by Tom De Martini

Pennsylvania slot machine revenue has exceeded expectations according to Wall Street analysts, who cautioned racino operators to expect a moderation in business when two Philadelphia-area casinos open in 2009.

The appetite for slot machine gaming in the Pennsylvania remains high. The state has 11,500 slots currently in operation—25% of the maximum 45,600 allowed under Act 71 of state law—which garnered an average daily profit of $307 per machine throughout the state, according to Adam Steinberg, a director at Morgan Joseph Investment Banking.

David Katz of Oppenheimer and Co., speaking Tuesday at the Pennsylvania Gaming Congress along with analysts Marc Falcone of Magnetar Capital and Steinberg, said a daily profit of between $175 and $225 per machine is more realistic moving forward.

Steinberg predicted Philadelphia Park in Bensalem and Harrah’s Chester Casino & Racetrack in Chester will feel the financial impact when stand-alone casinos open in Philadelphia.

“Philadelphia Park will continue to do well during the week, but the city casinos will offer more amenities, such as restaurants and entertainment, to a broader audience,” he said.

Falcone said the stand-alone city casino operators will enjoy advantages such as location, strong population density, and quality of facilities, things that a temporary racino operation lacks.

The trio of analysts noted Pennsylvania ranked third, behind New York and Connecticut, in slot-machine revenue in the Mid-Atlantic and Northeast regions last year with $1.08-billion.

“None of these Pennsylvania facilities are operating at capacity, so they can further increase their assets,” Falcone said. “The numbers for the first two weeks at Hollywood Casino at Penn National were quite good.”

Falcone said the current slump in the economy and possible financing problems for racinos under construction could serve to dampen enthusiasm during the next two years.

“Financing is still difficult,” Falcone said. “It will take five years to get a real feel for where Pennsylvania gaming is heading.”

“When a new property opens, a euphoria occurs,” Katz said. “The racinos can add slot machine supply, maybe not now, but in a few years.”

John Finamore, senior vice president of regional operations for Penn National Gaming, said the recently opened Hollywood Casino at Penn National Race Course already is operating at capacity on Saturday nights.

”I’d beg to differ with the analysts, because there are people who are frustrated that they can’t sample what we have to offer on the weekend,” Finamore said. “I don’t want to be overly euphoric after two weeks, but our win per unit is over $300, and we’re very pleased with the public’s response.”
 
The Grantville, Pennsylvania racing and gaming facility opened with 2,000 machines in operation, but is designed to handle an additional 1,000 units.

Edson “Ted” Arneault, chairman, president and chief executive officer of MTR Gaming, Inc. said one-year-old Presque Isle Downs and its 2,000 machines have drawn the majority of its customer base from the Buffalo, New York and Cleveland, Ohio in addition to the local Erie Area.

“We generated $141-million in gaming revenues, which is about $231 per machine, per day,” Arneault said.

Steinberg said he does not expect table-game legislation to be introduced until each of the 14 casinos in the state are operational.

“The tax rate of 56% makes table games non-profitable,” he said.

Several racinos, including the state’s three Thoroughbred tracks, offer virtual-table-game machines.

Mountaineer Casino and Racetrack in Chester, West Virginia, owned by MTR Gaming, began offering live table games in January after voters approved a referendum last year.

Charles Town Races in Charles Town, West Virginia, owned by Penn National Gaming, did not receive voter approval on a similar measure and must wait until 2009 to try again. 

Steinberg said he feels video-lottery terminals at the Meadowlands in East Rutherford, New Jersey will eventually become a reality, affecting business at the Philadelphia- and Pocono-area casinos.

Tom De Martini is a New Jersey-based Thoroughbred Times correspondent