Growth Of iGaming Helped PA Casino Industry Weather Turbulent Year

In a year that started out with more legal gambling than ever taking place in Pennsylvania — to the benefit of operators and state government alike — COVID-19 dealt the gaming industry an unprecedented blow in 2020.

Revenue plummeted. Thousands of employees lost jobs. Government tax income dwindled. New projects were postponed.

Within casinos — when they were open — the happy buzz they promoted in the past diminished, with large crowds and live entertainment banned, alcohol service curtailed, and customers’ and workers’ smiles hidden behind masks.

And now, the calendar year is ending with all of the state’s casinos once more closed by government order due to the pandemic, just as it occurred throughout the spring.

Online casino gaming has regularly set new monthly highs and the same is nearly true with sports betting, as Pennsylvania is one of just a few states with legal digital versions of both. The brick-and-mortar industry is also poised to grow further in 2021 with completion of three new properties.

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Still, a chill will linger over the gaming industry until the coronavirus threat itself is extinguished by vaccines or other means.

Casino volume was the lowest in a decade

As in-person slots and table games still represent the bulk of gaming revenue — despite all of the attention given to the newer online casinos and sportsbooks — their shutdown for roughly one-third of 2020 means it will be the gaming industry’s most modest year in the past decade.

Casino slots and tables combined with the iCasinos, sportsbooks, fantasy sports sites, and truck stop VGTs to generate a record $3.41 billion in 2019. Pennsylvania, which collects more through gambling taxation than any other state, siphoned $1.42 billion of that amount to state and local governments. The same sources produced $2.49 billion in the first 11 months of 2020, with comparisons shown below for each gaming sector through November 2020 compared to all of 2019.

While in a normal December, another $300 million might be produced by the various gaming revenue sources, that will not be the case this month with casinos closed since Dec. 12.

The total gaming revenue for the year is likely to end up at about $2.65 billion, providing some $760 million less than a year ago and approximately $300 million less in government taxes.

State government operates its budget on a July-June fiscal year rather than using the calendar year. It has already used special federal allocations to make up for tax losses from gaming and other sources and balanced the current year’s budget through special legislative action in November.

Brick-and-mortar industry poised to grow

Pennsylvania’s brick-and-mortar gaming properties grew by one to 13 in 2020 with the Nov. 24 opening of the Live! Pittsburgh mini-casino in Westmoreland County. It is the first of the five smaller casinos in that new category to open in the state, with Penn National Gaming expecting to open two more in Berks and York counties in the second half of 2021.

Live! Pittsburgh is owned by The Cordish Companies, based in Baltimore, which also plans to open a large Live! Philadelphia casino-hotel-entertainment complex in that city’s Stadium District by February.

The additions will help build revenue in the brick-and-mortar gaming sector, which has been relatively stagnant in most years since table games were legalized in 2010 to join slot machines in casinos.

In the months they reopened after the spring closures, casinos generally experienced about a 20% drop in combined slots/tables revenue from what they had garnered in prior years.

Considering all of the handicaps confronting them — safety fears among older clientele, state-imposed limits of 50% on maximum occupancy, loss of former amenities, new alcohol and smoking restrictions, etc. — the ability to generate 80% of their former revenue could actually be viewed as a victory for the casinos. There’s just no telling, however, when they will ever get back to 100%.

The properties were all initially shut down from mid-March until staggered reopenings in June and July. Gov. Tom Wolf issued another order this month that closed them from Dec. 12 until Jan. 4. The industry is awaiting word on whether that order will be extended or if they will be back in business Monday.

A banner year for online casinos

The October 2017 law that vastly expanded legal gambling opportunities in Pennsylvania resulted in five online casino sites that were operating by the end of 2019, producing a combined $33.6 million last year.

Now, there are 13 iCasinos. In the first 11 months of this year, they earned $494.2 million, which is slightly more than what the physical casinos saw in their table games revenue.

In the course of the year, new sites were started by FanDuel, BetAmerica, BetRivers, Caesars, DraftKings, Wind Creek, PlayLive!, and BetMGM.

The amount of play on the sites surged in the spring as COVID forced everyone, including regular casino patrons, to spend more time at home, with no access to their regular venues. Revenue from iCasino play jumped 73% from March to April, and that was even before many of the new sites had launched.

Revenue from the online play surpassed the prior month in every month except June. It has been above $50 million every month since May, with November setting the new benchmark of $59.8 million. Considering BetMGM is newly active since then, December seems likely to clear the $60 million threshold when its revenue figures are announced in mid-January.

One thing that did not change in 2020 was the number of online poker options in Pennsylvania, which remained just the single PokerStars site.

It is possible that new competition will be coming in early 2021 from Caesars and BetMGM with their WSOP and partypoker sites, respectively, although those additions have also been rumored as imminent for many months. It also remains to be seen whether 2021 will be the year Pennsylvania determines it is ready to join a multi-state poker compact that would combine games and players with those in New Jersey and other legalized online states.

Sportsbook sites grew during a turbulent sports year

The state started the year with eight online and 12 retail sportsbooks, which collectively claimed $84.1 million in revenue in 2019 based on what they retained from $1.49 billion in betting handle.

The options for sports bettors kept growing throughout the year. There are now 12 online and 14 retail sportsbooks, and through November they made $155.7 million in revenue from taking $3.03 billion in bets.

This doubling of volume took place even though only meager betting options existed from mid-March to mid-July with the shutdown of most all major sports competition, including the highly lucrative NCAA March Madness tourney.

During the year, new online sites showed up from Caesars, Penn National Gaming (the Barstool Sportsbook), BetMGM, and Betfred. The state lost one retail location, the now-closed Oaks Race & Sportsbook in Montgomery County, but gained three others at The Downs at Lehigh Valley, Wind Creek Bethlehem, and Live! Pittsburgh.

After the COVID lockdown on sports competition ended, the betting handle grew each month to reach a record $525.8 million in October. Unlike in other states, however, Pennsylvania’s handle dipped slightly in November, to $491.9 million. The addition of new sites BetMGM and Betfred in December could result in a turnaround.

A major story, nationally as well as statewide, was the September launch of the Barstool app by Penn National. The attention was connected to the gaming company’s use of the Barstool Sports brand for the site, after investing $163 million in January for a share of the Boston-based media company known for its brash, irreverent content that appeals to many young adults.

The Barstool site has settled into third place among the now-dozen Pennsylvania operators in terms of volume, well behind market leaders FanDuel and DraftKings.

VGT operators grew, but not fantasy operators

Less attention is received by two other smaller-earning sectors of the gaming industry — truck stop VGTs and fantasy sports contests — and one had a better year than the other.

The video gaming terminal rooms set up with five machines each in mostly rural highway locations had their own shutdowns due to COVID, the same as the casinos. The number of such sites kept growing, however, with 39 at the end of the year compared to 20 at the start.

Combined, they earned $15.9 million through November compared to $2.3 million from just a few months of operation in 2019. More applications are pending with the Pennsylvania Gaming Control Board from additional truck stops that meet state criteria and aim to add the small-scale form of gaming from machines similar to slots.

Fantasy sites suffered their own setbacks, meanwhile, from the shutdown of the normal sports calendar in several months of the year.

There are eight fantasy sports operators in the state — dominated by DraftKings and FanDuel — and through November they took in a combined $18.1 million in revenue. In 2019, there were 10 sites, and they took a combined $25.9 million.

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