July Has Brought New Impediments To PA Casinos’ Ability To Get Back On Track

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The reopening of most Pennsylvania casinos in June brought a better revenue rebound than most would have expected, but that doesn’t guarantee they will continue doing as well in the COVID-19 era.

Operators who were allowed to resume business after shutdowns of 12 weeks or more are dealing in July with new restrictions on their operations, on top of those that were set by the Pennsylvania Gaming Control Board for health and safety prior to reopening.

And the new limits — on the ability of their patrons to consume alcohol and smoke — go far more directly to the heart of potential revenue than does the requirement that everyone wear a mask.

The actual figures telling the impact of those new limits aren’t yet available, but multiple operators say — unlike the strong June numbers for the 11 casinos that operated part of the month — it has become a lot harder to match their pre-COVID revenue.

They’re happy to be open, mind you, and have avoided the worst fears that patrons wouldn’t return to casinos due to health or financial concerns. It’s just that they’re dealing with new obstacles on their ability to thrive in the manner they did in the pre-COVID era.

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PA rebound had similarities elsewhere

When the gaming board last week unveiled numbers showing the partially reopened casinos made $74.1 million from slots and table games in June, a Penn Bets analysis suggested they earned 5.2% more on a per-day basis than was the case in June 2019.

The positive of such an increase is accentuated even more if one takes into account the casinos’ reduced costs for labor and for amenities they’re not offering under present restrictions.

As it turns out, that stronger-than-expected rebound in Pennsylvania was not unusual, especially for casinos in what are known as regional markets instead of the destination centers like Las Vegas that people fly into or drive long distances to reach for overnight stays.

In a July 15 filing with the U.S. Securities and Exchange Commission, Caesars Entertainment Corp. reported that among 20 properties it reopened in May and June, year-over-year revenue was up 9-11% in its regional casinos. The Caesars “destination” properties in Nevada and New Orleans, meanwhile, were off 43-45% for their days of operation.

That meshes with an assessment this week by analysts for the SunTrust Robinson Humphrey investment firm, who found “surprisingly strong initial results” across the board from reopened casinos — at least those outside of Las Vegas.

“Today’s gaming market has essentially morphed back 30+ years in time to when the main focus was recession resistant gambling, as non-gaming amenities take a back seat,” the analysts reported. “We expect these new gambler-centric dynamics to disproportionately benefit regional drive-to markets, vs. the destination oriented Strip where severely depressed group business also continues to drag on the overall recovery.”

Wind Creek sees a challenge in July

When Wind Creek Bethlehem reopened to the public June 29, it was to stronger-than-anticipated business, said General Manager Kathy McCracken.

It has not had lines of people waiting to get in, which was a possibility under a reservation system set up to guarantee admission to those willing to plan in advance. The reservation system was devised as a way to deal with a rule limiting casinos to no more than 50% of their normal maximum occupancy.

Even without reaching that capacity, the casino did well upon reopening. It reported $3.2 million in slots and table revenue for June. That would have been 11.4% above its per-day average in June 2019 if it had been open just June 29-30. McCracken acknowledged this June’s revenue also included three days of earnings from a “soft” opening for invited guests starting June 26, so the revenue report appears somewhat better than it actually was.

Still, she was pleased by the numbers, “but if it stays that way in July for everyone, I’d be surprised.”

“Where we’re located, we get a lot of north Jersey and New York customers, and how much they’re traveling is questionable,” McCracken said. “We do see our loyal customers coming back often — I think they’re comfortable — but for the casual gamer, I’m not sure yet.”

On top of that is the still-to-be-assessed impact of new state restrictions. Wind Creek had decided voluntarily to ban indoor smoking due to COVID-19 health concerns, even before the state ordered it, but the alcohol restriction came as a surprise.

The state late last week mandated that, just as for bars and restaurants, casinos may serve alcohol only to someone someone having a sit-down meal. It’s a way to address a rising number of COVID cases in Pennsylvania thought to be linked to alcohol consumption. Cocktail waitresses are no longer circulating around Wind Creek’s casino floor to offer free drinks.

“I think, personally, it will have an effect” on the casino’s patronage, although it’s too soon yet to tell, McCracken said. “When you come to a casino, you’re kind of going for an escape.”

Lady Luck senses impact from smoking ban

For Lady Luck Casino Nemacolin in rural Fayette County, the state’s smallest operator, the restart over 19 days in June couldn’t have gone any better.

Revenue of nearly $2.3 million was about 40% higher than the same period a year ago, though General Manager Gary Hendricks said the increase was partially inflated by some operating transitions in June 2019. It was undergoing a change in management to Churchill Downs Inc. at that time and in the midst of shedding a requirement that visitors pay a $10 resort fee for admittance.

Even so, Hendricks said, “June was a very good month for us. The reopening went really well, really smooth. … I think most of our players felt comfortable coming back. They felt safer here than in other places,” due to all the required precautions in casinos.

But as for July, he is not expecting to match revenue from a year ago, based on what he’s seen so far under the new restrictions. Unlike Wind Creek, Lady Luck had imposed no smoking ban of its own, but now the state requires that smokers be outside because people cannot realistically smoke and wear a mask at the same time.

“The old saying is that smokers gamble and gamblers smoke,” Hendricks said of the two going hand in hand. It’s not so much that smokers have stopped visiting, he said, but while at the casino they gamble less because of the smoke breaks they need to take outside.

Like McCracken, meanwhile, he is waiting for this weekend to assess the impact of denying alcohol service on the casino floor. The rule took effect last weekend, but one Saturday night when most people weren’t aware of the restriction before arriving doesn’t indicate much, he said.

July picture nationally is also intriguing

National companies that operate casinos in Pennsylvania, such as Penn National Gaming and Boyd Gaming, have upcoming earnings calls that could shed further light on how they’re performing prior to the next state gaming board revenue report.

Those big operators’ Pennsylvania casinos also have exceeded the projections of most analysts, even if questions exist about the extent to which that continues.

Pennsylvania is not the only state with a new smoking ban, and Chad Beynon, an analyst with Macquarie Group, said in an email that the measure’s impact on revenue might be 5-10% — perhaps less drop-off than normal considering a lack of other entertainment alternatives in the COVID era.

“We believe the year/year growth in casinos revenues is due to several factors including government checks, pent up demand and longer trips to the casino by most of the guests,” Beynon said of the positive revenue reports in Pennsylvania and elsewhere. “On average, casino visitors will make 3-5 trips per month, and given that patrons weren’t able to visit for roughly 100 days, they’ve increased the spend or length of play on the recent trips.”

There are lots of variables at play, however, in whether the positive trend continues, he noted. Various economic factors like the stock market play a role in addition to COVID-related health concerns. Everyone in the industry is dealing with such uncertainties on top of Pennsylvania operators’ new restrictions.

“We believe the rose may have slightly come off the bud in July,” Beynon surmised.

In Pennsylvania, that will only become clear once July revenue figures are released in mid-August.

Photo provided by Shutterstock

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Gary Rotstein

Gary is a longtime journalist, having spent three decades covering gambling, state government, and other issues for the Pittsburgh Post-Gazette, in addition to stints as managing editor of the Bedford (Pa.) Gazette and as a reporter for United Press International and the Middletown (Conn.) Press. Contact Gary at gary@usbets.com.

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