Pa. gaming board seeks to avoid past mistakes

PHILADELPHIA During three days of testimony last week for a second casino license in Philadelphia, the questions from commissioners were almost as important as the answers from the five applicants.

And it was clear from their back-and-forth that this state gaming board wants to minimize risk and avoid past mistakes.

More than once, commissioners invoked the names of Foxwoods and Revel like warnings.

The Foxwoods group lost its license for a South Philadelphia waterfront casino after repeated internal setbacks. Revel in Atlantic City, which reorganized after filing for bankruptcy, is still struggling to live up to its $2.4 billion price tag.

Inside Ballroom A of the Convention Center last week, commissioners seemed most concerned about inflated revenue projections, the poaching of customers from the Philadelphia region's existing casinos, and the ability of developers to follow through with their plans.

"What we know now is that we're in a tenuous market," commissioner Gregory C. Fajt said. "We're always trying to guess what the market is going to be two years out, 21/2 years out."

Any one of the proposed projects would inject tens of millions of dollars into the local economy, becoming one of the biggest construction projects in the city.

But market forces won't determine which casino wins the all-important license to build. The selection is more like a beauty contest - decided solely by the seven members of the Pennsylvania Gaming Control Board.

The seven appointees, each earning $145,000 a year, got where they are because they swim in the political waters of Harrisburg.

For instance, Keith R. McCall, a commissioner since 2011, was Democratic speaker of the House.

David W. Woods, the newest board member, was former chief of staff for Senate Majority Leader Dominic Pileggi (R., Delaware).

Fajt, the longest-sitting commissioner, was Gov. Ed Rendell's chief of staff and revenue secretary, and before that a Democratic state representative from Allegheny County.

There is no deadline for them to award the license. They could take months to reach a consensus. Or the board could choose to do nothing - that is, wait to see how the economy and market conditions unfold in the months and years ahead.

The main investor in the city's first casino - SugarHouse - urged the board to do just that and hold off on a decision.

After more than 20 hours of testimony, the gaming board's questions and comments showed:

Not all of the commissioners "get" Philadelphia.

Many gaming-industry experts question the business model of a downtown casino. Some commissioners, too, expressed doubts.

Two of the applicants, Market8 and the Provence, are promoting Center City sites. The others - Casino Revolution, Hollywood Casino Philadelphia, and Live! Hotel & Casino - have locations in South Philadelphia.

McCall, who hails from Carbon County, questioned why people would travel to Center City when they could easily park at Harrah's in Chester, Parx in Bensalem, or the Valley Forge Casino.

"I live in the Poconos, a pretty rural area, but I have a lot of friends in the surrounding area," McCall said during questioning of the Market8 panel. "One of the things they always say is they don't want to drive into the city because they worry about parking. They worry about city traffic."

"How do you get that person to come into Center City," he asked, "when really, they don't want to come into Center City?"

Representatives of Market8 and Provence predicted a larger percentage of patrons would arrive at their venues by foot or public transportation.

With those projects, commissioners spent more time drilling down on plans for parking, as well as estimates for public transportation use.

Parking seems to be a big concern, said Anthony C. Moscato, a commissioner since 2011, and "something we're always going to be talking about."

But, he quipped, "coming from Cameron County" - population 4,939 - "I don't really understand that."

They worry about "cannibalization."

If there was an overarching issue for all board members, it was whether a second casino would draw new gaming patrons to Philadelphia - or just poach customers from existing casinos. People in the industry call that "cannibalizing."

Fajt called that issue the "elephant in the room."

Elected to the gaming board in 2009, Fajt previously was its chairman, and he held that post when commissioners ruled in 2010 to take away the Foxwoods license.

During the three days of testimony, Fajt asked the most questions relating to the market's ability to handle another casino.

He made his doubts known with the first panel representing Hollywood Casino.

"I don't believe that we have the capacity to open just another casino," Fajt told officials with Penn National Gaming, which is sponsoring the project. "We need something that's more than a casino."

The next day, Fajt pressed the Market8 team on its forecast that it would generate revenue of $518 million in its first year. With a planned 2,400 slots, that would work out to a daily "win" of $382 per machine.

Fajt quizzed the Market8 representatives about whether they knew what the average daily slot win was in Pennsylvania. They didn't know precisely. (Answer: $247 per day per machine.)

Fajt said Market8 was too confident of a fast, "out of the gate" start in a market he described as already very mature, with declining revenue at the state's 12 casinos. "I have some healthy skepticism," he said.

They want to minimize risk.

In the contest for the casino license, the winner will not only be judged on appearance, but also long-term performance, measured by tax revenue and overall economic impact.

In broad terms, the gaming board has a choice between the tried-and-true model that has worked elsewhere in the state: a site just off the interstate, with plenty of parking.

Or a Center City project that breaks the mold for casinos in Pennsylvania.

All five applicants promise other flashy amenities - hotels, restaurants, theaters. The Casino Revolution, sponsored by PHL Local Gaming, also wants to launch a family entertainment center next to its 24-acre South Philadelphia site, complete with indoor swimming, a driving range, and other non-gaming attractions.

A downtown casino like Market8 or Provence, where people walk or take the subway or bus, would be unique in the gaming industry. More typical are the three proposed South Philadelphia projects, with one-story gaming floors and vast parking garages.

John J. McNally 3d, a Dauphin County resident who was appointed this year to the gaming board, asked Market8's representatives if there was anything comparable to its concept of "an urban entertainment project."

Bobby Soper, an executive with Mohegan Sun, which would operate the casino, said there was nothing like it - not in the state, or anywhere.

He went on to testify that though the concept was unusual, "it is by no means experimental, because at the end of the day, what's driving these numbers are people that are here." Market8 has estimated 17,000 people a day walk by the site at Eighth and Market Streets, now a parking lot.

But McNally was not entirely sold.

"So this is new ground?" he asked the Mohegan Sun executives.

"Correct," said Mitchell Etess, president of the gaming company.

"And with that, like the gaming industry, comes risk?"

Etess tried again with the commissioner, saying, "Rather than risk, I think it's driving tremendous opportunity."

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