Does Plainridge Park Portend Trouble for MGM Springfield?
As the first facility opened in the Bay State’s new gaming era, Plainridge Park Casino launched to wild success — for the first month, anyway. Since then, revenues at the slots-only parlor have fallen well below first-year projections. While its general manager insists its long-term outlook is healthy — and others worry about a saturated casino market in the region — 90 miles to the west, development continues on MGM Springfield, whose leaders insist is a much different story than Plainridge Park, and will reap much different results.
On a recent Friday afternoon, a walk across the floor at Plainridge Park Casino — lined with 1,250 slot machines and electronic blackjack and roulette tables, as well as two restaurants and a food court — found hundreds of visitors dutifully anteing up and pressing brightly lit buttons, hoping for a big score.
Officials with the casino, just off I-495 in Plainville, a 90-mile trek from Springfield — and with Penn National Gaming, which owns the facility — were also counting on a big score when the long-time horse-racing venue relaunched as a slots parlor last June. And they did score, early on, with first-week revenues exceeding expectations.
But those revenues have fallen dramatically since, a cause for concern not only for Plainridge Park and Penn National, but for other casino developers in Massachusetts hoping to create the next big thing in regional gaming and tourism.
Plainridge Park’s general manager, Lance George, told BusinessWest it’s way too early to abandon optimism.
“It was a pretty standard opening — volumes incredibly high, then declining revenues, and a gradual ramp back up,” he explained. “It’s nothing this company hasn’t seen over its past four or five openings. In our industry and most industries, we look at year-over-year results, not short-term results related to seasonability.”
The big question is how significant that expected ramp-up will prove to be, and whether initial projections by the casino and the Mass. Gaming Commission were wildly off the mark.
Plainridge Park had projected revenues of at least $250 million during its first year of operations, an average of $456 per machine, per day. These were revised downward to $220 million just before the June 24 opening. But the average machine’s haul per day has plummeted from $585 in June to $256 in November, notes Paul DeBole, an assistant professor of political science at Lasell College in Newton, and an expert on the gaming industry.
“Plainridge isn’t as bad as everyone is making it out to be,” he said, arguing that its performance hasn’t been terrible, but the projections were.
He said a more plausible scenario for Plainridge’s revenues would consider the gross gaming revenue of the other four New England slot parlors (Twin River and Newport Grand in Rhode Island, and Hollywood Slots and Oxford Casino in Maine), which, on average, bring in $179.73 per machine, per day, or a tick over $82 million per year. Taking the average of just the two Rhode Island parlors raises those figures to $200 per machine, per day, and $91.3 million per year.
Under DeBole’s financial model, Plainridge’s first full year would bring in between $255 and $275 per machine, per day, and between $140 million to $150 million for the year. Revenues would gradually fall in subsequent years and plateau between $179 and $200 per machine, per day, with annual revenues in the $100 million to $110 million range, once Massachusetts’ full-service casinos, including MGM Springfield, begin to open their doors in 2018.
The bottom line, he said, is that early projections that Plainridge would bring in between $250 million and $300 million annually were way off base. “There was no way they were going to hit that, so the Gaming Commission revised it down to $220 million. And there was no way they were going to hit that, so they revised it again to $200 million. And there’s no way they’re going to hit that.”
Which is why the commission’s current projections are in the $160 million range — just north of what DeBole predicted. “Those numbers make a lot more sense. My feeling from the very beginning was that their numbers were overly optimistic.”
All of this certainly interests MGM, which is spending $950 million to create a gaming resort in Springfield’s South End.
“We’ve certainly been tracking the results to get a sense of what the larger market is doing,” MGM Springfield President Mike Mathis told BusinessWest. “I think Lance George and his management team are very strong, and I’m confident they will continue to tweak their model and figure out how to get closer to their projections and how it initially opened that first month.
“But that particular part of the state — the Southeast market — never factored into our competitive model, partly because it’s a slot facility, and because of the distance from our market,” he went on. “We don’t think their results, good or bad, necessarily dictate how well we’ll do here, with a fully designed resort with table games and all the amenities that come with a four-star hotel and high-end restaurants.”
He added that MGM will be leveraging existing attractions in downtown Springfield, from conventions at the MassMutual Center to entertainment venues like Symphony Hall, CityStage, and the Basketball Hall of Fame. “Plainridge seems like a very different model for us, and we’re still really confident about how well we’ll do.”
Penn National spent $125 million to convert Plainridge, a long-time harness-racing track, to a slot parlor.
But Twin River Casino, just 11 miles away over the Rhode Island line, countered those plans by upgrading its facility, which now includes 4,000 slot machines, table games (Plainridge has no live dealers), and a large arena. As a result, as the Mass. Gaming Commission kept adjusting Plainridge’s first-year projections downward, Twin River recently increased its concurrent projection by $35 million.
That wasn’t supposed to happen.
Yet, it’s not like the Rhode Island and Connecticut casinos were going to take the new Bay State competition lying down, DeBole said. “That’s the nature of the market right now. We have Foxwoods and Mohegan Sun trying to open facilities along the I-91 corridor to take money out of MGM, and Newport Grand will be relocated 350 yards from the Massachusetts border,” near Fall River.
Still, George said Plainridge has its own advantages for Massachusetts gamblers. “The least sexy is location, but it’s certainly fortuitous; it’s the closest casino relative to Boston, so we’ve tried to capitalize on that. The second thing that differentiates us from our competitors is the horse-racing industry, which is something we’ve tried to ensure people are aware of. Unlike many states, that industry is growing in our state,” he explained, noting that race days will soon increase from 105 annually to 115, then 125 two years from now.
“The third advantage is, we are part of Penn National, which has 27 properties; they recently acquired the Tropicana in Las Vegas, and they’ve done a great deal of planning here,” he went on. “It’s a very well-respected company.”
