Academic journal article UNLV Gaming Research & Review Journal

Pennsylvania Casinos' Cannibalization of Regional Gambling Revenues

Academic journal article UNLV Gaming Research & Review Journal

Pennsylvania Casinos' Cannibalization of Regional Gambling Revenues

Article excerpt

Abstract

Gambling opportunities are expanding rapidly in the U.S. Mid-Atlantic area. Fifteen gambling venues have opened since 1996. The introduction of these venues has the potential to shift the balance of gambling activity away from New Jersey, which had enjoyed a monopoly position in the area for decades. Delaware and, more recently, Pennsylvania have entered the marketplace, raising the question of whether aggregate gambling activity has increased in the area, and whether all states have benefited. Contrary to previous research, a multivariate analysis reveals that aggregate gambling revenue among the three states has not increased with the introduction of Pennsylvania gambling venues. The research extends the literature by including Delaware in the analysis, which has drawn significant gamblers from Pennsylvania and the greater region, and by greatly expanding the data employed. In the Philadelphia-Northern Delaware-Atlantic City market (where the competition of gambling revenue is most intense), there is empirical evidence that the introduction of gambling in Pennsylvania has decreased the overall volume of gambling.

Keywords: Gambling, Casinos, Gambling Revenue, Cannibalization.

Acknowledgements: Figure 1 was created with the assistance of Marija Skoog, West Chester University.

Introduction

Casino gambling in the United States is on the rise, and today forty states now permit some form of it (McGowan, 2009). Dramatic shifts in this gaming landscape have taken place over the past fifteen years. Perhaps nowhere is this more evident than in the Mid-Atlantic region of Delaware, Pennsylvania and New Jersey. This region is noteworthy because it combines Atlantic City, one of the oldest gambling locations in the country, with some of the newest locations. Atlantic City's first casino opened in 1978 (Atlantic City Free Public Library, 2006) and enjoyed a monopoly position in the region for several years. In 1996, Delaware opened three slots venues: Delaware Park in New Castle County, Dover Downs in Kent County, and Harrington Raceway in southern Kent County. Pennsylvania opened its first casino in 2006 and has added casinos every year through 20 10.' As competition for gambling revenue has intensified, states have expanded their gambling offerings in an effort to lure patrons. Delaware added sports betting in 2009 and table games in 2010. Pennsylvania added table games in 20 10.2

These developments lead us to ask the following questions: Has total casino gambling increased among Pennsylvania, New Jersey and Delaware? And to what extent do Pennsylvania, New Jersey and Delaware cannibalize each other's gambling revenues? The answers to these questions will provide insight into the competition among states for gamblers as well as the resultant revenue.

Gambling has become an important source of revenue for states (Dadayan and Ward, 2009). For a state with gambling, revenue is threatened by competition from neighboring states. For a state without gambling, residents may gamble out-of-state, thereby generating revenue for the host state, while incurring costs for the state of residence through lost personal expenditures and gambling addiction (Garrett and Nichols, 2005).

Of the tiiree Mid- Atlantic States in question (New Jersey, Pennsylvania and Delaware), Delaware has the highest reliance on gambling revenue (Dadayan and Ward, 2009). Gambling revenue as a share of the state's own-source general revenue is 6.1% for Delaware (fifth in the nation behind Nevada, West Virginia, Rhode Island and Soutii Dakota). New Jersey's gambling revenue is fifteendi with 3.4%, and Pennsylvania's is nineteenth with 2.8% (fiscal year 2007). See Figure Al in appendix for a ranking of states by gaming revenue as a share of state's own source revenue. As Wenz (2008) states, understanding die impact of casino gambling remains an important issue. This analysis, therefore, has implications for casino revenues, and in turn, gambling-related tax revenues for states. …

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