Late in December, the Pennsylvania gaming industry completed its official launch with the awarding of five “Category 2” stand-alone slot parlor licenses by the Gaming Control Board.

The board, in awarding the most hotly contested of the 14 available slot licenses in the state, wrapped up the first phase of its job by deciding which of 13 applicants for the five stand-alone slot parlors had projects that would generate the most revenue for the state.

The five winners—two in Philadelphia, one in Pittsburgh, one in Bethlehem and one in the Pocono Mountains resort region—round out what will be, within the next year or two, the closest competition in casino gaming to Atlantic City. Observers in Atlantic City generally agree there could be some short-term impact on Atlantic City gaming revenues as more Pennsylvania casinos open.

Of the 14 slot licenses created by Pennsylvania’s 2004 gaming law, 11 are now awarded. (Only six of the seven Category 1 racetrack casino licenses, authorizing up to 5,000 slots at each existing racing venue, were awarded, because the last harness racing license in the state is still vacant. The two Category 3 resort licenses, which permit up to 500 games at existing resorts, are vacant after the only two applicants withdrew their bids.) Of the 11 licensed casinos, three are in western Pennsylvania—the Pittsburgh slot parlor and racinos in Washington County and Erie. The other eight are in the eastern part of the state, which means they are spread across one of Atlantic City’s prime feeder markets.

Three of those venues are already up and running. Mohegan Sun at Pocono Downs was the first in the state to open slots, unveiling its first 1,100 slots on two floors of a converted grandstand at the Pocono Downs racetrack in November. With business already brisk, the Mohegan Tribal Gaming Authority plans to break ground in spring on a new, larger facility that will initially increase the game count to 2,000, and eventually to the maximum 5,000 as business dictates. In December, the first racino in the Philadelphia area opened, as Philadelphia Park unveiled its 2,200 slot and video poker machines. Most recently, Harrah’s Entertainment opened the slot portion of its spanking new Harrah’s at Chester Downs racino, with a 2,700-game slot floor that so far is the largest slot venue in the state.

The Category 2 stand-alone slot parlor licenses—authorizing up to 5,000 slots each in a facility including non-gaming amenities—continue the eastern-state dominance. Other than Pittsburgh, where three applicants competed for one license designated for the city by the gaming law, the applicants were all in the part of the state that has been a prime Atlantic City market.

City Slots

The board’s choice among applicants in Pittsburgh has some impact on the Atlantic City market as well. Harrah’s Entertainment, along with partner Forest City Enterprises, was considered a strong candidate to create Harrah’s at Station Square in an existing riverfront entertainment complex across the Monongahela from downtown Pittsburgh. It was widely believed that the board was going to give the license to Isle of Capri, which had promised to completely fund an arena for the Pittsburgh Penguins hockey team as part of the deal, and if not Isle, then Harrah’s.

The board awarded the Pittsburgh license to the longshot, Don Barden’s Majestic Star on the city’s north side. Beyond the surprise defeat for Isle, the board’s award leaves Harrah’s Chester as the Harrah’s brand’s only foothold in the state. Vince Donlevie, senior vice president and general manager of Harrah’s Chester, says his racino will use the strength of the Harrah’s brand in a way that will benefit Atlantic City customers as well as the Pennsylvania locals.

“The power of the Harrah’s brand is stronger than any brand in the gaming business,” Donlevie says. “I think that’s a huge advantage to us coming into this marketplace. We also obviously have a significant database in the Atlantic City market that helps us hit the ground running as well.”

He notes that the Total Rewards national player’s club will promote cross-business between Atlantic City and Chester. “You can earn in Atlantic City and redeem in Chester; you can earn in Chester and redeem in Atlantic City,” he says.

In Philadelphia, the winners are Foxwoods Casino Philadelphia, the first venture outside of Connecticut for the Mashantucket Pequot Indian tribe; and SugarHouse Casino, a partnership of Chicago billionaire Neil Bluhm and several local investors. Both will create entertainment complexes including slot parlors on the Delaware River waterfront, bookending Penn’s Landing and the city’s historic district.

The two beat out applicants that had at one time or another been considered front-runners: Trump Entertainment’s TrumpStreet project at the abandoned Budd Manufacturing plant in the city’s Nicetown section was plugged as a savior for an economically depressed neighborhood. The operator had partnered with a group headed by popular former Philadelphia 76ers President Pat Croce.

Pinnacle Entertainment had planned to spend $800 million over three phases to create a riverfront entertainment complex with a casino and eventually a hotel, along with a theme celebrating Philadelphia’s maritime history; and Riverwalk, proposed by a local development group, got the endorsement of Philadelphia Mayor John Street because of its investors, who included a lineup of distinguished local minority business people.

