07/05/2004 11:00PM

Slots bill could rearrange gaming landscape in East


NEW YORK - When Pennsylvania Gov. Ed Rendell signed a bill on Monday legalizing up to 61,000 slot machines in the state, he started the ball rolling on an enormous restructuring of the Northeast's gambling landscape.

The machines, which are expected to generate $3 billion each year while perhaps boosting purses at Philadelphia Park to $500,000 a day, will have impacts on casinos in neighboring states, on legislatures in states that do not yet have casinos, and on the racing industry.

If the projections hold, Pennsylvania will become one of the most lucrative attractions for horses in North America. Philadelphia Park may offer higher purses than any other track in the country except Keeneland. That would put enormous pressure on horse populations from Massachusetts to Florida and set off pitched competitions among tracks to draw runners. Stud fees and broodmare values will also face upward pressure.

Pennsylvania has four tracks, but three more are scheduled to be built. It's possible that the state will ultimately have four Thoroughbred racetracks. That raises the possibility of year-round racing at all four, perhaps 800 days a year. The state's two Thoroughbred tracks currently run 425 days a year.

Aside from casino profits, the slots revenue will be used for tax relief, economic development, and the subsidy for the racing industry. What will remain unclear for some time is the impact on the local economies of that $3 billion transfer of wealth.

States like West Virginia and Delaware have largely avoided damaging their local economies because their slot machine operations drew the vast majority of their customers from out of state. But as slots locations increase in other states, the ratio of out-of-state customers is likely to decline in West Virginia and Delaware.

Without question, tracks in Delaware could be significantly damaged by slots in Pennsylvania. Delaware Park, a Thoroughbred track in Wilmington that draws heavily from the Philadelphia area, will now face competition from four Philadelphia-based slots parlors.

"They're going to put a lot of those slots in Philly, and that's going to really hurt Delaware," said Sebastian Sinclair, a partner in the gaming consultant company Christiansen Capital Associates. "To some extent, it's probably going to hurt West Virginia, too."

Competition will also be heavy among the in-state casinos. The operation at The Meadows, a Magna Entertainment harness track outside of Pittsburgh, will compete with two other slots parlors in Pittsburgh, and perhaps with another racetrack in the city. Philadelphia Park will ultimately compete with two casinos in downtown Philadelphia, along with a casino at a new harness track south of the city.

Bob Green, one of the co-owners of Philadelphia Park, said he was reluctant to cite an estimate for per-machine revenues because of the uncertainty over how the competition will look. But he said that Philly Park's numbers should be "better than anything in the area, particularly Delaware and Atlantic City," where per-machine revenues have averaged approximately $250 a day.

Racetracks in the state will likely get a head start on the competition. The legislation allows for tracks to receive conditional licenses, meaning slots operations could be in place at some tracks by late 2005. The other sites in the state are not expected to be operational until 2006.

All casino sites will have to pay a $50 million licensing fee up front. Philadelphia Park, for one, is expected to spend "at least several hundred millions of dollars" to build its casino, Green said.

In the tracks' favor, the sites were given a generous cut of the slots revenue by the state. In contrast to New York, where tracks were given only 20.25 percent of the revenue, Philadelphia Park and other sites will receive about 45 percent of the gross profit, with 12 percent for purses. That will allow the sites to spend heavily on casinos that can compete with the numerous gambling alternatives cropping up in the Northeast.

The number of competitors is only expected to increase. In reaction to Pennsylvania's bill, legislators in Maryland have called for a special session in August to pass a gambling bill, although the speaker of the House, Michael Busch, has said slots should be voted on by the public. Maryland has failed to pass a slots bill three years in a row, despite intense lobbying by racetracks and gambling interests.

Efforts for slots in Maryland have failed in large part because Busch has characterized the bills as handouts to the racing industry. In that sense, the Pennsylvania bill may herald a new, more varied approach for slots that includes tracks.