Pennsylvania edges out Atlantic City for No. 2 gambling spot in U.S.

Pennsylvania has knocked Atlantic City out of the No. 2 spot, after Las Vegas, in the U.S. gaming market.

Figures released Wednesday by the state Gaming Control Board showed that in 2012, Pennsylvania took in $3.16 billion from slots and table games. Last week, Atlantic City reported 2012 casino revenue of $3.05 billion.

All the signs had been pointing to a takedown. In 2011, Pennsylvania grossed $3.1 billion in total gaming revenue, and that was before the opening of Valley Forge Casino Resort in March.

"Pennsylvania has a strong economic base, which has provided plenty of demand for well-capitalized casino projects," said Dennis Farrell, managing director of gaming, lodging, and leisure research at Wells Fargo Securities L.L.C. "We note that not all contemplated casino projects were successful in Pennsylvania. . . . Nonetheless, we believe the Pennsylvania gaming industry has exceeded expectations of most industry observers."

That the milestone came after just six years is noteworthy, industry watchers said. Pennsylvania's first casino opened in mid-November 2006, and the gaming halls had only slots until July 2010, when table games were added.

Eleven venues are up and running - soon to be 12, with the opening of a casino in Western Pennsylvania at the Nemacolin Woodlands Resort. And six groups are vying to open the 13th, in Philadelphia.

The success can be attributed to the state's large population, with a sizable number of elderly residents, and to the placement of the casinos, industry observers said.

"Pennsylvania grew so fast because the casinos are located throughout the state and located closer to the main population centers," said gaming analyst John Kempf of RBC Capital Markets L.L.C. "Location is everything in gaming. Customers would rather spend more time gambling than driving. But it also helps that casinos are across the state and not just in one city."

In New Jersey, Atlantic City has had exclusive rights to casino gambling since the late 1970s, with 12 gaming halls there now.

"The difference between Pennsylvania and Atlantic City when it comes to gaming is that Pennsylvania policymakers made a conscious decision to put gaming where the population is, and New Jersey policymakers made a conscious decision to put gaming away from the population centers," said Michael Pollock, managing director of the Spectrum Gaming Group L.L.C. in Linwood, N.J.

Comparing a large state to a single city is comparing apples to oranges, but, Pollock said, "Pennsylvania is a large state that borders populous areas as well, and the gaming operations were placed in a way that makes them convenient to multiple population centers, in state and out of state. Atlantic City is not designed for convenience."

Joe Lupo, senior vice president of operations at Atlantic City's top-grossing Borgata, said Pennsylvania's surpassing of the Shore was expected because of Hurricane Sandy "but definitely impactful. . . . We need to continue to speak to the non-gaming amenities, including the best dining, spa, and entertainment experiences that truly set Atlantic City apart from Pennsylvania and New York."

Pennsylvania's perennial gross-revenue leader is Parx in Bensalem, which draws from Northeast Philadelphia, Bucks County, and central New Jersey.

"Pennsylvania knew that it had to compete with Atlantic City in the sense that the gaming facilities and the amount of [payouts] couldn't be any less than what is offered in Atlantic City, even though we are paying over six times the amount in tax," said Bob Green, chairman of Parx owner Greenwood Gaming & Entertainment Inc.

"The convenience and the time saved [driving] becomes an additional benefit. It's a significant bonus in our favor," Green said. "When you come [to Parx], you are going to get energy, entertainment, excitement."

Former Gov. Ed Rendell, who championed gambling, said he was not surprised by its rapid growth.

"When I said gambling would produce $1 billion in tax revenue, they [the media and Republicans] really mocked me," Rendell said Wednesday. "I knew we would succeed. I had read all the studies that said Pennsylvanians were . . . gambling in other states and we were not getting any benefit at all.

"The tens of thousands of jobs . . . translating to direct and indirect development throughout our casinos and racetracks, is vindication for me," he said. "And the 150,000 seniors who have had their school property taxes zeroed out by gaming tax revenue, and another 200,000 seniors who had them cut by 50 percent."

The news was no shock to Linda Nieves of Middlesex County, N.J., either. "Because it's so close, a lot closer than Atlantic City," she said at Parx Monday night.

Nieves, 50, an "occasional gambler," said she goes to the casino after visiting her daughter, a graduate student at the University of Pennsylvania.

"There's no tolls. It's very convenient to get here. It's a straight line," she said. "Plus, they give us comps to eat and gamble, which Atlantic City has cut back on."