Two principal reasons: First, consider the startups of other Pennsylvania casinos. Most casinos enjoyed very strong weeks in the first or second week of operations and then trailed off for a while before picking up again.

Seven casinos opened from November 2006 through December 2008. Two more opened in 2009 including the Rivers Casino. The first casino to come on line was the Mohegan Sun in the Pocono Mountains during the week of November 6th, 2006. The first two full weeks of operation saw gross terminal revenues (GTR) just over $3,200 per machine. Over their first eight weeks in business the average weekly GTR per machine was slightly above $2,800. One year later, from the first week of November 2007 through early January 2008, the casino’s average weekly GTR fell to around $2,300. In fact GTR per machine failed to top $3,000 during the 8-week period that included two sub-$2,000 weeks.

For the first seven casinos, the first two weeks after the grand opening proved to have the highest GTR per machine experienced for several months following the opening. That holds true for the second grand opening of the permanent facility at the Meadows. The Sands Casino in Bethlehem—the eighth to open—has also followed the same pattern since its May 2009 debut. In other words, casino business in Pennsylvania typically falls off for a while after the first two weeks of operation. This is an ominous sign for the Rivers Casino because their first three weeks of operation have produced GTR per machine far below expectations. If they hold to the pattern of these other facilities they can expect no significant improvement in the level of play for some time.

The second reason for Rivers Casino owners to be concerned about the first three weeks performance? Casinos across the state typically enjoy a busy summer season and set their high water mark during the week of July Fourth. Indeed, July and August are typically the highest revenue months for Pennsylvania casinos. Wagering activity tends to be lower through the fall and winter before moving higher again in early spring. Thus, by not being able to open the Rivers Casino until the beginning of August, the owners might have missed out on an opportunity for better earnings. What’s worse, the best months for casino play are now past for this year. And that means reversing the pattern of weakness experienced during the first three weeks is going to be exceptionally difficult in coming months.

As an aside, note that having to come up with $7.5 million for a bond payment on the hockey arena could be a real burden for the casino in light of the weak revenue being generated so far—operating and debt service expenses along with the gaming taxes are probably consuming the revenue to date.

Competition from the nearby Meadows casino is obviously hurting the Pittsburgh casino. During the first three weeks of operations the Rivers had per machine GTR of $1,754, $1,545, and $1,421. During these same three weeks, the Meadows had per machine revenues of $1,392, $1,442, and $1,480, the exact opposite trend. Play at the Meadows fell $14 million in the first full week of Rivers operations to just over $70 million. However, by the third week wagering at the Meadows had rebounded by $5 million. Undoubtedly, much of the increase came at the expense of the Rivers Casino where play dropped from $59 million to $52 million.

Clearly, the Rivers Casino is facing a struggle with a confluence of obstacles to cope with: (a) entrenched competition, (b) a lingering recession, (c) sports events close by, and (d) they are entering a time of the year when play normally slows. Further, the casino is in a relatively inaccessible location with ingress and egress limitations. These obstacles, taken together with the fact that Pennsylvania is becoming saturated with slot machines, means the situation facing the Pittsburgh casino has changed dramatically since it was on the drawing board. It has gotten off to a very slow start relative to owner expectations and indications suggest its problems will deepen for some months to come.
________________________________________
Jake Haulk, Ph.D., President Frank Gamrat, Ph.D., Sr. Research Assoc.
________________________________________

For updates and commentary on daily issues please visit our blog at alleghenyinstitute.org/blog.
If you have enjoyed reading this Policy Brief and would like to send it to a friend, please feel free to forward it to them.

For more information on this and other topics, please visit our web site: alleghenyinstitute.org

If you wish to support our efforts please consider becoming a donor to the Allegheny Institute. The Allegheny Institute is a 501(c)(3) non-profit organization and all contributions are tax deductible. Please mail your contribution to:

The Allegheny Institute
305 Mt. Lebanon Boulevard
Suite 208
Pittsburgh, PA 15234