Sunday, February 15, 2009
By Gary Rotstein, Pittsburgh Post-Gazette
Western Pennsylvania is about to undergo a massive expansion of legalized gambling, regardless of any action on Gov. Ed Rendell's controversial proposal to legalize video poker in neighborhood bars and clubs.
The Meadows Racetrack & Casino plans by May to more than double its size by opening a permanent casino, replacing a small but successful temporary structure housing 1,825 slot machines.
In August, officials of the Rivers Casino on Pittsburgh's North Shore hope to open with 3,000 slot machines.
The two projects will bring 5,000 new slot machines to the region during an economic downturn that is the worst in decades. In Las Vegas, Atlantic City and other gambling meccas, the recession has led to layoffs and scaled-back development plans within the casino industry.
But the type of expansion that might be a recipe for financial disaster elsewhere in the country in 2009 appears to be causing minimal concern in Western Pennsylvania.
"Frankly, we think Pittsburgh is an underserved market from a gambling standpoint," said Ed Fasulo, general manager of the Rivers Casino. "This is one of the premiere or prime urban gaming site locations in the country."
Mr. Fasulo, other casino industry officials, regional economists and gaming analysts have several explanations for how local slots parlors can counter a national gambling slowdown:
• Pennsylvania's seven casinos, as a new attraction, have continued to grow their revenue despite the economic slump. In nearly all cases, they're making more money each month than they did for the same month a year earlier.
• The Pittsburgh area's economy has not been shaken as much as other parts of the country by the recession.
• The casino industry relies more than other businesses on older clientele, of which there are plenty here, and the income of people in their 60s and 70s is more stable than that of younger adults.
Mike Graninger, general manager of The Meadows, said the facility is so busy on weekends and during special promotions that people have to wait to use the machines. That makes officials comfortable with their $132 million investment in a permanent casino with 3,900 machines, new dining and entertainment options and an indoor parking garage.
"When we came here, we really grew the market, and I think that'll happen again," Mr. Graninger said. "These people in Western Pennsylvania are very cognizant of their money and pay and retirement funds and entertainment dollars. They don't have a propensity to leverage themselves, and don't have all that debt."
The Meadows has been averaging about $20 million in monthly revenue, 55 percent of which is taken directly for government taxes and other state-mandated purposes. That revenue is expected to go up with the addition of more than 2,000 slots, but competition from the $800 million Pittsburgh project will limit the size of the increase.
The Pennsylvania Gaming Control Board has estimated that the Pittsburgh casino could eventually make as much as $40 million in monthly revenue. It has the advantage of a denser population base than The Meadows within its key market ranging 25 to 50 miles. Still, Mr. Fasulo says there's no certainty the Rivers Casino will ever reach its maximum of 5,000 slot machines; officials plan to get to 3,800 a year or so after opening and see how the supply and demand work out.
The gambling expansion could mean people lose about $1 million a day in the new machines at the two sites instead of saving that money or spending it on other purposes.
Economists say that's a good thing locally if the gamblers are from outside the region, or if they're people who might otherwise have traveled outside of Western Pennsylvania to gamble.
"If you only get people from within 50 miles, then there can't be much economic gain," said Christopher Briem, a regional economist at the University of Pittsburgh.
The local casinos lack the Vegas-style hotels, concert halls and other amenities that would draw many tourists. Mr. Briem and PNC Financial Services Group senior economist Robert Dye noted that they're therefore competing with other close-to-home entertainment options such as movies, concerts and restaurants.
Critics of gambling expansion argue that the potential harm to other businesses is one reason to keep casinos out. But economists say the value of the jobs they create -- at least 1,000 people will be hired at the Rivers Casino and hundreds more added at The Meadows -- shouldn't be overlooked.
"From a purely economic point of view, I don't see a downside," Mr. Dye observed of the casinos.
In West Virginia, the Northern Panhandle casinos of Wheeling and Chester that had the regional casino market to themselves two years ago have both been hurt by the presence and success of The Meadows. Their slots revenue declined last year, and they made up for it only by adding table games, which are more labor-intensive and costly to operate than slots.
The Wheeling Island Hotel-Casino-Racetrack eliminated 43 positions this month, on top of 34 in December. The larger Mountaineer casino announced 175 layoffs last month. In both cases, executives attributed the cutbacks to a combination of the economic slowdown and Pennsylvania competition.
Jim Simms, president of Wheeling Island, said Pennsylvanians once made up 70 percent of his facility's customers, which has dropped to about 50 percent. The North Shore casino will likely reduce that percentage even more, and Wheeling Island is trying to market itself as a special getaway, with more amenities than Pennsylvania competitors.
"I think there's enough business for the four casinos to continue to be successful," said Mr. Simms.
Bill Eadington, head of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada-Reno, said it remains to be seen what the saturation point is for gambling in the region, because its growth is still fresh. The casino operators typically assess the density of adult population, its average income, those residents' tendency to gamble and the tax rate as among factors that help determine where to locate and how big to build.
"When you get into a market that's saturated, it's difficult to be extremely successful, but you can still be profitable," Dr. Eadington noted.
One big question remaining is whether those profits to be made by Western Pennsylvania casinos will come at the expense of increased social problems, as gambling opponents suggest.
"You have to be concerned about the national data, about the percentage of people with problem gambling and addictive gambling," said Bob Stumpp, senior policy manager for Allegheny County's Department of Human Services.
Mr. Stumpp is also head of a human services committee on a city-county task force created to address issues related to the Pittsburgh casino. He observed that if legalized gambling creates any new social problems, it may be hard to sort it out as the cause instead of the general recession.
Regardless, Mr. Stumpp said, possible increases in problems such as mental health troubles, domestic violence, crime or bankruptcies would come at a time when slumping tax revenues make governments ill-prepared to respond.
The state's primary way of recognizing the potential downside of gambling expansion has been to certify and fund a new system of gambling addiction counselors. The Pennsylvania Department of Health's Web site lists 40 such providers now in the state, including eight in Allegheny County and five in Washington County.
Based on the 20 months of operation of The Meadows, it may take longer before any negative effects become evident -- if they do.
"Prior to the casino opening up," said Timothy Kimmel, director of human services for Washington County, "we anticipated there would be a social impact on our human service delivery system. ... But if the problems have been created, it's very subtle to us."
Part of the subtlety could be that it takes a longer period for many people to develop full-scale addictions that emerge as crises. It also could be that with the availability of both legal and illegal gambling opportunities to begin with, the addition of slot machines did not dramatically increase the number of problems.
Either way, Mr. Kimmel is relieved by the lack of gambling-specific problems known to have emerged. With plenty of non-gamblers affected by the economy, he said, "The casino is the least of our worries."
http://www.post-gazette.com/pg/09046/948999-53.stm
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