Pennsylvania's sweeping gaming-expansion legislation, which creates 10 mini-casinos and allows betting online, in airports, and at truck stops, could hurt revenues at the state's current casinos and cannibalize their business, the credit-rating agency Moody's Investors Service says.
"While the state finances may benefit from this bill, it is less clear to what extent existing operators in the state will actually benefit," Moody's said in a report.
The new supply of slot machines and table games will crimp Pennsylvania's 12 existing casinos and "also hurt Atlantic City, which faces its own supply expansion," Moody's said.
More gambling in the Philadelphia area "poses a threat to Atlantic City," which suffered "significant losses" when gaming last expanded in Pennsylvania, contributing to the closure of five Atlantic City casinos since 2014, Moody's said.
Atlantic City casinos have only recently shown signs of growth. In the first nine months of this year, revenues there were $2 billion, compared with $1.8 billion for the seven casinos open a year ago, an increase of 9.1 percent, according to the New Jersey Division of Gaming Enforcement.
"However, the shuttered Taj Mahal is expected to reopen as a Hard Rock casino in 2018, and there are rumors that Ten (formerly known as Revel) will be sold and reopened, as well," Moody's said. With that, Atlantic City's gaming supply could jump 35 percent.
In addition, Philadelphia is expected to get a second casino in 2020, Live! Hotel & Casino, near the sports stadiums in South Philadelphia, now that SugarHouse Casino has dropped its legal efforts to block the license awarded to Stadium Casino LLC in 2014. That second city casino will add 2,000 slots and 125 table games.
Though online gaming in Pennsylvania would provide a revenue boost for operators, the proposed 52 percent tax rate is higher than the 16 percent rate imposed by New Jersey, "making it unattractive," Moody's said in the report issued Tuesday. It noted that New Jersey's online-gaming revenues have reached only about $235 million since legislation was passed in 2013.
Under the state's new gaming law, signed by Gov. Wolf last week, Pennsylvania's supply of slot machines could rise 13 percent to 31 percent and table games would grow 16 percent. "This expansion is a credit negative for our rated issuers due to expected cannibalization of their business, particularly in light of sluggish gaming demand in the state," Moody's said. Pennsylvania gaming revenue grew only 1.2 percent in 2016 and has been flat so far in 2017, the rating agency said.
Moody's said it expects that SugarHouse Casino and Rivers Pittsburgh Casino will "see the largest impact from the new legislation" because they are single-venue operators. With the projected 2020 opening of the new Live! Hotel & Casino, SugarHouse will "face significant revenue and earnings pressure. SugarHouse will need to use its free cash flow to reduce debt in anticipation of this event in order to preserve its credit profile."
Only current casino operators can bid on licenses for one of the 10 new, smaller casinos. Minimum bids start at $7.5 million. An auction process is slated to run from Jan. 15 to July 31, 2018.
"Those operators that win the auction for the new licenses will benefit over time, depending on where the mini-casinos are located relative to existing supply and population density," Moody's said. "This expansion is a modest credit positive for slot manufacturers and online operators, who will benefit from new orders and the online gaming expansion."