Amid Economic Gray Skies, a Patch of "Sun"
They’re bucking a nationwide trend, and while there are quite a few reasons for that, the recent financial news out of Pennsylvania may give the entire casino industry reason for hope during the worst worldwide economic downturn in decades.
According to November figures released by the Pennsylvania Gaming Control Board in early December, six of seven casinos in the Keystone State reported a nearly 13 percent increase in revenue compared with the previous year.
November slot revenue was $114.7 million, up from $101.6 million in November 2007, the board reported. Among those reporting significant year-over-year increases was Wilkes-Barre’s Mohegan Sun at Pocono Downs, the first casino to open in the state.
“The positive trend is in revenue growth on the slot product,” said Bobby Soper, president of Mohegan Sun at Pocono Downs. “We’ve seen approximately 12 percent revenue growth year-over-year.
“Much of that is attributable to the introduction in the last quarter of our new project, Project Sunrise,” he added, referring to the $208 million expansion at the property. “Another positive aspect is that we were able to maintain, even during the operation of our temporary facility, a fairly strong market share and slot efficiency. I think that boded well for us as our permanent facility came on board.”
The 36-year-old Soper, who started his career with the Mohegan Indian tribe as its in-house counsel, said “ensuring that we control our costs and maintain our service levels is his biggest daily challenge at the property.
“We’re trying to grow the market and increase awareness, and it takes dollars to ramp up, so finding the right balance can be tricky. But it’s something every day we work on.”
The increases over 2007, he added, “are an indication that our service levels were where they needed to be and that people are familiar with our brand. That allowed us to sustain our revenues with the temporary facility and then, of course, when we added our non gaming product and doubled our supply of gaming product we were able to grow year-over-year.”
Waiting for the sunriseThe long-awaited permanent facility at the property includes an impressive array of gaming and non-gaming amenities. The number of slots at Mohegan at Pocono increased from 1,200 at the temporary facility to 2,500 at Sunrise, for example, and nine different eating venues were added, including the region’s only Ruth’s Crist Steakhouse, an Italian eatery called Rustic Kitchen, a tavern-restaurant concept called Bar Louis, a Wolfgang Puck’s Express and a bar/nightclub called Breakers.
“That’s our own creation,” Soper said of Breakers, distinguishing it from vendor franchises. “It’s a concoction of a Coyote Ugly, a rock bar and a sports bar, all in one. So our bartenders dance on the bar and there are bands playing, and it’s become a real hotspot in Northeast Pennsylvania, especially on weekends.”
The Breakers nightclub concept seems to have paid significant dividends for the property, which, Soper said, is now drawing a younger-than-average audience for a casino.
“With the addition of the various non-gaming amenities, our demographic profile has expanded, especially in evenings and on weekends,” he said. “Not only have we been able to draw a younger segment that had previously been absent but we’re also able now to extend our geographic market as more people are willing to travel a greater distance to the property. I think that has allowed us to generate greater volume year-over-year.”
Admittedly, however, the timing of the opening was less than ideal. At a time when many Americans are trying to cut back on expenses and may be worried about future employment options, spending a couple of hundred bucks at a casino may not be a priority for the typical consumer.
“Clearly we’ve opened up in the eye of the storm, and no one ever wants to do that,” Soper said. “But I think there’s a silver lining to this, and we’re actually very happy in the sense that if we had not opened when we did, it could be a year or two or three years and we would not be in the position we are in now to really capture the upside when the market improves.
“Clearly we wish the economy was better, but we’re very fortunate. All these other products that didn’t make it to the finish line are going to have to spend significant dollars and time to complete their projects – or even get their projects off the ground – and there’s a significant opportunity lost when the economy improves.
“We’re able to expose our product now and expand our database further. While we wish the economy was better, we feel good about our situation and are ready to kick it into high gear when the economy improves.”
That may be a while. Some economic forecasters say it may be 2010 before the casino industry is able to climb out of its current slump. In the meantime, Mohegan Pocono is going through similar kinds of belt-tightening measures as other casino operations.
“I think there’s a consensus among casino operators in Pennsylvania that, notwithstanding earlier growth across the commonwealth, clearly, the growth would be far more significant if not for the current conditions of the economy,” he said.
“That has impacted us,” he continued. “We probably have not grown to the extent that we forecasted during a more stable and positive economic environment. But in light of the current economic climate we feel very optimistic about the potential of this property.”
He added that while “we’re able to make some price adjustments to generate demand, we’re never going to compromise on the quality, nor the brand. It does drive the market down a little bit but it maintains interest and maintains volume.”
Bucking the trendThe question remains, why have Pennsylvania’s gaming properties experienced double-digit growth during a time when nearly every other segment of the industry is flat or declining?
“There’s been significant additional supply added year-over-year,” Soper noted. “And so that may skew the numbers somewhat. The other is that it’s a new market and there’s natural growth when you open a new market.
“I think we introduced a lot of new product and the product was well-received and because of that we are able to grow our business, which we anticipated,” he added. “Still, we feel good about that. We feel comfortable that we’re well positioned to grow on the long term.”
Soper admitted, however, that it may take a few years for Mohegan Sun at Pocono Downs to reach a break-even point, largely due to high acquisition costs.
“It will take a couple of years to start generating some positive cash flow,” he said. “We’re holding our own in a very difficult economic climate, and we’re well-positioned to grow this property with the volume of people already coming here.”
The reality, however, is that while volume has remained steady, the spend-per-customer has dropped significantly.
“When we forecasted this property in a good economic climate, our assumptions based on the number of patrons who visit the property are pretty much on-target,” Soper said. “They are, however, spending less per person, and that’s a direct relation to the economic climate we’re in.”
Amid all this gloom, the good news for Central Pennsylvania residents is that the property has introduced hundreds of new jobs during a period of skyrocketing unemployment.
“We hired an additional 600 individuals, and then you add another 300 jobs created by our tenant operators and you come up with almost 1,000 jobs created,” Soper said. “Unlike many other properties we haven’t had to lay off anybody. We’re trying to stay as lean as possible without compromising our service levels. That includes controlling labor.
But casinos have been hit as hard or harder than other industries, particularly in this region that was, in decades past, one of the Northeast manufacturing centers.
“This situation is probably even more painful because the casino industry hasn’t experienced this before,” he said. “It’s always been somewhat immune from dips in the economy, and this time that certainly hasn’t been the case. So we’re all learning to deal with it, and the stronger operators will survive.”