By all accounts, the recession has passed and state by state the gaming industry should be in recovery. But that is not the case because many of the states are facing much more competition than they did before the recession. A rapid expansion is taking place in the eastern half of the country that is making some lasting changes to existing gaming jurisdictions. Quantifying those changes can be difficult using conventional methods. The traditional method uses revenue comparisons of monthly revenue figures contrasted with the same month in the previous year. All industries with seasonal revenue variations use the same year over year comparison to indicate the health of the industry and identify its revenue trends. It is a valuable method, but it has limitations.
There are times when it takes something more than the monthly snapshot to see the full ramifications of a trend. The expansion into new jurisdictions along with its attendant contraction in existing jurisdictions requires a longer view to fully grasp. In the last decade, Pennsylvania, Ohio, Massachusetts, New York, Illinois and Maryland have added casinos and slot machines in non-casino locations. All of that expansion has significantly altered the gaming landscape in Connecticut, New Jersey, Indiana and West Virginia.
I started to think about the issue this month because of a story posted on WCPO-TV, Cincinnati’s website. It stated the Hollywood Casino in Lawrenceburg reported an all-time low revenue in November. Besides losing revenue, the casino is losing slot machines. Dan Monk of WCPO said there are now 1,802 slot machines at the Hollywood Casino that produced $11.4 million in November. By way of contrast he said in 2012, the casino had 3,200 slot machines that generated $28.9 million in revenue. State records indicate that Hollywood’s best November was in 2009, it reported $35.8 million from 3,200 slots.
Hollywood Casino in Lawrenceburg hit an all-time low in revenue last month after quietly taking hundreds of slot machines off line in the last 12 months. Hollywood property had $11.5 million in taxable adjusted gross revenue in November. Hollywood was the region’s largest casino before 2012, with 3,200 slot machines and monthly revenue that averaged more than $30 million. Last month, Hollywood had 1,802 slot machines operating, down 19 percent. Dan Monk, WCPO-TV, 12-11-15
The reason for the decline in revenue and the number of slot machines is simple, competition from Ohio. Casinos in Ohio began opening in 2012, now there are seven racetracks with slot machines and four casinos with a total of 18,473 slot machines in the state. The Lawrenceburg casino is primarily impacted by Ohio, but for other casinos in the state, Illinois is equally important. Illinois has added 20,000 slot machines in bars, fraternal organizations and restaurants in the last three years. And Kentucky is becoming a factor for casinos in southern Indiana; racetracks in Kentucky began installing slot machines last year. The games in Kentucky are called historical racing machines, not slot machines. But from an analytical point of view, they generate revenues equivalent to slot machines. In October the state racing commission reported $40 million in revenue from an estimated 2,000 games. In total, 40,000 slot machines have been added to the region since 2012. It is hardly surprising that the Hollywood Casino is struggling.
Neither is Hollywood nor the other casinos in Indiana the only ones feeling the impact of gaming in neighboring states. Illinois, Michigan, West Virginia, Pennsylvania and New Jersey have all seen gaming revenues decline due to competition. The poster-child for the phenomenon is Atlantic City. In November 2015, gaming revenue in Atlantic City was $204 million, an increase of .9 percent over the previous year. It is only the second or third time since 2007 that Atlantic City casinos have had a year over year increase in revenue. In 2007 casinos in Pennsylvania became a significant factor for the casinos in New Jersey. In November 2006, Atlantic City casinos reported $406.1 million in revenue, an increase of 1.6 percent over 2005. Atlantic City casino revenue has dropped by fifty percent in nine years. It has dropped from the second nationally in gaming revenue to fifth in October, behind Pennsylvania, Louisiana, Illinois and Nevada.
The intense pressure casinos all across the region are experiencing is forcing them to respond by increasing their marketing, investing in added amenities and cutting expenses. Casinos cut payroll, reduce the number of slot machines and table games, cut employee benefits, renegotiate debt and eliminate all non-essential services. The process is painful and not very rewarding. In 2014, those measures were not enough for four casinos in Atlantic City that were forced to close. There is no magic wand to bring back the “good old days.” The best those casinos can hope to accomplish is to stabilize the revenue stream and grind out a small profit from the remaining business.
However, stabilization is only possible if the market stabilizes. That is not happening anywhere in the region as the expansion is ongoing. Illinois is still adding slot machines, Kentucky will continue its expansion, Pennsylvania has several bills in the offing that would expand gaming in that state – including adding more slot machines outside of casinos. New York has just awarded three casinos licenses, MGM National Harbor in Maryland is expected to open in 2016 and even the snail state, Massachusetts can be expected to add two major casinos within three or four years. Before any stabilization can take place, the existing casinos will have to absorb the impact of that expansion.
I could not begin to guess when the industry in the region is going to stabilize. For certain, it is not going to happen for five years and maybe longer. And even the new, as yet unopened casinos are going to be opening in a very challenging environment. The Great Recession is no longer a factor, but it has been replaced by a much longer lasting and difficult to assess phenomenon, the Great Expansion.
