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Gaming Guru

Howard Stutz

Philadelphia's current operators appear unfazed over prospects of new competition

20 May 2013

PHILADELPHIA, Pennsylvania -- If this city’s current casino operators are worried about the prospects of a big new competitor in the market, they aren’t saying.

Pennsylvania gaming regulators by the end of the year should decide which of six proposals will be awarded the state’s final gaming license, for the Philadelphia area. The winner could be open for business two years later.

Meanwhile, Philadelphia’s casinos continue to seek ways to grow market share by draining business from Atlantic City and fending off competition from elsewhere in the state and from emerging gaming markets in New York and Maryland.

“From my seat, I would say the market is rather full and crowded,” said Harrah’s Philadelphia General Manager Ron Baumann. “We might be on the brink of saturation. The key is offering the customer something unique and different.”

The most pressing matter concerning SugarHouse Casino General Manager Wendy Hamilton is completing a $155 million expansion of the small casino along the Delaware River. The renovation would increase the gaming floor by 80 percent and add much-needed amenities, including new restaurants.

“We’re watching (the last gaming license debate) closely but we’re glad to be on the sidelines,” Hamilton said.

Metropolitan Philadelphia, with a population of 6 million, has four casinos: Harrah’s Philadelphia, which includes a harness track, south of the Philadelphia International Airport in Chester; SugarHouse, in the Fishtown area east of downtown; Parx, which has a thoroughbred track; and the small Valley Forge Casino, about 22 miles west of the city.

In 2012, those casinos produced $1.167 billion from gaming, almost 37 percent of the state’s total of $3.16 billion.

Analysts said a fifth casino would further pressure Atlantic City, a 45-minute drive from Philadelphia.

New Jersey Casino Control Commission Chairman Matthew Levinson, however, doesn’t believe another casino in Philadelphia will take more business from Atlantic City.

“The competition from Philadelphia has already affected Atlantic City, in my view,” he said. “Another casino in Philadelphia or Pennsylvania will only affect Pennsylvania. They are going to start taking competition from each other.”

Baumann, who worked for Caesars Entertainment Corp’s four Atlantic City casinos before taking over the company’s racetrack casino 18 months ago, said he’s seen movement of customers between the two cities.

“Once casinos opened in Pennsylvania, some business came here from Atlantic City,” Baumann said. “There is some migration in the level of frequency someone comes here or goes to Atlantic City.”

The list of applicants for the final license is varied and centered on three metropolitan market locations.

Three proposals, including applications from regional casino giant Penn National Gaming, Maryland Live! developer the Cordish Companies and Philadelphia-based PHL Local Gaming, would put the casino adjacent to Philadelphia’s sports stadiums, off Interstate 95.

Two proposals, one from Connecticut’s Mohegan Indian Tribe, the other from Philadelphia real estate developer Bart Blatstein in partnership with Isle of Capri Casinos, would put the casino in the Center City urban core.

Blatstein already has three city blocks, or 8 acres, along Broad Street and plans to spend $700 million to develop a destination resort. The former Philadelphia Inquirer building will become a 125-room hotel to feed off the city’s convention center, which underwent a $700 million expansion.

“If you’re going to do it right, put it in the downtown core,” said Blatstein, noting that the stadium complex is gridlocked during events. “Gamblers don’t go near stadiums, and there is no spin-off for economic development.”

Blatstein said he partnered with Isle of Capri, which operates 16 casinos in seven markets, “because it’s a solid company.” And like Blatstein, Isle of Capri CEO Virginia McDowell, a Philadelphia native, graduated from the city’s Temple University.

Wynn Resorts Ltd. has targeted a 60-acre former shipyard along the Delaware River, roughly a half-mile north of the SugarHouse, for a scaled-down version of Encore at Wynn Macau.

At a Pennsylvania Gaming Control Board meeting in February, Wynn Resorts Chairman Steve Wynn managed to mention his degree from the University of Pennsylvania in presenting his plan, which includes a destination resort with a public park. The company has not given a price tag for the project.

In an interview, Wynn said his proposals in Philadelphia and for a casino license in Boston are about creating “Urban Wynn” properties, which have luxury hotels and amenities. The casino almost seems like an afterthought. It is separate from the primary property, but still an attached attraction.

“The casino is what pays for the whole project,” Wynn said. “It’s about creating an urban grand hotel in one of the great cities in America. I’m looking to have the best hotel in Philadelphia.”

Wynn said the resort site would have direct access off Interstate 95 through an under-construction interchange “that drops right into the property.” He said the resort would target guests from other northeastern cities.

Hamilton, who has overseen SugarHouse since it opened in 2010, said the casino’s ownership, an investment group controlled by Chicago real estate magnate Neil Bluhm, hasn’t taken sides in the debate, even with the prospect of Wynn’s 300-room resort complex just down the street.

The two downtown casino proposals are less than three miles from SugarHouse; the stadium complex is about eight miles south.

“We haven’t spoken publicly on that issue,” Hamilton said. “We’ve probably cut the numbers 100 different ways internally in looking at all of the proposals. But right now, we’re waiting and watching.”

The SugarHouse opened after a four-year stall caused by the recession and stagnant credit markets. The 51,000-square-foot casino, with 1,600 slot machines and 58 table games, has just one full-service restaurant, a grab-and-go food outlet and one central bar area.

Still, SugarHouse collected $274.1 million in gaming revenues last year, despite being considered a “slots in a box.”

The expansion, to be completed by 2015, would grow the casino to 90,000 square feet, increase the slot machines and table games, add a poker room, restaurants, meeting and banquet facilities, and a 2,440-space parking garage. The casino would also add another 450 full-time jobs.

Union Gaming Group Managing Director Bill Lerner thought SugarHouse would benefit from added gaming capacity. He said the casino’s win-per-day metrics for slot machines and table games lead the market.

“We have called this an interim facility. It was always going to part of a permanent facility,” Hamilton said. SugarHouse’s 30-acre site has room for expansion. With every inch of the facility being used, the casino’s executive offices are in a building across Delaware Avenue. Hamilton said a hotel could be part of a third phase.

“We just need to add more amenities,” Hamilton said.

When SugarHouse opened, Harrah’s Philadelphia lost customers to the competition. However, the racetrack, which opened in 2006, has upgraded its 100,000-square-foot multilevel casino to include 2,800 slot machines, 84 table games and a 25-table poker room. The property does not have a hotel.

Baumann said slot machines and table games are the draw — the casino collected $340.8 million in gaming revenues in 2012. Also popular is the 5/8-mile harness track, which includes a turn extending over the Delaware River on a specially constructed bridge for races from March through December.

Caesars built the racetrack-casino on the site of a former shipyard.

“It’s a world-class track and facility that’s a unique feature,” Baumann said.