Pa. beware, Ohio sprouts its own casinos

Posted: August 06, 2012

CLEVELAND - This city on the southern shore of Lake Erie, where manufacturing jobs have disappeared and NBA superstar LeBron James bolted two years ago, has something new to tout: a casino.

Ohio became the 23d state to add commercial gambling halls when the $350 million Horseshoe Casino opened here in mid-May.

Among the regulars at the four-level downtown casino with a buffet in the basement is Betty Jo Palmer, a local resident and avid slots player.

"Oh, I love it," said Palmer, 61, who used to take a bus trip every Friday, her day off, to Presque Isle Downs and Casino in Erie and occasionally to Rivers and Meadows casinos in Western Pennsylvania. Cleveland is about 60 miles west of the Pennsylvania border.

"Now, they have [a casino] right here in Cleveland," Palmer said.

Palmer's ability to gamble closer to home does not bode well for Pennsylvania. Three gambling halls in the western part of the state made up 28 percent of last year's $1.45 billion in gaming tax revenue. Total casino revenue was $3.2 billion in 2011.

Pennsylvania taxes gross slots revenue at 55 percent and table games revenue at 14 percent. Gaming tax revenue goes primarily toward property tax relief, as well as to boost the state's horse-racing industry, statewide economic-development projects and the host municipalities.

Gaming analysts say the ramping up of Ohio's gambling industry - a second casino opened in Toledo two weeks after Horseshoe, while a third is set to open in October in Columbus and a fourth in early 2013 in Cincinnati - will likely steal some market share from Pennsylvania. Toledo and Cincinnati, however, are on Ohio's western border and are five-hour drives from Pennsylvania. Columbus is in the center of the state.

Ohio residents do provide some of the business at the three Western Pennsylvania casinos. On a recent Saturday, about a third of the license plates at both the Meadows Racetrack and Casino in North Strabane Township and Rivers in downtown Pittsburgh were from Ohio.

Horseshoe is having the biggest impact on Presque Isle, whose monthly slots revenue has decreased every month compared with a year ago since Horseshoe opened on May 14. Presque Isle was down 15.1 percent in July, 9.5 percent in June, and 10.5 percent in May.

Although Rivers and Meadows were also down last month, 6.1 percent and 4.8 percent respectively, "we cannot say the Cleveland casino was the major factor in the drop," said Pennsylvania Gaming Control Board spokesman Doug Harbach. He said the 2.5 percent decrease in statewide gross slots revenue had more to do with the extra weekend in July 2011 vs. July 2012.

"We believe they will have an impact," on Western Pennsylvania, said analyst John Kempf, of RBC Capital Markets L.L.C., "but this will be over an extended period, as the casinos come on line."

In addition to four casinos, there are also plans to add racinos - racetracks with slots - in Austintown and Northfield Park, starting in mid-2014.

Said Andrew Zarnett, of Deutsche Bank AG: "I don't think you'll get impact (on the Pittsburgh casinos) until a racino opens up in Youngstown, which is basically on the Ohio-Pennsylvania border."

During June - the first full month of operation for both - total gambling revenue was $26.1 million at Horseshoe and $20.4 million at Hollywood Casino in Toledo. Ohio has a 33 percent tax on gaming revenue.

"We are very pleased with the strong attendance numbers we have seen since the casino opened," said Jennifer Kulczycki, spokeswoman for Detroit-based Rock Gaming, which is majority owner of Horseshoe. Caesars Entertainment Corp. manages the casino. She said over 1.2 million visitors have come to the new casino since it opened.

Rock Ohio Caesars L.L.C. is the joint venture formed in December 2010 between Rock Gaming and Caesars Entertainment to develop casinos in downtown Cleveland and Cincinnati. Dan Gilbert, a principal of Rock Gaming, is also chairman and founder of Quicken Loans Inc., the nation's largest online retail mortgage lender. Gilbert is also majority owner of the NBA Cleveland Cavaliers.

Rock Gaming, which focuses on developing urban casinos, has been on a roll. Last week, it was awarded a Maryland license to build a $300 million casino in downtown Baltimore in partnership with Caesars Entertainment.

Horseshoe Casino Cleveland is in the historic building that once housed the former Higbee Department Store, at the corner of Prospect and Ontario, in the heart of downtown. It sits near two major sports stadiums, hotels, restaurants, theaters, and what will be a new convention center next summer.

Some say its early success reflects how a Philadelphia urban casino might perform if the second license were awarded to a Center City site, near the recently expanded Pennsylvania Convention Center and the hub of hotels around it.

"Rock Ohio Caesars' urban casino vision is laser-focused on adding to the vitality of cities like Cleveland, Cincinnati and Baltimore," said Matt Cullen, president and CEO of Rock Gaming. "We're developing projects that connect to and support existing restaurants, hotel, retail and nightlife . . . ."

The casino was packed on a Thursday in July. Some of the gamblers were heading to a Cleveland Indians baseball game. Horseshoe is a short walk away from Progressive Field, home of the Indians, and Quicken Loans Arena, where the Cavaliers play.

The casino is inside Tower City Center mall, which has two attached hotels. The venue has 2,100 slot machines, 60 table games and a 30-table poker room. The casino is 100 percent smoke-free.

"It will definitely bring people downtown to visit other businesses," said retiree Robert Davies, 62, as he left the casino and headed to the ballpark with his wife, Barbara.

"It's too early to tell," said James Bletcher, 29, as he planted himself at the craps and poker tables. "They're a little late in the game, now that the area is saturated with casinos. Only time will tell."

J. Artez Culpepper, 42, moved from North Philadelphia to Cleveland six months ago and now works for an urban, green recycling company. He made his first visit to Horseshoe last month for Texas hold 'em.

"It's going to be very lucrative for the city of Cleveland," said Culpepper, who said he occasionally goes to Rivers in Pittsburgh for poker. "Every since LeBron left Cleveland, there's definitely been a need for some excitement. A new casino brings that."

Those who work at nearby restaurants and hotels say they are seeing a boost.

"It's hard to quantify the numbers," said Jim Connell, manager of Flannery's Pub, which is two city blocks from Horseshoe. "But based on what we're seeing, there has been a positive effect across the board. There is a lot more foot traffic in the area."

Connell said he anticipates more downtown traffic by next summer, when the $465 million Cleveland Medical Mart and Convention Center opens.

Competitors are also paying close attention. A drive from Horseshoe to Rivers in Pittsburgh, which is owned by Chicago billionaire developer Neil Bluhm, the majority investor of SugarHouse in Philadelphia, takes about two hours.

Of the 250 to 300 buses that arrive monthly at Rivers, about half are from out of state, said assistant general manager Bud Green. Of those, he said, most come from Ohio and West Virginia. He said less than 10 percent of Rivers' non-bus clientele is from out of state.

Kevin Smith, of Cleveland, was playing roulette at Rivers on a July weekend getaway with his wife. "I think it will take business away from surrounding casinos," Smith, 43, said of the new Ohio casinos.

Smith himself plans to cut his trips to Rivers by about half because of Horseshoe.

"It's just more convenient," he said.


Contact Suzette Parmley at 215-854-2594 or sparmley@phillynews.com.

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