Area Growth Could Impact Revenue
by Tom LaMarra
Date Posted: 2/26/2008 3:14:08 PM
Last Updated: 2/27/2008 1:05:52 PM

Hollywood Casino at Penn National Racetrack is one of the casinos that have generated higher-than-expected revenue thus far in Pennsylvania.
Photo: Penn National

Wall Street analysts agree Pennsylvania’s racetrack casinos have generated higher-than-expected revenue thus far, but growth in the market, both in state and out, could impact those numbers going forward.

Thus far, slot machines around the state are producing an average win per machine of $307. There are 11,500 slots, about a quarter of the total that could be operating when all gaming halls are open in the state.

“The numbers have been very strong,” Adam Steinberg, a director at Morgan Joseph Investment Banking Group, said Feb. 26 during the Pennsylvania Gaming Congress in Harrisburg, the state capital.

Analysts project annual gross slot revenue of $2.5 billion to $3 billion when all racetrack and non-track casinos are built. Such projections are relevant to the Pennsylvania horse racing and breeding industry, which receives 12%-18% of gross revenue for purses, breed development, and other programs.

Thus far, four racetrack casinos and one resort casino have produced about $1.1 billion in gross slots revenue. The first facility opened in the fall of 2006.

The main competition for racetrack casinos will come from more elaborate non-track casinos and gaming in other states, including New Jersey, where the Atlantic City casinos are located, analysts said. David Katz, executive director of Oppenheimer & Co., said Atlantic City gaming halls have suffered 2%-3% revenue hits since the neighboring Pennsylvania slots facilities have opened.

Free-standing casinos in Philadelphia, however, could take another 2%-3% and also dent revenue at Philadelphia Park Casino & Racetrack and Harrah’s Chester Casino & Racetrack, Katz said. “I think the ones at greatest risk are probably Philly and Chester,” Katz said.

Another factor in the equation could be video lottery terminals at Meadowlands in northern New Jersey. The state’s horse industry has renewed a call for VLT gaming on track, but Atlantic City casinos and their legislative supporters oppose that plan. The horse racing industry in the state is awaiting word on a casino purse subsidy.

Steinberg said he believes Meadowlands eventually will get gaming machines. But he asked why.

“The better question is why would you put VLTs at Meadowlands?” Steinberg said, noting the Atlantic City casino industry employs 40,000 people and another 40,000 indirectly. “I don’t understand why they are talking about hurting one industry and helping another that always has its hands out.”

On the topic of sports betting, which regularly comes up in Delaware, where it’s federally legal, and New Jersey, where it’s not, analysts indicated the impact of sports betting at existing gaming facilities would be marginal. Steinberg said sports betting in Las Vegas casinos accounts for about 2% of revenue.

“I don’t think it’s a real driver,” he said.

Marc Falcone, senior analyst for Magnetar Capital, said illegal betting on sports is readily accessible and more popular.

“Sports betting is an amenity, but it’s not a traffic-driver,” Falcone said.



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