That’s because Ohio is coming online to the west and Massachusetts figures to be the final major domino to fall, perhaps as soon as this year, legislatively speaking. The question that begs to be asked, with mature operators in New Jersey and Connecticut struggling in the aftermath of successful new supply introductions in Pennsylvania, New York and elsewhere, is how much is too much?
The answer is we’re not there yet, and it’s all about population density.
“We generally look at one slot machine per 300 adults, unless there is a significantly high tourist market,” explained Steve Rittvo, chairman, The Innovation Group. “We could go down to one to 275 if the economics are right, or up to in to 350, but one to 300 we find is pretty stable.”
In the New York and New England region, the numbers are still much more favorable than that, even with anticipated expansion. This according to the Innovation Group’s calculations, which provide for Massachusetts eventually passing a bill that allows for three casinos plus one or two racinos, the eventual adoption of racetrack gaming in New Hampshire, Aqueduct (scheduled to open this summer), a project run by the Shinnecock Nation in eastern Long Island, plus one other project in the Catskills.
“When we do that, we are still looking at one slot machine for every 370 or 380 adults in the region from New York going up to Maine,” said Rittvo, who added that the model assumes an average of 40 percent penetration, or 125 players per machine having $800 to $1,000 per year average contribution to gaming. That translates to from $100,000 to $125,000 annually per position, or $230 to $240 per gaming position.
“Those are good numbers; people will make money on that basis,” he said. “That’s what it takes to pay the tax rates that governments are looking for, to build the facilities that will need to be built. It’s what Foxwoods used to do or what a facility like Yonkers is doing. It’s consistent with what Saratoga is doing and Penn National in Maine. Something new in Massachusetts will do much higher numbers, but it will be offset by existing properties running lower.”
Compromising the strength of the overall northeast market is notable declines in the mature markets of New Jersey and Connecticut. The latter has experienced four years in a row of slot revenue declines, and Atlantic City last year posted over $450 million less in slot revenue off its 2007 peak of $1.46 billion, its third straight year of declines.
Foxwoods and Mohegan have lost ground in the feeder markets of Boston and New York by way of new competition in Rhode Island (Twin Rivers and Newport Grand), Maine (Hollywood Slots in Bangor) and New York (Empire City in Yonkers). Certainly, new supply in Massachusetts and New Hampshire will weigh down results further.
It could be argued, on the other hand, that the worst is potentially over for Atlantic City, which, like all established jurisdictions in a down economy that compete with a new jurisdiction with all-new slot product, has suffered from older machines on the floor as much as anything. Revel, expected to open in mid-2012, will be all new, and that’s just for starters, said Joe Basara, director, WhiteSand Gaming.
“It will introduce new product on the floor and re-introduce people to Atlantic City,” he said. “We’re also seeing major reinvestment in Borgata and Landry’s coming in with a new Golden Nugget and totally refreshing what was the Trump Marina. Dennis Gomes has revamped Resorts around theBoardwalk Empiretheme and there’s something brand new mid-town. It also seems that money is freeing up for operators if they have a good solid plan.”
Basara also points to some other positives that should pay off for Atlantic City going forward. The Governor and the state have stepped up with public support and actual reinvestment in the city to make it more inviting for visitors. On the tax rate side, Pennsylvania has a tax rate of anywhere from 55 percent to 61 percent. Delaware is in the upper 30’s and Maryland is 67 percent. Atlantic City operators pay between 10 percent and 11 percent.
“If you’re an operator in those high-tax environments, there’s not a lot you can do in terms of reinvesting in your customer,” said Basara. “Atlantic City can afford to make marketing investments in their customers. The Philadelphia products have done well, but there are no hotels and no real entertainment currently. They cater to a three-hour customer. Atlantic City could reintroduce itself as a day-trip entertainment destination. If someone is visiting a casino once a month, Atlantic City could get three or four or five of those visits back.”
GROW AHEADPennsylvania is approaching $3 billion in overall gaming revenue with perhaps two more licenses in play after the decision this spring to award a category 3 license to operate 600 machines to the Nemacolin Woodlands Resort in the Pittsburgh area. “There’s still a vast open space in the middle of the state that may be able to support a casino,” said Rittvo, who, like many observers, has been pleasantly surprised by the rate of growth in that market. “We had forecast $3 billion in revenue with all the casinos open and last year they did $2.8 billion with only a partial opening of Sugar House. Both Chester and Philadelphia Park have done better than we anticipated they would do. With three casinos, the market is close to delivering what we had forecast with four. On the other hand, what was repatriated from Atlantic City was higher than we anticipated; Atlantic City just hasn’t kept as many people as we thought they would. There still may be enough activity in Philadelphia that can be supported by another casino.”
