Pa.'s tax-free casino comps luring locals away from A.C.

A mailer arrives at Kayanne Neil's house in Northeast Philadelphia at the end of every month, alerting her to special promotions for free slot credits at PhiladelphiaPark Casino & Racetrack.

She went last week on "Shamrock Thursday," part of the casino's St. Patrick's Day-themed promotions for March, to claim her prize - $45 worth of free slot play.

"Oh, yeah, I play with their money," Neil said as the credit was automatically downloaded on her PhillyPark player card, allowing her to begin working a nickel machine.

But for Pennsylvania's seven slots parlors, giving away tax-free credits - $21.1 million worth in January alone - is more than just a marketing tool. Gaming operators here say it has become one of their most powerful weapons for siphoning business away from Atlantic City's casinos.

The New Jersey Legislature decided in 2004 to phase out the tax on complimentaries, and it expires June 30, said state Casino Control Commission spokesman Dan Heneghan.

The change cannot come soon enough for Atlantic City, as all of Pennsylvania's gambling halls, from Mohegan Sun in Wilkes-Barre to Mount Airy Casino Resort in the Poconos, are ramping up free slot play heavily this year. Look for the Pennsylvania comps to come even more fast and furious after June.

The most generous giver, PhillyPark, is spending $70 million in 2009 on free slot play, double what it spent last year, to keep regulars like Neil coming back.

"It gives our customers what they are looking for . . . more time on the devices, instead of giving them trips to the Bahamas and fancy dinners," said PhillyPark president Dave Jonas.

Casino operators here say the slot credits' tax-free status in Pennsylvania is a huge advantage over Atlantic City's casinos, which are required to pay a 4.25 percent tax on "comps" - the freebie hotel rooms, meals, or gaming credits they shower on their most loyal customers.

The tax write-off, they say, helps compensate for Pennsylvania's high tax on gaming proceeds. The state's slots parlors pay a 55 percent tax on gross slots revenue; New Jersey casinos pay 9.25 percent.

"The higher tax rate greatly impacts the amount of revenue Mount Airy Casino Resort has to market itself and remain competitive with casinos in Atlantic City, making free slots play a vital piece of our . . . efforts," said spokesman Pete Peterson.

Use of free slot play at Mount Airy, which debuted in October 2007, jumped 303 percent last month from February 2008.

"It's huge," PhillyPark's Jonas said. "We never could have moved business from Atlantic City like we have, at the rate we have, without it."

Free-play expenses are deducted from gross slots revenue before taxes are paid, he said. "That's really allowed us to grow our business. It's almost a one-to-one ratio. The more free play we throw out, the more we increase our gross slots revenue."

Last month, free slot play at PhillyPark more than doubled, to $5.8 million from $2.4 million in February 2008. At Harrah's Chester Casino and Racetrack, it rose from $2.6 million to $4.4 million.

Strategic use of free slot play has helped Pennsylvania's gambling revenue grow despite the weak economy, analysts say.

Figures released Thursday by the Pennsylvania Gaming Control Board confirm that. Gross slots revenue last month at the six casinos that were also open in February 2008 rose 14.3 percent - they generated $125.9 million last month, compared with $110.2 million the previous year.

(The seventh casino, Hollywood Casino in Grantville, which opened mid-Febuary 2008, was not included in the mix.)

These days, gambling analyst Jacob Oberman said, the financially challenged gambler is staying closer to home and spending less - making free slot credits much more of an enticement, to the detriment of Atlantic City's casinos.

"It's accelerated the loss of Atlantic City's portion of convenience-based gambling," said Oberman, of DB Richard Ellis' Global Gaming Group in Las Vegas. "People who just want to play slots are staying in Pennsylvania.

"In turn, it's resulted in a loss of revenue for Atlantic City and a loss of comps given out," he said.

Atlantic City's 11 casinos saw a 9.4 decrease in gross gaming revenue in January 2009 compared with January 2008. Overall comps awarded by the casinos decreased 3.2 percent in that same period.

"Comps are generated based on casino play," said Brian Cahill, spokesman for Resorts Atlantic City casino. "The more someone plays, the more comps are earned."

On any given day, an average of 200 Atlantic City customers sign up for a PhillyPark player card, said Darlene Monzo, the casino's vice president of marketing. She tracks such mini-defections by the minute on her BlackBerry.

Ron Ensana, 68, was among them last week. He stood in one of the long lines at the front lobby desk with his daughter to sign up for a PhillyPark card and take part in a free drawing for additional slot play.

After showing his player card from Harrah's Entertainment in Atlantic City, Ensana was awarded $25 in free slot play - determined by his level of play at Showboat there and downloaded immediately on his new card.

"I'll still go to Atlantic City for the Boardwalk and comps for rooms," said Ensana, a retiree from Southampton, Burlington County. "But for slots, this is still more convenient."