THE CURRENT CONDITION AND FUTURE VIABILITY OF CASINO GAMING IN PENNSYLVANIA MAY 2014 REPORT SUBMITTED TO: Philip Durgin Executive Director The Pennsylvania Legislative Budget and Finance Committee A Joint Committee of the Pennsylvania General Assembly Office Room 400, Finance Building Harrisburg, PA 17105 REPORT SUBMITTED BY: Econsult Solutions 1435 Walnut Street, Suite 300 Philadelphia, PA 19102 Econsult Solutions, Inc.| 1435 Walnut Street, Ste. 300 | Philadelphia, PA 19102 | 215-717-2777 | econsultsolutions.com The Current Condition and Future Viability of Casino Gaming in Pennsylvania | May 2014 1 TABLE OF CONTENTS Table of Contents............................................................................................................................ 1 Executive Summary ........................................................................................................................ 4 1.0 Introduction ......................................................................................................................... 11 2.0 Pennsylvania Gaming Industry Performance ................................................................. 14 2.1 Industry Supply ........................................................................................................... 15 2.1.1 Slot Machine Supply and Revenue ..................................................................... 17 2.1.2 Table Game Supply And Revenue ..................................................................... 19 2.1.3 Revenue Per Position ............................................................................................. 21 2.2 State and Local Gaming Tax Revenues ................................................................. 23 2.3 Economic Impact ...................................................................................................... 27 2.4 Individual Casino Performance and Impacts........................................................ 30 2.4.1 Mohegan Sun at Pocono Downs ........................................................................ 30 2.4.1.1 Economic Impact of Mohegan Sun at Pocono Downs ............................... 32 2.4.2 Parx Casino ............................................................................................................. 34 2.4.2.1 Economic Impact of Parx Casino .................................................................... 36 2.4.3 Harrah’s Philadelphia Casino & Racetrack ....................................................... 38 2.4.3.1 Economic Impact of Harrah’s Philadelphia Casino ...................................... 40 2.4.4 Presque Isle Downs Casino ................................................................................... 42 2.4.4.1 Economic Impact of Presque Isle Downs Casino .......................................... 44 2.4.5 Meadows Racetrack and Casino ....................................................................... 46 2.4.5.1 Economic Impact of Meadows Racetrack and Casino .............................. 48 2.4.6 Mount Airy Casino Resort ..................................................................................... 50 2.4.6.1 Economic Impact of Mount Airy Casino Resort ............................................. 52 2.4.7 Hollywood Casino at Penn National ................................................................... 53 2.4.7.1 Economic Impact of Hollywood Casino at Penn National .......................... 55 2.4.8 Sands Casino Resort Bethlehem .......................................................................... 57 2.4.8.1 Economic Impact of Sands Casino Resort Bethlehem ................................. 59 2.4.9 Rivers Casino .......................................................................................................... 61 2.4.9.1 Economic Impact of Rivers Casino .................................................................. 63 2.4.10 SugarHouse Casino ............................................................................................ 65 2.4.10.1 Economic Impact of SugarHouse Casino ...................................................... 67 2.4.11 Valley Forge Casino Resort ............................................................................... 69 2.4.11.1 Economic Impact of Valley Forge Resort Casino .......................................... 71 2.4.12 Lady Luck Casino at Nemacolin ...................................................................... 73 2.4.12.1 Economic Impact of Lady Luck Casino at Nemacolin ................................ 75 3.0 The Changing Competitive Landscape .......................................................................... 76 3.1 Decomposition of Pennsylvania’s 2013 Gaming Tax Revenue Decline ............ 76 3.2 Regional Competitive Trends ................................................................................... 79 Econsult Solutions | 1435 Walnut Street, Ste. 300 | Philadelphia, PA 19102 | 215.717.2777 | econsultsolutions.com 2 The Current Condition and Future Viability of Casino Gaming in Pennsylvania | May 2014 3.2.1 Snapshot ................................................................................................................. 79 3.2.2 Supply and Revenue Trends, by State ................................................................ 81 3.2.3 Total Regional Revenue ........................................................................................ 86 3.2.4 Supply Forecast and Summary, by State ........................................................... 88 3.2.4.1 Delaware ............................................................................................................. 89 3.2.4.2 Maryland ............................................................................................................. 90 3.2.4.3 New Jersey .......................................................................................................... 91 3.2.4.4 New York .............................................................................................................. 91 3.2.4.5 Ohio ...................................................................................................................... 92 3.2.4.6 West Virginia ........................................................................................................ 92 3.2.4.7 Virginia ................................................................................................................. 93 3.3 Gravity/Other Model of Projected Revenues Given a Few Future Competition Scenarios .............................................................................................................................. 94 3.3.1 Overview ................................................................................................................. 94 3.3.2 Gravity Model Caveats ........................................................................................ 95 3.3.3 Modeling Results .................................................................................................... 97 3.4 Capital Investments ................................................................................................. 101 3.4.1 Reinvestment in Amenities ................................................................................. 101 3.4.2 Casino Investment is Linked to Market Size and tax Rate ............................. 102 3.4.3 Cross State Incentives ......................................................................................... 102 3.5 Financial Sustainability ............................................................................................ 103 3.5.1 Philadelphia Area Casinos ................................................................................. 103 3.5.2 Pittsburgh Area Casinos ...................................................................................... 104 3.5.3 Northeast Pennsylvania Casinos ....................................................................... 104 3.5.4 Central .................................................................................................................. 105 3.5.5 Northwest .............................................................................................................. 105 3.5.6 Overall Impact ..................................................................................................... 105 3.6 Conclusions Regarding Competition .................................................................... 106 4.0 The Regulatory Landscape ............................................................................................. 107 4.1 Regulatory Comparison With Selected States .................................................... 108 4.1.1 Licensing ............................................................................................................... 108 4.1.2 Reporting .............................................................................................................. 112 4.1.3 Operations ............................................................................................................ 113 4.1.4 Monitoring/Enforcement .................................................................................... 116 4.1.5 Disciplinary Actions .............................................................................................. 117 4.1.6 Cost and Efficiency ............................................................................................. 119 4.2 Regulations Disadvantaging Pennsylvania Gaming .........................................