Retail Casinos Just Saw Their Best Month Ever In PA, But Can They Sustain It?

July's record slots/table revenue may quiet talk of online cannibalization, for now
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A year ago, Pennsylvania’s gaming industry was holding its head above water through online gaming growth that offset gamblers’ aversion to brick-and-mortar casino visits in the midst of a pandemic.

Last month was a different story. The July figures released by the Pennsylvania Gaming Control Board showed casino visitors lost a record $309.8 million on slots and table games.

That was an increase in the casinos’ retail revenue of 18.9% from June, 42.4% from July 2020, and 12% from July 2019 (the last apt month for pre-COVID comparison purposes).

Notably, it marked the first time slots and table revenue increased from pre-pandemic monthly revenue even without counting the two Live! casinos in Philadelphia and Westmoreland County, which both opened in the past year. Those two properties represented $31.7 million of the state’s July total, and without them, the same 12 casinos open in July 2021 as July 2019 reaped $278.1 million last month, a 0.6% increase from two years ago.

That’s a significant milestone, in that many other states’ casino industries had already matched their pre-pandemic brick-and-mortar revenue levels in recent months. It took Pennsylvania longer to do so, even if its gaming industry overall was booming due to the growth of iGaming and sports betting in the past two years. It has repeatedly established monthly gaming revenue records this year, with all of those topped in July by the $423.7 million from all types of gambling.

The extent of the online growth raised some concerns that Pennsylvania’s retail casinos were being cannibalized in a way that wasn’t affecting their counterparts in states that have no legal iCasinos, which is the vast majority. July’s numbers — which represented a record month for not just overall gaming revenue but also for retail slots/tables specifically — offered the first rebuttal to that theory.

Maybe there’s cannibalization, maybe not

Deutsche Bank gaming analyst Carlo Santarelli was one in recent months who speculated that the increased popularity of online gaming was hurting Pennsylvania’s land-based industry, which now consists of 15 casinos after last week’s opening of Hollywood Casino York.

He noted retail slots and tables revenue in Pennsylvania was down 12% in March, 1% in April, and 3% from May compared to 2019 levels — and if focusing on just the 12 casinos open in both years, the dropoff was a steeper 22%, 10%, and 12%.

“We think it is worth considering the notion that the presence of iCasino in Pennsylvania could be stunting the casino recovery,” as the state’s casinos were lagging behind others in the Northeast, Midwest, and Southeast, Santarelli wrote in a research note that received media coverage.

Meanwhile, the American Gaming Association released a report Aug. 10 touting the recovery of the casino industry in this year’s second quarter, while noting Pennsylvania’s brick-and-mortar properties as among the exceptions.

The AGA reported that 17 of 25 states with commercial casinos experienced a revenue increase in them between the April-June 2019 and April-June 2021 periods. Overall commercial revenue reached a record $13.6 billion nationally in the quarter when earnings from sports betting and iCasinos in states where those are allowed were lumped together with traditional casino revenue.

“From our lowest point just one year ago, the U.S. gaming industry has vigorously fought back,” said AGA President/CEO Bill Miller. “Commercial gaming operators have generated $24.8 billion in revenue over the first half of the year, which puts 2021 on pace to surpass 2019 as the highest-grossing year in commercial gaming history.”

While Pennsylvania will help establish that national record due to its online gaming vastly exceeding revenue of prior years, it joined Maine, Kansas, Illinois, West Virginia, New Jersey, Michigan, and Rhode Island as states where traditional slots-tables revenue trailed second quarter levels of two years ago, according to the AGA.

In an interview with Penn Bets upon his retirement last month as chairman of the Pennsylvania Gaming Control Board, David Barasch noted the possibility that the availability and popularity of online gaming was hurting other revenue.

