Pa. bets on gambling like no other state
Pittsburgh Post-Gazette
Already the biggest collector of state revenue from casino gambling in the country, Pennsylvania is counting on millions more for its budget from thousands more slot machines — and doing it by increasing gambling opportunities in multiple ways.
The legislation sent to Gov. Tom Wolf on Thursday to balance the 2017-18 budget will give Pennsylvanians a first-time chance to wager legally over the internet, at an airport or at a truck stop. And if gamblers prefer a more traditional casino but find the drive too far currently, they soon may have their choice of 10 new “satellite” operations to be placed in areas at least 25 miles from the 12 bigger ones that already exist.
In other words, the state that legalized slot machines in 2004 and added table games in 2010 —
generating a combined $1.4 billion annually for the state at present — is doing virtually everything it can to tap that well more deeply. The Pennsylvania Lottery is also to be given a chance at greater sales by offering its games online.
“This is one of the most aggressive gambling expansion bills we’ve ever seen after the initial launch of casino gambling in any state,” said Joe Weinert, executive vice president of Spectrum Gaming Group, who has tracked Pennsylvania’s casino industry closely since inception.
In adding up the expansion package, a House Appropriations Committee fiscal analysis estimated that application and licensing fees could provide $238.5 million to the state this year. On an ongoing basis, there would be annual tax revenue from what’s siphoned to the state out of the gross revenue from gamblers’ losses, but that amount would be considerably less than the $238.5 million.
About the only type of expansion Pennsylvania lawmakers resisted was the long-sought goal by bars, taverns and other liquor-license holders to host legal video poker or other slot machines. That spread is deeply opposed by the casino operators, who invested hundreds of millions of dollars each in construction of their facilities.
Now it will be up to those same casinos to determine to what degree they want to act upon expansion opportunities under the legislation. The measure gives them options of paying one-time license fees that could amount to $7.5 million to add a minicasino or $10 million to operate poker and other casino games over the internet.
The initial reaction from the industry appeared to be mixed. These are not opportunities the casinos themselves sought, according to their officials, although their lobbyistswere busy trying to influence lawmakers as the massive, 900-plus-page bill was crafted and voted upon this week.
“If you ask pretty much anybody, they will tell you we were all pretty happy operating in the environment as we knew it,” said Troy Stremming, executive vice president of Pinnacle Entertainment, which owns the Meadows Racetrack and Casino in Washington County. “The status quo was perfectly fine with us, but we’ll look at what the opportunities are and see where we can go.”
Representatives of the Rivers Casino in Pittsburgh declined comment, but a more negative view came from Eric Schippers, executive vice president of Penn National Gaming, which operates Hollywood Casino in Dauphin County.
“We are beyond disappointed by the Legislature’s ill-conceived and hasty gaming expansion plan,” Mr. Schippers wrote in a statement. “We will be studying the entirety of the [bill], which many in the Legislature did not have the benefit of prior to voting, and in the meantime will be weighing all of our legal options.”
States differ vastly in how they legalize gambling and Pennsylvania would become even more different from most under the legislation.
Three states — Nevada, Delaware and New Jersey — have adopted internet gambling, in which people can play games similar to those in the actual casino. Analysts say they expect more to go down that path, even though revenue from it has mostly fallen shy of advance estimates, because it appears to attract a different type of customer from the one visiting casinos.
“Some operators in New Jersey say it’s not cannibalizing [their existing business by taking away revenue] but growing their bricks and mortar business” through marketing tie-ins, said Alan Meister, an economist and gaming analyst for Nathan Associates Inc. “It appeals to a younger, more tech-savvy crowd rather than traditional slot customers.”
Each of the existing casinos could add a satellite casino with up to 750 slot machines plus table games. Casinos presently can have up to 5,000 slot machines, although none has the maximum — the Meadows and Rivers each has about 3,000, which provide the bulk of their revenue.
Pennsylvania could now end up with small casinos in modest-sized cities such as, say, Johnstown or Altoona, for the benefit of gamblers who find the drive to Allegheny or Washington counties a deterrent. Mr. Stremming said Pinnacle will examine making such an investment.
“There is an opportunity to look into underserved markets, which could be good for the commonwealth and create new jobs and be a catalyst for economic growth,” Mr. Stremming said. Of the $7.5 million minimum bid for a license, he said, “It’s not a number that by itself will prevent operators from exploring the opportunity.”
Mr. Weinert said lawmakers appeared to have focused on preserving the chance for existing casino operators to make money from the expansion, rather than being harmed by it.
“Cannibalization is only a problem for the cannibalized, and if the existing casino operators are the ones that will be the operators of these satellite casinos and the operators of internet gambling, this by and large will be an opportunity for them,” he said.
Truck stops that meet certain requirements — such as minimum thresholds for truck parking and gasoline sold — could have up to five video lottery terminals, which are similar to slot machines. There is also a provision permitting casino-style machines at airports, with an operator required to pay $1.25 million for a license at Pittsburgh International Airport.
Questions lying beneath the combined proposals — and little discussed publicly by lawmakers — include just how much legalized gambling is more than what’s good for Pennsylvania, and at what point saturation simply transfers revenue from one form to another.
“I’ve got to believe that there’s a limit as to how much we’re going to achieve from gaming, and I don’t know whether we’ve reached that or not,” said House Minority Leader Frank Dermody, D-Oakmont. “I guess we’re going to see.”