Pennsylvania managed to set a revenue record in 2016, in spite of the state’s casinos posting their second worst slot revenue tally in the last six years.

Slot revenue has been stagnant for several years in the Keystone State, and down year-over-year in three of the past four.

Here’s a historical look at Pennsylvania slot revenue:

  • 2007: $1.039 billion
  • 2008: $1.616 billion
  • 2009: $1.965 billion
  • 2010: $2,274 billion
  • 2011: $2.406 billion
  • 2012: $2.471 billion
  • 2013: $2.384 billion
  • 2014: $2.320 billion
  • 2015: $2.366 billion
  • 2016: $2.360 billion

This slot revenue dip was largely hidden by the addition of table games in 2010, which more than offset the slot revenue declines and led to back-to-back record years in Pennsylvania.

But the slot revenue trend should be worrisome, especially for the individual casinos. And it adds up to a good case for legalizing PA online casinos.

Recent slot performances year by year

2014 bad all around

2014 was a year to forget for Pennsylvania casinos.

Ten of the state’s 12 casinos saw slot revenue decline year-over-year. It likely could have been worse, considering the state’s two Category 3 casinos were recent arrivals: Lady Luck Nemacolin opened in July 2013, and Valley Forge opened in March 2012.

2015 was ‘meh’

In 2015, the Pennsylvania casino industry rebounded, but individual operators didn’t experience the same type of bump as the whole industry.

Yes, just four of the state’s casinos experienced slot revenue declines. But this shouldn’t be surprising, considering the pitiful performance from the year before.

Additionally, the bump was small for another third of the state’s casinos. Four others only increased revenue marginally, between zero and 1.35 percent.

2016 constitutes a trend

In 2016, six of the state’s casinos suffered slot revenue declines, and three others saw slot revenue grow less than two percent.

Furthermore, casinos that experienced growth did so at a subdued rate, with SugarHouse Casino leading the way with a mere four percent rise in slot handle. That’s a far cry from some of the revenue increases posted by individual operators in previous years.

Table game revenue continues to rise, but it appears Pennsylvania has hit a critical mass on the slot side of the casino floor. When table game critical mass is reached, the record-setting years will come to an end.

Challenges facing Pennsylvania casinos

Three things are likely behind Pennsylvania’s recent slot numbers:

  1. First, Pennsylvania’s casino industry has likely hit critical mass with 12 casinos.
  2. Second, a decade in, the Pennsylvania market has reached maturity.
  3. Third, competition continues to pop up in surrounding states.

Soon enough, table games will also reach full maturation. The bigger question is how Pennsylvania deals with out-of-state competition.

This question was first answered by former Rep. John Payne. He told Online Poker Report in March 2015, “My mission statement is to keep gaming in general healthy, but in particular to make sure our casinos stay healthy and competitive against our surrounding states.”

Part of keeping Pennsylvania competitive means finding new revenue streams for casinos, as the market is only going to become more competitive over time.

Payne would go on to champion a number of gaming reforms, including online gambling legalization.

Time to start looking elsewhere

Pennsylvania is currently considering a number of Payne’s gaming proposals designed to increase existing revenue or generate new revenue.

The state’s legislature is considering everything from adding slot machines at airports to easing restrictions on Category 3 casinos in exchange for a one-time fee. But it’s Payne’s baby, online gambling, that would create the biggest revenue stream.

The online gambling industry in Pennsylvania is estimated to be in the $250 million range. That is a pretty significant chunk of the state’s total gaming revenue of $3 billion per year.

Online gambling doesn’t cannibalize casino revenue

There is also mounting evidence that online gambling benefits land-based casinos.

In a 2015 paper, researchers at UNLV noted, “The expansion of online gambling will lead to new (online) revenue sources and higher revenue within existing (complementary) products… local tourism dollars being generated by offline casinos are enhanced by the addition of online gambling legalization.”

Essentially, by legalizing online poker, Pennsylvania lawmakers would not only be bringing the state’s gaming industry into the 21st century. They would also be giving casino revenue an immediate shot in the arm by opening up a new revenue stream and (according to research) increasing land-based play and visitation.

Disregard the potential of online gambling to boost land-based revenues. Had Pennsylvania legalized online gambling in 2015 and hit the estimated $250 million in Year 1 revenue, the 2016 revenue numbers for the state’s casino industry would have looked like this:

2015 Revenue 2016 Revenue YoY change
$3,173,787,012 $3,463,422,178 +8.3%

 

Instead of this:

2015 Revenue 2016 Revenue YoY change
$3,173,787,012 $3,213,422,178 +1.2%

There is nothing wrong with 1.2 percent growth. But had total gaming revenue risen more than eight percent, stagnant slot machine numbers would be less of a concern for the state and the individual casinos.