“I don’t know the breakdown of how many people have just stopped going to casinos and how many have switched to doing it online,” he said. “Once you get past whatever fears people have of being in large public spaces, we may find out how much of this internet stuff [has cannibalized land-based revenue]. If it’s new revenue, that’s good, but I don’t think we know yet, nor do I think we know if online gaming is going to plateau.”

Not all casinos rebounding equally

Online gaming in the state may in fact be plateauing. The July revenue of $88.7 million collected by 17 iCasinos was just a hair below June’s level and about on par with a monthly average of $89.7 million in 2021. May’s record iGaming revenue of $101.3 million was the sole month it exceeded $100 million.

It seems unlikely, meanwhile, that retail slots and table play will itself see future sharp increases. Statewide casino revenue from those had basically been flat during the decade before COVID, and the reasonable assumption is that they finally rebounded in July only because it was the first full month in which all of the pandemic-related restrictions on their operations — capacity limits, social distancing requirements, alcohol and smoking curbs, no live entertainment — had been lifted in their entirety.

The return to 2019 levels was not consistent across the board for all casinos. While statewide slots/tables overall was up 12%, and it was 0.6% higher on a same-casino comparison basis for the dozen longtime properties, only these five saw increases between July 2019 and July 2021:

  • Mount Airy Casino Resort (+21.1%)
  • Parx (+14.4%)
  • Mohegan Sun Pocono (+7.2%)
  • Presque Isle Downs & Casino (+7.1%)
  • Rivers Pittsburgh (+1.3%)

The following seven experienced revenue drops between the two Julys:

  • Valley Forge Casino Resort (-1.9%)
  • Hollywood Casino (-4.5%)
  • Wind Creek Bethlehem (-6.2%)
  • Rivers Philadelphia (-8.3%)
  • Meadows Racetrack & Casino (-10.6%)
  • Harrah’s Philadelphia (-15%)
  • Lady Luck Nemacolin (-22.2%)

Newcomers in Philly, Pittsburgh markets

The opening of three new casinos in Pennsylvania in the past nine months — Live! Pittsburgh in November, Live! Philadelphia in January, and Hollywood Casino York on Aug. 12 — is unparalleled by any other state. And it is interesting to examine their impact on the existing market, particularly in the case of the Live! properties, as there is no revenue report yet covering Hollywood Casino York and its primary competitor for gaming customers is the Hollywood Casino in Grantville with which it is affiliated under Penn National Gaming’s ownership.

The Live! properties, meanwhile, have entered the Philadelphia and Pittsburgh markets where there was already considerable casino competition among other operators.

The July revenue report offered some optimism about the newcomers’ ability to fit in, helping create an overall boost to revenue instead of simply diverting customers from Pennsylvania competitors.

Live! Philadelphia joined Rivers Casino Philadelphia, Parx, Harrah’s, and Valley Forge in the metropolitan Philadelphia market of adjacent counties.

Combined, those five collected $132.4 million in revenue in July, compared to $108.4 million in July 2019, a 22.1% increase. If leaving out the $21.9 million from Live! Philadelphia, the other four earned $110.4 million, a 1.9% increase over their performance two years earlier.

The Pittsburgh market was not quite as strong, while still offering hope more than just cannibalization can take place from the Live! Pittsburgh arrival in Westmoreland County, within an hour’s drive of Rivers Casino Pittsburgh, the Meadows, and Lady Luck Nemacolin.

The four casinos combined for $63 million in July revenue, a 13.2% increase over the $55.6 million by the three casinos without Live! in July 2019. If the $9.8 million from Live! Pittsburgh is discounted, the other three claimed $53.2 million in revenue, a 4.3% decrease from two years earlier.

For any comparison, of course — whether in southwestern or southeastern Pennsylvania or statewide — no single month’s figures offer reliability as to what the future holds. Nor is there any certainty relating to the Delta variant of COVID and whether it could limit casino operations again if caseloads worsen. The point here is that July offered some grounds for optimism that Pennsylvania’s casino operators had been awaiting.

Photo: Shutterstock

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