Overplaying Its Hand?

Standing outside SugarHouse Casino one evening last week, Willie and Shenae Blackman of Camden didn't blink an eye when asked what they thought of a second casino opening in Philadelphia.

"We would go to both of them," Shenae Blackman said with a big smile.

But then a note of doubt crept into her voice as the potential impact of spreading gamblers around dawned on her: "This place always seems busy, and to split people up - I don't know."

She touched on the central issue: Are there enough gamblers to sustain two casinos in Philadelphia, which already has another casino on its doorstep, Harrah's Philadelphia in Chester?

At a meeting Tuesday the seven-member Pennsylvania Gaming Control Board is expected to vote in favor of reissuing the license for Philadelphia that it stripped from the Foxwoods group nearly four years ago. Four developers are vying for that license.

Ron Baumann, general manager of Harrah's in Chester, is firmly in the camp that says the market is tapped out, that another casino in Philadelphia is unwarranted.

"It's a defined market. We're at that point where we're just moving customers around, all of us. I don't see that changing - with a new site near the stadium or anywhere else," Baumann said.

"If it's true that it is the stadium location, that would be just a hair over 10 miles from our property and absolutely would be devastating to our property, to our 1,500 employees and their families, and our vendors," Baumann said.

There were rumors during the week that Live! Philadelphia, a casino development proposed for the South Philadelphia stadium complex by the builder Cordish Cos., of Baltimore, and Greenwood Gaming, which operates Parx Casino, would be the winning candidate.

Unlike SugarHouse, Harrah's did not ask to have an official voice in deliberations over the license.

Stoking the public debate over the potential for a second Philadelphia casino has been the carnage in Atlantic City, where four of 12 casinos have closed this year and a fifth, Trump Taj Mahal, is expected to close on or before Dec. 12.

Some casino executives talk as if the bottom has also fallen out of the Southeastern Pennsylvania market, where Harrah's competes with SugarHouse, Parx Casino in Bensalem, and Valley Forge Casino Resort in King of Prussia.

Data show that gross revenues at the four casinos peaked at $1.17 billion for the year ended in August 2013. Since then, they have fallen 3 percent. Harrah's is down 10 percent since the market peak. Revenue at Parx, by contrast, is down just 2 percent.

Despite the dicey state of the gambling market, it's impossible for regulators to ignore Pennsylvania's gaming law, which established casinos as an acceptable way for the state to raise "voluntary" taxes.

The law says that "two licensed facilities and no more shall be located by the board within a city of the first class." That means Philadelphia, the state's only first-class city.

Had Foxwoods' backers, who were awarded a license to build a $700 million casino on the Delaware River waterfront in South Philadelphia, not self-destructed during the financial crash of 2007-08, there would already be two casinos in the city.

"No one imagined that any one of these licensees would have screwed it up to the point that they would lose their license before they even opened," said former State Sen. Vincent J. Fumo, who was among the elected leaders who spearheaded the legalization of casinos in Pennsylvania in 2004.

After revoking the Foxwoods license in 2010, the gaming board didn't rush into reissuing it.

"The board was aware of discussions in the legislature to change the law. It waited until it became clear that that wasn't going to happen," gaming board spokesman Doug Harbach said.

"At that point it moved forward with this licensing process," he said. The license "was an asset that was not producing any revenue or jobs for the commonwealth, and the board decided it was time to move forward under the existing law."

But two years ago, when applications for the former Foxwoods license were due, the current gloom had not yet settled on the gaming industry.

"Where we sit today, in the fourth quarter of 2014, the issue of cannibalization and impact on existing properties is extremely more pronounced," said Michael Pollock, a managing director of Spectrum Gaming Group, a Linwood, N.J., consulting firm.

Harrah's, which told Delaware County officials that it could lose 30 percent of its business if a casino opened in South Philadelphia, is probably the most vulnerable.

Chester's city budget relies heavily on Harrah's. In 2012, payments from Harrah's accounted for 26.1 percent of the city's budget, Baumann said..

Workers there are worried. "We have good jobs at Harrah's. They're good-paying jobs," said Christie Chernik, a bartender who said she has worked at Harrah's since it opened.

The trends at Harrah's, which added to its debt in 2012 to pay its owner, Caesars Entertainment Corp., a $92.5 million dividend, are already bad.

Revenues were down 11 percent and operating profits were down 32 percent in the first half of 2014, according to Moody's Investors Service.

In a separate report on Harrah's $330 million in junk-rated debt, Fitch Ratings predicted that Harrah's will lose 10 percent of its revenue in 2016 because of the $164 million expansion at SugarHouse that could open next year.

SugarHouse, meanwhile, will continue to pester the gaming board to pause and take stock of how financially dangerous it could be to add another casino to the Philadelphia gaming market.

215-854-4651

@InqBrubaker