Just south of Pennsylvania, another new market has opened up in Maryland with two projects up and running at Perryville and Ocean Downs as opposed to five that were expected by now. Maryland envisions 15,000 slot machines and $650 million in annual VLT revenue when everything is built out, or around $180 average win-per-unit. Hollywood Perryville had a good April, posting around $220 in win-per-machine, which is the higher end of their expectations, according to Basara.
“We don’t have a specific number in mind regarding the impact of Ohio on Wheeling,” said Sultemeier. Wheeling is still a two-level project, as a response to flooding in 2002, so Delaware North is looking at a one-level facility which would be more appealing and reduce the number of slot machines. The facility had a maximum of 2,320 machines before the Meadows opened in Pittsburgh and is at 1,820 today. With the switch to a one-level facility, Wheeling will still probably operate between 1,600 and 1,700 machines. “Wheeling is only 30,000 people with surrounding towns in the 5,000 range,” said Sultemeier. “You’re bracketed by Columbus and Pittsburgh as the two major population centers, so it sounds kind of crazy that we’d still have that many machines. But I think we’ll still maintain a lot of business; we have built up loyalty over the years and we have a hotel there.”
Delaware North is no stranger to crowded markets in the region and drawing a tight circle around its target market; its Hamburg Fairgrounds property sits within a total of eight gaming facilities in a radius of 47 miles, and revenues grew 10 percent there last year. At Hamburg, the company has taken advantage of favorable changes in New York’s rules covering marketing allowances and capital expenditure programs to create a strong growth story. A $25 million redesign links the facility to an events center, which is a better fit for promoting slot play than the racetrack. The company has also tapped into the demand for value with quick-to-market promotional giveaways to all carded players on specific days at Hamburg and Finger Lakes (which is up 8.4 percent this year).
FINDING A SLOTNeedless to say, the northeast has also proven a valuable outlet for manufacturers during tough times, providing islands of opportunity for new game sales when jurisdictions open up and/or rules change.
“The last few years we have been very busy, whether its new openings, expansions or positive regulatory changes,” said Tim Shortall, vice president, eastern region, International Game Technology. One such change was in New York, where electronic table games were introduced late last year, and IGT’s Roulette Evolution game posted daily wins as high as three times the house average at Empire City in Yonkers. Right now the company has less than 50 games on the floor but it expects that number grow.
On the mature markets front in Atlantic City and Connecticut, the focus is different. “They’re finding it to be a challenging environment and they’re a little reluctant to spend money because they don’t have it to spend,” said Shortall. “If you walk their floors, you’ll see that in some cases they do appear older. These are big floors, too. So even if they put newer product in, they do it in small doses and it can be hard to find. If they add 100-200 games and spread them across the floor with 6,000-7,000 machines it’s not even noticeable.”
Player tastes in the northeast are fairly consistent with the rest of the country, but there are differences, said Brian Pierce, vice president North American Game Sales, Bally Technologies.
“There’s still quite a bit of loyalty to the legacy reel games,” Pierce said. “They remain popular because of their simplicity and the fact that some of the traditional dollar games still provide the most satisfying experience on a slot machine to a particular player niche. If you look at Pennsylvania, it opened with a fairly strong percentage of the overall product mix as reel steppers when compared to other new jurisdictions. While many of the manufacturers are doing a great job of providing new and very exciting product variations in video and low denomination, we cannot ignore this region’s concentration of mechanical-reel players and the need to continue to look for ways to satisfy that player.”
Bally is starting to see some very good penetration into the market with its ALPHA2 products and iDeck touch screen button deck. Pierce also sees the launch of Bally’s curved LCD display cabinet game, the Pro Curve, and the first game on that platform, Code Red,which combines video and low denom with the look and feel of the mechanical reel game, as a great fit for the northeast.
In Maryland, WMS has enjoyed 29 percent ship share to Hollywood Perryville, including a significant amount of the company’s Bluebird xD cabinets, making it one of WMS’ marquee properties in the U.S., said Steve Angelo, vice president, VLT business operations, WMS.
“This has been our largest shipment of the Bluebird xD cabinet,” said Angelo. “Perryville has some of our best and newest product in the marketplace and they are positioned very well for networked gaming once it hits the marketplace, as xD is our preferred cabinet for networked gaming.” xD has the ability to convert or install WMS’ MetaScreen which is a 32-inch secondary screen that displays portal applications within the cabinet.
“With every new jurisdiction, you have the opportunity to launch the marketplace with the newest and best technology and it gives all manufacturers the chance to showcase their best product,” said Angelo, who pointed to Ohio. “With leading operators such as Caesars and Penn National involved, we will have the opportunity to launch some of our newer products.”