Under the Race Horse Development and Gaming Act of 2004, Pennsylvania has become the latest major state on record to welcome casino gambling.
By 2010, 37,000 slot games are expected to be in operation. As we wait for the dust to settle from the final December announcements of conditional operating license awards, the anticipation continues to grow from all sectors of the industry.
The potential to cap at 60,000 slot units will certainly add a boost to the slot manufacturers’ futures as speculation continues on what role server-based gaming may have in the replacement cycle for operators in other gaming states in the next few years.
Thanks to Pennsylvania, New York, and Florida (as well as some overseas opportunities), some gaming analysts projected consistent growth for slot manufacturers in 2007.
I consult with many financial analysts and investors and find them to be consistent with their questions about the gaming industry. They track the history of the industry as they compile their formulas to look into the future.
The pulse of new gaming jurisdictions, such as Pennsylvania, is taken on a regular basis. Information overload is not an option, as the curious watch manufacturers take on greater roles as properties open and new construction is under way.
Always curious about trends within the gaming industry, they often look at the newer jurisdictions as a gauge for possibly identifying trends, considering new products to see which manufacturer has taken the lead and why.
Racinos are a very big topic as well, contributing to the surrounding dynamics. With Pennsylvania looking at a mark of 60,000 slot units, this state will be watched closely.
There was an amendment passed to the gaming regulations in December 2006 (Section 1210 c under SB 862) that limits play at a licensed gaming facility in Pennsylvania to no more than 50 percent of slot machines from the same manufacturer, or its affiliate, intermediary, subsidiary, or holding company.
This limitation is for two and one-half years following the beginning of slot machine operations at a facility: “The provisions of this subsection shall not apply to machines purchased pursuant to a contract or order executed by a conditional Category 1 or Category 1 slot machine licensee prior to October 20, 2006.”
It may be difficult to evaluate how much dominance a manufacturer could have in the state, given the competitive market place weighed against this amendment.
Two operating slot-parlors as of Jan. 1, 2007, Mohegan Sun at Pocono Downs (1,080 slots) and Philadelphia Park in Bensalem (2,000 slots), took in $40.4 million since opening late last year.
Looking at Philadelphia’s regional gaming specifically, resort and gaming facilities actually complete the city’s offerings for tourism, with a rich historical and entertainment venue already firmly established. Philadelphia has a huge international airport, is a major central city, and has a large convention center. There are over 10,000 hotel rooms just in the city center, with a corresponding 30,000+ in the five county region surrounding Philadelphia (Source: Global Insight).
In recent years, Philadelphia has exploded into an upscale center city environment. The city offers an exciting nightlife, numerous star restaurants, and many cultural venues hosting national and international attractions, all within a short distance of several gaming facilities, enhancing tourist appeal and complementing an already appealing landscape.
The Philadelphia Region
• Philadelphia Park (Greenwood Gaming and Entertainment Inc.): opened in December 2006 with approximately 2,000 slots.
• Harrah’s Chester Downs: opened in January 2007 with 2,749 slots.
• Foxwoods Casino Philadelphia (Philadelphia Entertainment & Development Partners, LP): opening in November 2008 with 3,000 slots.
• Sugar House Casino (HSP Gaming, LP): opening in April 2008 with 1,500 slots.
Both Foxwoods’ and Sugar House’s ground breakings are expected to remain on schedule in the first quarter of 2007.
Jim Dougherty, director of operations for Foxwoods Development Company stated: “We’re thrilled to be developing a new market—particularly in Philadelphia. The company looked at several locations across the Commonwealth before deciding on south Philadelphia.”
They had preliminary conversations with regional tourism officials about the growing tourism in the Philadelphia area. Their plans include working closely with tourism officials to promote the area. And discussions have taken place for some projects that will include a “joint marketing strategy.”
Foxwoods had previously engaged in a joint marketing strategy with Mystic Coast and Country to promote not only Foxwoods Resort Casino, but also Connecticut’s picturesque Mystic Coast and surrounding cultural offerings. Presently with two properties open in the state, and combined slot units at about 4,749, the average daily win exceeded expectations and is averaging $400 a day per unit.
In 2005, Atlantic City’s 12 casinos broke a record and reached a $5 billion mark. This number was based on 40,520 slot machines city wide. So the average daily win per unit was $253.55 per day. Recently, state reported figures for Atlantic City for 2006 show them breaking their own record with a win of $5.2 billion (Source Casino Control Commission).
