The recession has taken its toll on US gaming revenues and many states have suffered declining tax revenues as a consequence.
In 2013, 19 US states with commercial casinos have collected US$7.35 billion in state and local gaming taxes. The total tax collection increased by 2.4% from 2012, but that was due mostly to high growth in Maryland and Ohio, both of which had new property openings during 2013.
In fact new casino openings were the bright spot of 2013.
In Maryland, the fiscal year 2013 was the first full year of the Maryland Live! Casino in Hanover, the largest casino in the state, which opened in mid-2012. The Rocky Gap Casino also opened, in May 2013. In Ohio, 2013 was the first full year of its largest casino, the Hollywood Casino Columbus, while the Horseshoe Casino Cincinnati opened in March 2013.
Kansas also had rising revenues in the fiscal year 2013 due to the first full year of the Hollywood Casino, which was open only five months in 2012. Besides those three states, only four more states experienced rising tax revenues, mostly small amounts, while 11 states received less money from their casinos than in the previous year.
In a few states, casino operators retain less than 50% of gaming revenues, whereas Nevada regulators tax the industry only up to 7.75% of GGR, including local taxes. Among the examples of high taxes is Rhode Island, whose operators pay over 60% effective tax, as well as Pennsylvania, where operators are subject to 55% total tax on slot revenues.
Las Vegas Sands operates the casino in Bethlehem, Pennsylvania and managed to produce an EBITDA of US$114 million. A figure likely to be much lower after deducting depreciation on a build out of something like $1 billion.
With states and countries looking to augment their ailing finances with integrated resort casinos it is important for the operators to secure from Government a statement of intent on casino taxes, otherwise they could be left with an asset that yields nothing.
The situation is already severe in some markets, for example New Jersey, where the Atlantic City Club recently closed for good.
Even though the economic situation will be improving in the coming years, competition will continue to rise, squeezing the revenues of the existing properties. Massachusetts has already legalised casinos and is currently deciding on licensees. New York voters allowed four full-fledged casinos, eventually rising to seven venues. New Hampshire casino talks are ongoing. Some states are also introducing online gambling – so far it started in Delaware, Nevada and New Jersey and more states will legalise it in the coming years.
Increased competition is leading to lower revenues and, consequentially, to lower taxes at a time when state budgets are strained and in a desperate need of revenues.
Indiana regulators have realised this and in May 2013 the state legislators changed the tax model: tax on complimentary play up to US$2.5m in 2013 and US$5m in 2014-16 was removed and the initial tax rate for riverboats with up to US$75m revenues was lowered to 5%. Previously the lowest rate for riverboats was 15% of GGY. Lowering the initial tax rate might help open new casinos, which were proposed by some municipalities in the past. Hopefully the other state governments will follow their lead and review their taxation models.