As published in Casino Journal - April 2014
The United States commercial casino industry generated $37.8 billion in 2013, expanding by 1.3%. The growth in gaming revenue was the result of gaming expansion in new markets, but was tempered by existing markets experiencing declining revenue and market cannibalization.
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Traditionally, state legislatures have viewed gaming expansion as a magic formula for increasing tax revenues. However, this formula is no longer holding true as markets are reaching the point of saturation and states are increasingly cannibalizing gaming revenues from neighboring gaming jurisdictions.
Reaching the point of market saturation was most notable in Pennsylvania. In June 2013, Pennsylvania opened its twelfth casino (a small resort casino); however, the overall market experienced its first year-over-year decline (-1.5%) in gaming revenue since the first casino opened in November 2006.
States cannibalizing neighboring states gaming revenues is most evident in the Kansas City market. In 2011, the Kansas City gaming industry generated $741.5 million in revenue and encompassed five Missouri casinos. In 2012, through Kansas legalizing gaming, a sixth casino – Hollywood Casino at Kansas Speedway – entered the market. The addition of a sixth casino has resulted in the market’s overall gaming revenue increasing by $37 million, as the market generated $778.5 million in 2013. However, the expansion of gaming in Kansas has come at a cost to the original five Missouri casinos. In 2013, the new Kansas casino generated $131.2 million in revenue. Assuming the five Missouri-based casinos would have experienced flat revenue growth during 2012 and 2013, the new Kansas casino effectively generated 71.8% of its revenue through the cannibalization of Missouri gaming revenues.
Looking forward, the United States commercial gaming industry will continue to grow through the emergence of new markets such as Massachusetts and New York; however, the growth will be mitigated through continued declines in existing markets. With regional casinos facing declining revenues, there are three significant trends to observe going forward throughout 2014: continued market expansion, partnerships between states, and diversification beyond the gaming floor.
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