This increase in revenue is despite New Jersey shutting down casinos for three days at the peak of the summer tourist season following the July 4th weekend. With the addition of Pennsylvania, the east coast gaming region continues to grow and develop.
With slots now along all of New Jersey’s borders, Atlantic City must continue to raise the bar with its non-gaming venues and attractions to compete as a total destination resort, including the additional hotel rooms presently being constructed. Casino expansion projects will add another 3,000 to 5,000 hotel rooms by 2008. The present room count is 15,000. In comparison, Las Vegas has approximately 133,000 hotel rooms.
In 2007, Atlantic City will also be facing some sort of a city-wide casino floor smoking ban, the parameters of which are still being debated by local government officials. Additionally, the governor of New Jersey has suggested the idea of video slots in the Meadowlands—the large entertainment and sporting facility on the border near New York City in north Jersey.
There has been much discussion about the impact Pennsylvania gaming will have on Atlantic City’s bottom line. I posed this question to Foxwoods Jim Dougherty. His reply was: “The bottom line is that competition makes us all stronger and provides greater opportunities for all our guests. Competition among all the gaming states within this east coast region enhances the collective offering.”
He stated further: “If Philadelphia and Atlantic City both offer first-class gaming operations, it will better serve the region in terms of providing yet another successful entertainment attraction for the Philadelphia area, complementing the existing tourism offerings.”
Additional Slot locations in Pennsylvania
• PITG Gaming, LLC: opening in March of 2008.
• Mount Airy Resort: tentatively opening in December 2007 with 5,000 slots.
• Sands Bethworks Gaming: expected to open in July 2008 with 5,000 slots.
• Hollywood Casino at Penn National: opening January 2008.
I visited Hollywood Casino’s property last fall and found construction well underway. Just six miles from the Hershey Amusement Park, nestled on 400 rolling acres, this location is pristine. A beautiful landscape of mountains and trees and a quiet setting away from the road will add additional resort imagery to the landscape and complement the offerings of the entire regional area.
As with many of the new properties in Pennsylvania, they will open in phases, growing in slot units but also offering other various amenities besides gaming.
Whether a resort or racino, Hollywood Casino will compete for that particular brand recognition to make them unique. Their future will be not only about their gaming brand, but in their hotel ambiance, their
variety in entertainment, and their marketed style in dining. As Atlantic City has done in recent years the properties will take on their own specific identity, which includes:
• Hotel Room Expansion
• Spa Packages
• Fine Dining
• Conventions
Other Operators
• Presque Isle Downs, Inc.: opening February 2007 with 1,600 slot games.
• The Meadows: this racino is expected to open in May 2007 with 1,700+ games.
The competition will clearly be defined early in the locals market, but as the properties progress there should be a distinctive marketing approach applied to the complete tourist package. Granted it will be limited for a time and cautiously approached since Pennsylvania has a 55 percent tax rate for the industry. But in order for gaming to become a successful industry for the state for the long term, the
properties must:
• Reinvest and grow: All of the licensees should show a commitment to this in their plans presented to the state.
• Become a strong part of a recognized destination: This includes working in their local region of operation and within the parameters of the state.
• Effectively brand their particular product: consistently courting their customer base in an effort to develop and mature it.
This will not happen overnight, and it is obviously dependent on the marketing dollars each property is willing to allocate.
With this said, monitoring the Pennsylvania experience should be interesting. Collectively, Pennsylvania, New Jersey, New York, and Delaware offer something for everyone who wants a gaming experience and more. There is a certain energy that establishes itself when gaming is present. It will be up to the marketing gurus to define the unique individual formula that works best to harness the energy and capitalize on their properties particular brand in this competitive gaming market.
Fourteen slot licenses, authorized by the legislature, are involved in the Pennsylvania gaming market:
• Category 1 Racetracks (7)
• Category 2 Slot Parlors (5)
• Category 3 Resorts (2)
Category (1) Licenses Granted in September 2006:
• Chester Downs, Delaware County (Open)
• Pocono Downs, Luzerne County (Open)
• Philadelphia Park, Bucks County (Open)
• Penn National, Dauphin County
• The Meadows, Washington County
Robert Ambrose has worked in slot operations for 22 years, most recently as an Executive Director of Slots and Marketing Operations for a resort property in Atlantic City. He can be reached at ramb16[at]juno.com.
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