Quest for more table games - which could cut tax revenue

Four months after it opened on Penn's Landing, SugarHouse already was asking the Pennsylvania Gaming Control Board for permission to add 14 table games.

The reasons were pretty obvious: By the end of February, SugarHouse - with only 43 table games, fewest among the state's 10 casinos - had already vaulted into the top five for table-games revenue from poker, blackjack, and so on.

In addition, the casino would get to keep more of the money. The state taxes table-games revenue at 16 percent, slot-machine revenue at 55 percent.

Boosting profit via tables is a game lots of casinos seem eager to join. Since July, when table games debuted in the state, five other casinos, including Parx in Bensalem, Harrah's Chester in Delaware County, and Sands in Bethlehem, have ramped up their numbers while cutting back on the slots.

If the trend persists, gambling critics contend, casino operators will have found a way to skirt the intent of Pennsylvania's Gaming Act.

"Tax relief was the supposed justification for opening these casinos," said Paul Boni, a Philadelphia lawyer and board member for the national anticasino group Stop Predatory Gambling. "But now, we see that the industry does everything possible to avoid paying taxes.

"The casino owners are laughing all the way to the bank at the taxpayers' expense."

In the eight months since table games debuted, the number of tables has shot up from 562 to 842. Slots, on the other hand, numbered 24,903 in July, hit a peak of 26,916 in October, and were down to 26,592 last month.

Under the 2004 law that legalized slot-machine gambling, the state gets 55 cents of every dollar generated from a slot machine, money that goes primarily toward property-tax relief, the horse-racing industry, and towns that host casinos.

Of the 16 percent tax on table games, 14 percent goes into the state's general fund for a variety of uses; 2 percent goes to local governments.

By comparison, New Jersey has a 9.25 percent tax rate on 28,095 slots and 1,266 tables.

On Wednesday, Pennsylvania Budget Secretary Charles Zogby said gambling revenue would provide state residents with $776 million in property-tax relief this year. Of that, $164 million will go toward a tax- and rent-rebate program for seniors and the disabled.

The rest, $612 million, will go directly to tax cuts, for an average property-tax reduction of $200 per household (though reductions vary by school district), down slightly from $616 million in 2010. Homeowners in 66 counties will receive reductions in the school property-tax bills they receive this summer. Philadelphia County's share - $86.3 million - will go toward reducing the city's wage tax.

Last year, the state received $1.28 billion of $2.28 billion in gross slots revenue. It got an additional $34 million from gross table-games revenue.

It's difficult to quantify how much the commonwealth loses when a table game is added instead of a slot machine. That's because table games have been shown to increase slots play by attracting more people to casinos. But over time, some observers say, the changeover could have a negative impact because of the substantial tax difference.

Although the state's share of slots-tax revenue has gone up each year since 2006, when Pennsylvania's first casino opened, growth year over year on gross gambling revenue has slowed: 55 percent from 2007 to 2008, 21.6 percent from 2008 to 2009, and just under 16 percent from 2009 to 2010.

"The introduction of casinos and racinos [racetracks with casinos] in Pennsylvania helped government officials to fill in parts of the budget gaps in the midst of the greatest recession," said Lucy Dadayan, senior policy analyst at the Rockefeller Institute of Government at the State University of New York in Albany. "However, the trends in slot-tax revenues suggest that the short-term budgetary solutions may turn to long-term budgetary problems."

Dadayan said a pattern had emerged: "State slot-tax revenues are clearly downward, regardless of the opening of new casinos and racinos."

She predicted that growth in overall gaming-tax revenue also would decline as table games' novelty faded.

Gross gaming revenue rose 34.7 percent from March 2010 through March of this year, to $269.5 million. But same-store slots revenue for last month among the nine casinos open for more than a year (excluding SugarHouse) was flat, and their combined slots count was down 1.2 percent, which gaming analysts attributed to casinos' modifying gaming floors to accommodate new table games.

State Rep. Paul Clymer (R., Bucks), a staunch opponent of gambling and its expansion, said it was too early to tell if table games would hamper tax-relief efforts.

But, he added, "if gambling revenues for property-tax relief begin to go south, the casino operatives will certainly hear from me."

When state lawmakers were debating the table-games tax rate, casino operators argued that tables were more labor-intensive, requiring dealers and pit supervisors round-the-clock, thus justifying a lower rate than slots.

Because of parliamentary procedures, Clymer said, he could not have the House consider his amendment to the table-games bill that passed in January 2010, which would have boosted the table-games tax from 16 percent to 23 percent.

Come early July 2012, things will get even more favorable for the casino operators: By law, the tax rate on tables goes down then to 14 percent.

For every casino petition seeking an increase in either slots or table games, there must be state Gaming Control Board approval.

Since January, the board has approved 19 additional table games for Rivers Casino in Pittsburgh and 29 for the Sands in Bethlehem.

At the panel's April 14 meeting, it approved a petition from Parx to add 14 table games, bringing its total to 177, the most in the state.

There have been no petitions to increase slot machines since January, board spokesman Richard McGarvey said Friday.

Kevin O'Toole, the gaming board's executive director, said the decision on how many table games to add "is primarily a market-driven and profitability decision, but with oversight by the board to protect the interests of the commonwealth, including maximizing tax revenue."

Though some casinos had four years to evaluate their slots needs, he said, all have had only eight months to adjust for table games.

"The good news is that slots play has continued to grow since the introduction of tables," O'Toole said, "thereby increasing the combined tax revenue."

For Rivers Casino in Pittsburgh, which has the same owner as SugarHouse (Chicago billionaire developer Neil Bluhm) and a similar waterfront location, tables have been a game-changer.

The $780 million casino, which opened Aug. 9, 2009, spent its first year in the bottom tier for gross slots revenue. After tables came on the scene last summer, it steadily moved up to the top three, thanks largely to the traffic that management said table games brought in.

Last month, Rivers ranked No. 5 in table-games revenue, bringing in $5.5 million with 104 tables. It finished just behind SugarHouse, which generated $6.4 million with its 43 tables.

"Basically, the poker room is what brought me in," said Kent Walter, 58, who owns a heating and air-conditioning business in Alliance, Ohio, a key feeder market for the downtown Pittsburgh casino.

On the Friday in March that Walter visited, every table was filled by 6 p.m. The poker room recently expanded from 24 to 30 tables, but that did not satisfy customer demand.

"It's phenomenal," poker-room shift manager Sam Rudman Sr. said. "The play has increased tenfold. We can't expand fast enough."

At SugarHouse last Monday, almost every table game was occupied by 2 p.m.

SugarHouse, which cost $385 million, was the only Pennsylvania casino to open with both slots and tables. In December, it added three tables, going to 43. But it has kept slots the same as opening day, 1,602 machines.

Last month, SugarHouse ranked eighth among the 10 casinos in gross slots revenue, with $14.9 million.

If the Gaming Control Board grants its petition for 14 more tables, the already cramped 45,000-square-foot casino plans to spread them among a high-limit area and its Refinery restaurant.

Greg Carlin, CEO of both SugarHouse and Rivers, said, "Our table-game revenues have exceeded our expectations, and on a win-per-table basis, we are consistently among the highest in the commonwealth."

Placing a bet at a $10-minimum roulette table, Ava Berry, 43, a police officer from Pennsauken, said: "I don't think you can have too many table games."

Cornell Ford, 39, who stops at SugarHouse whenever he's in town from Washington to do building and contracting work, was on the same page.

"You put more tables, you'll get more people here," he said, scanning the casino from a crowded craps table in a sea of empty slot machines.

"This is a Monday, and look at it."