George said Plainville officials have long been supportive of the racetrack and happy to forge a $4.2 million host-community agreement with Penn National — not to mention the additional tax revenues. “From an employment standpoint, we saved the existing 100 or so jobs already here from the racing side and added 500,” he added. “Those are the two most tangible benefits — financial and jobs. In addition, through six months of operations, we’ve purchased $6 million in goods and services — $4 million in the state of Massachusetts.”
All of that is positive, DeBole said, but he questions how many facilities the state can support. “Legislators mean well, and they’re trying hard, but they don’t get that there’s a finite amount of disposable gambling dollars out there,” he argued, adding that it’s unrealistic to expect much cannibalizing of well-established behemoths like Foxwoods and Mohegan Sun.
He paused for a second before pondering what that means for MGM, then noted that the company has a solid track record, and the complex will likely draw visitors from a wide radius. “But I think they may not be as profitable as they’d like.”
More Than Slots
MGM Springfield certainly has one big advantage over Plainridge, DeBole said. Casino developers have long noted the growing importance of non-gaming revenue. Atlantic City, a gambling mecca that has fallen on hard times, currently brings in $5.2 billion in gaming revenues — about the same as Las Vegas, a destination on much stronger footing these days. However, Vegas casinos bring in $10.4 billion in non-gaming revenue — retail, dining, and entertainment — compared to $400 million in Atlantic City.
“That’s a really stark comparison,” he went on, noting that Foxwoods and Mohegan Sun have removed more than 25% of their slot machines after seeing slot revenue plummet by about $500 million since 2009.
Mathis knows these numbers as well, and says MGM Springfield — designed to be integrated with Springfield’s downtown, as opposed to how the nondescript Plainridge property seems positioned mainly to provide easy access to and from I-495 — will bring in a wide variety of visitors, not just slots enthusiasts.
“Generally, a diverse offering is always going to be a better attraction for the customer; that’s where the trends are,” Mathis said. “The non-gaming parts of our revenue in Springfield reflect what we do in other markets and other resorts. MGM has always been a leader, and continues to be a leader, in that area.”
And, unless one of the Connecticut giants builds a competing casino north of Hartford, MGM Springfield — as well as the planned Wynn Massachusetts casino in Everett — may be in a better geographic position than Plainridge, which is competing more directly with the Rhode Island and Connecticut facilities.
But DeBole worries that a fourth casino license, this one earmarked for Southwestern Mass., may be one too many in a heavily saturated region — particularly with the Mashpee Wampanoag tribe looking to open a casino in Taunton through the federal Bureau of Indian Affairs, independent of Mass. Gaming Commission approval, and the Aquinnah Wampanoag tribe fighting the state over gaming on its reservation lands on Martha’s Vineyard.
“In a market already showing the effects of saturation, that would have a huge adverse impact on the region as well,” he told BusinessWest. “If the Gaming Commission asks my advice — not that they would — I would tell them to defer awarding a license to see how this shakes out.”
DeBole has other issues with casinos in Massachusetts, one of which is the state taking up to 61% off the top of gaming revenues in regulatory fees and taxes, before the casino even pays its employees. “That’s a cause for concern. Lawmakers say it’s all about job creation, but we all know that’s not true.
“It’s a very uneasy situation for the state to be a majority partner in a gaming enterprise; you would think the average voter would have some doubt about how stringent the regulatory forces would be,” he went on, adding that he personally feels the gaming commissioners are people of integrity, but he’s talking about perception, not reality — and a reality Las Vegas, where government skims just 6.8% from casino revenues, doesn’t have to deal with. “When the state is taking more money than the people taking the entrepreneurial risk, I have a philosophical problem with that.”
But Plainridge Park in particular “was dealt a crappy hand by the statute, despite the best intentions,” he said, hampered by a narrow focus on slot machines and barring table games. Other barriers for some visitors include an age floor of 21 and a no-smoking policy (Twin River admits 18-year-olds and allows smoking).
George, obviously, with his experience in the industry, is an enthusiastic promonent of gaming in Massachusetts, pointing out the creation of some 10,000 jobs and the related tax revenues, adding that people worried about the unintended consequences — the social costs of gambling — forget that plenty of Massachusetts residents are already flocking to casinos, with the tax revenues benefiting other states.
He added that the Mass. Gaming Commission is ramping up efforts to promote responsible gambling, an effort that’s visible to all Plainridge visitors, who are greeted at the door from the parking garage with prominently posted information about GameSense, a program to prevent problem gambling.
As for his slot parlor’s economic health, George is convinced it will find its footing in the long term.
“The media here are covering it on a month-to-month basis, but that’s not the way we gauge the health of this business,” he said. “Once we get to the warmer months — March, April, May — as opposed to the dark, cold winter, we fully expect revenue to increase. There’s nothing unusual about that.”
DeBole agreed with George that month-to-month tracking doesn’t tell the whole story, and that warmer spring weather will increase turnout. Beyond that, he’s lukewarm.
“Over time, Plainville’s numbers will bump up a little bit, but I don’t see them making anywhere near the money they claimed they would last year,” he said. “They’ll be lucky if they hit $150 million this year, and eventually, they’ll probably be in that $92 million to $115 million range of annual revenues.”
Mathis, like George, would rather wait and see what the multi-year results are at Plainridge Park.
“I agree with him that it’s really too short a period right now to make any long-term observations about what the market is going to do,” he said. “In other businesses, it takes years to get to your normalized year. I really think those guys deserve — we all deserve — some time after opening to massage the models and see how the market is reacting and sort of fine-tune the business.”
Meanwhile, the clock continues to tick for MGM Springfield. And 2018 isn’t that far away.
Joseph Bednar can be reached at [email protected]