The U.S. gaming market has undergone a tremendous shift in the last decade. Once upon a time, consumers flocked to destination resorts in New Jersey and Las Vegas. Now, however, patrons are converging on regional gaming centers that offer convenience. One such hot spot is Pennsylvania, which is adjacent to the highly populous metro New York/northern New Jersey market. In fact, since the legalization of slot machines a few years ago, the Keystone state has overtaken New Jersey as the biggest gaming destination along the East Coast. What’s more, recent legislation in Pennsylvania may well ensure continued growth.

Lawmakers in Pennsylvania, pressed to remedy a current budget shortfall and boost future revenues, recently passed a bill to legalize table games (poker, blackjack, craps, baccarat, and roulette). Under the law, large casinos will be required to pay a $16.5 million licensing fee to operate 250 tables, and their smaller brethren would pay $7.5 million to operate 50 tables. While, these cumulative fees provide a significant boost to the state, it is a relatively small cost to gaming entities. Thus, to no one’s surprise, gambling companies are rushing in. Neighboring states, meanwhile, are left to contemplate the ramifications.
The bill has prompted many of the existing casino operators in Pennsylvania to consider new developments and/or expansion. That’s because table games attract gamers who stay long hours, and even overnight. Lodging facilities are needed to accommodate these guests. The lure of low taxation on gaming is an added incentive. Although revenues generated by slot machines are taxed at a relatively high rate in Pennsylvania, table games are taxed at one of the lowest rates (16%) in the country.

Since the opening of Sands Bethlehem casino last year in Pennsylvania, Las Vegas Sands (LVS) has experienced less-than-stellar results. In fact, uninspiring property revenue was the reason LVS supposedly contemplated selling the property. With the legalization of table games, however, the gaming behemoth has not only decided to stay, but has resumed construction on a delayed hotel.

Wynn Resorts (WYNN) is a gaming operator eager to get a toehold in the market. After a recent failed attempt to take over a troubled waterfront casino project in Philadelphia, CEO Stephen A. Wynn voiced his optimism to the legalization of all gaming activities in the state. In particular, the industry veteran noted the city’s favorable demographics, and declared that a local casino could generate better returns than in Las Vegas.

New Jersey, meanwhile, is struggling to protect its turf. Casino operators in Atlantic City, who have been toiling to stem losses resulting from the recent recession, weak gaming demand, and increased competition from slot parlors in Pennsylvania, are apt to face additional hardship. Indeed, Pennsylvania may well cannibalize a good portion of the $1 billion in annual revenue (or 30% of total revenues) Atlantic City generates from table games. New Jersey lawmakers, though, are unwilling to go down without a fight. In fact, they are contemplating changes to the 1977 law that legalized gambling.

The growth in Pennsylvania, combined with weakness in Jersey, has played a pivotal role in hastening the apparent departure of MGM Mirage (MGM) from Atlantic City. The Las Vegas-based giant decided to leave the market after New Jersey gaming regulators claimed its partner in Macau (a special administration region of China) was “unsuitable.” In particular, Garden State authorities asserted that Pansy Ho, daughter of casino mogul Stanley Ho, had links to Chinese crime groups. Moreover, the finding forced MGM to choose a market. To no one’s surprise, the company opted for Macau, which continues to draw crowds in record numbers.

New Jersey is apparently failing to live up to its billing as the “Las Vegas of the East.” In spite of the fact that Atlantic City is situated on oceanfront property, and is in close proximity to an affluent consumer base, it is still losing gamers. The gaming industry in Pennsylvania, though, is surging, as the local government establishes an environment conducive to private enterprise. Accordingly, investors may want to consider investing in gaming companies that have or intend to establish operations in the state.