Foxwoods Philadelphia, owned by the Mashantucket Pequots along with local investors who include Comcast-Spectacor Chairman Ed Snider, will be a $560 million slot casino with a waterfront entertainment complex, a retail element and a full complement of restaurants. SugarHouse Casino (so named because it is on the site of the former Jack Frost sugar plant), owned by a group including Bluhm and local developers, will be a $550 million casino with a grand pedestrian plaza on the riverfront, also with a full contingent of retail shops, restaurants, and bars.

Casinos at Large

There was less surprise involved in the board’s decision on the two at-large licenses. The winners were Las Vegas Sands BethWorks in Bethlehem, a casino resort and industrial museum on a portion of the former Bethlehem Steel Works; and the Mount Airy Lodge in Paradise Township, in the Pocono Mountains resort region, owned by Louis DeNaples, a wealthy Wilkes-Barre businessman with heavy political connections.

The two won licenses over DeNaples’ nearest competitor, Pocono Manor resort, with a casino group headed by former Tropicana executive Dennis Gomes; the plan by Columbia Sussex for a Tropicana casino in Allentown; and the controversial proposal for a gaming resort near Gettysburg, where the board’s decision was met with a party thrown by No Casino Gettysburg, the local group that has fought the Crossroads Gaming Resort group headed by local businessman David LeVan in partnership with Millennium Gaming.

Las Vegas Sands, along with local partner BethWorks Now, will spend $600 million to transform a portion of the former Bethlehem Steel Works into a museum that preserves the historic blast furnaces and other now-rusting equipment. It will add casino, residential and retail elements to create a major resort it will call Sands BethWorks.

DeNaples bought the shuttered Mount Airy Lodge a few years ago for $25 million, and he will spend around $360 million to transform it into a casino-hotel resort with 300 hotel rooms, a spa, restaurants and retail shops to go along with a slot casino.

A.C. Impact

 In another era, so many new casinos in a prime Atlantic City feeder market would have triggered doom-and-gloom predictions all around. However, local operators and tourism officials say the impact on revenues will be minor, and in fact, may be a long-term positive for the market. In fact, beginning with the opening of the Borgata in 2003, Atlantic City casinos have spent years preparing for competition by improving their facilities and transforming the market into more of a destination than a day-trip market.

Larry Mullin, president of the Borgata, notes that the onerous tax rate in Pennsylvania—52 percent—means they will provide convenience gaming, but will not be able to match the destination amenities Atlantic City casinos have created.

“Pennsylvania will be convenient for the day-trip customer,” Mullin says. “Initially, you’ll have trial. However, much like convenience shoppers, when they want a full shopping experience, they’ll opt for the Atlantic City experience.”

Mullin adds that properties like Borgata, which is in the midst of building a second, more upscale hotel on its property, are constantly creating new reasons for people to opt for the resort.

“We’ve evolved from a day-trip to an overnight market,” he says. “There are now more compelling reasons than gaming for players to want to visit us—the entertainment, the dining, the nightlife. We certainly have a full range of gaming, but people are looking for other things to do, and that’s what’s going to distinguish us from those convenience markets that are starting to emerge.”

Jeffrey Vasser, executive director of the Atlantic City Convention & Visitors Authority, is even more optimistic, saying that the Pennsylvania market can be viewed as a breeding ground for new Atlantic City customers.

“As people try out the new facilities, the overall impact will be positive,” Vasser says. “It will introduce gaming to a new group of players who may have never considered gaming as a form of entertainment. They’re going to want to go where the big boys play, and get that full-service destination experience. In the long term, Pennsylvania is going to be a good feeder for Atlantic City.”

Vasser adds that operators such as Harrah’s Chester will bring good players to Atlantic City because of the reward programs.

“We were rooting for operators with Atlantic City interests to get some of those licenses,” he says, “so their rewards programs would funnel all those good players here. We’re hoping other operators in Pennsylvania will create some kind of affiliation with Atlantic City that will enable us to get the benefits of that business. I think it’s going to be a competitive advantage for operators in Pennsylvania—long-term, I think you’re going to see some alliances between the independent operators in Pennsylvania and Atlantic City casinos.”

By Frank Legato

Frank Legato is editor of Casino Connection and also editor of Global Gaming Business magazine. He has been writing on gaming topics since 1984, when he launched and served as editor of Casino Gaming magazine. Legato, a nationally recognized expert on slot machines, has served as editor and reporter for a variety of gaming publications, including Public Gaming, IGWB, Casino Journal, Casino Player, Strictly Slots and Atlantic City Insider. He has an B.A. in journalism and an M.A. in communications from Duquesne University in Pittsburgh, PA. He is the author of the recently published book on gaming, How To Win Millions Playing Slot Machines... Or Lose Trying.

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