Mar 7, 2016 6 min read

MEADOW LANDS – Sitting in his office that looks out onto the harness racing track, Sean Sullivan, general manager of The Meadows Racetrack & Casino, explained the idea of giving casino visitors – especially frequent ones – $10 or more in free play at the gambling venue for continuing to choose to play slots at the North Strabane Township gaming complex.

To Sullivan, the practice of rewarding players with free play, on which The Meadows spent $64.5 million in 2015, is all about building and preserving customer loyalty.

It’s also a part of the cost of doing business, or as the adage goes, “spending money to make money.”

Sullivan went through a list of retailers that use keychain cards or other forms of “free money” to promote customer loyalty.

He noted Kohl’s with its “Kohl’s Cash,” Rite Aid and Giant Eagle, with store credits for items purchased in their stores, then mentioned all of the major airlines with their frequent-flier programs.

“It’s not this mysterious thing,” Sullivan said. “It’s rewards for playing at The Meadows, and every casino in America does it” for their guests, he said. “Free play is all about loyalty.”

Free play has become a big part of the discussion at Pennsylvania’s 12 casinos, because Gov. Tom Wolf is proposing an 8 percent tax on promotional play at the casinos.

According to Sullivan, the proposal is one of the least business-friendly things the state could do, particularly since it already levies a 55 percent tax on slot machine revenue, the highest rate in the country.

“We think the 8 percent tax is the absolute wrong thing to do,” he said, adding the additional levy would cost the casino another $5 million to $6 million a year.

When Washington County commissioners presented their annual “State of the Economy” address Feb. 25, The Meadows was front and center in a discussion about tourism and its contribution to the county’s economic well-being.

Commissioner Harlan Shober noted The Meadows complex, which opened in July 2009 after operating for two years in a temporary structure, is now the largest tourist attraction here.

“Last year, The Meadows Casino hosted over 5.3 million people in Washington County and spent $17.8 million on goods and services here,” Shober said. “This, in addition to the $49.6 million the casino spent on payroll employing 1,357 people, demonstrates the positive impact the casino has both on tourism and our economy as a whole. The casino is our foremost tourism attraction.”

Commissioner Diana Irey Vaughan added the Local Share Account program, to which The Meadows contributes a percentage of its annual gross terminal slots revenue to economic and community development projects, invested $73 million in new projects since 2008, including $8.1 million in 2015.

“In that same time frame,” Irey Vaughan said, “we have been able to match our $73 million in LSA funds with over $208 million in additional federal, state and local monies for a total of $281 million in total impact.”

The commissioners reiterated the economic contributions The Meadows makes to the county in a Feb. 18 letter to Wolf, which asks him to reconsider his position on the free play tax.

“Our concerns with this proposed tax are the negative impact to the economic development, reduced tax revenue and a potential for the loss of jobs that this industry brings to Washington County,” the commissioners wrote.

While stating an 8 percent bump in taxes wouldn’t immediately jeopardize the casino’s contribution to the LSA program, Sullivan said passage of the levy could have unintended consequences for jobs, capital expenditures in the casino complex and in local charitable contributions.

In addition to its annual LSA contribution to the county, the venue is a major supporter of Washington County Food Bank and Washington City Mission.

From a business operations standpoint, Sullivan noted the casino is preparing for an increase in health care costs and watching for an increase to the state minimum wage.

It’s also battling proposals in Harrisburg to legalize video gaming terminals, or VGTs, for use in establishments with liquor licenses.

With its proximity to West Virginia and Ohio, Sullivan said, The Meadows must compete with casino operators whose states currently tax slots at 33 percent, a 22 percent advantage to The Meadows’ 55 percent.

And despite a continued period of low inflation, Sullivan isn’t anticipating any price reductions from the casino’s suppliers and purveyors.

“There’s not one vendor who has called us and said, ‘Hey, we’re lowering our prices 5 percent next year,'” Sullivan said.

The Meadows, which showed six straight months of increases in its gross terminal slots revenue from September through February, appears to be doing well, but Sullivan worries about the consequences of additional taxes.

At some point, he said, “Twigs start to snap. You end up cutting expenses, you’re no longer investing in capital projects and you become a dilapidated casino.”

When casino operators visited with legislators in Harrisburg last month, Sullivan said, their message to lawmakers was, “Do us no harm.”

In December, members of the state House of Representatives voted 96 to 93 in favor of an amendment to House Bill 649. The overall bill, designed to allow local licensed casino operators to offer online casino games to Pennsylvania residents, was passed by a landslide vote in November and drew strong support from the state’s gaming industry. But the amendment, which didn’t receive enough votes to allow it to move to the next stage of the legislative process, would allow bars and pubs to install five video gaming terminals each, or an estimated 12,000 establishments offering a total of 60,000 gaming devices statewide. The amendment has drawn strong opposition from the casino industry.

State Rep. Brandon Neuman, whose home district of North Strabane Township also is the host municipality to The Meadows, said last week he was prepared to vote against the amendment but did not take part in the December vote.

Neuman said last week he also opposes the governor’s proposal on levying the 8 percent tax on free play promotions, but added he’s waiting to see how negotiations proceed on the recommendation.

To Sullivan, the better dialogue between casino operators and Harrisburg should be, “How can we make more money for the state?”

He noted operators are currently prohibited from advertising the fact they provide free drinks to guests who are actively playing slots or table games. He also believes discussions about prohibiting casinos from setting aside smoking areas for guests will also negatively impact business

As for free play, Sullivan believes the incentive should remain without the tax.

“The 8 percent tax on the No. 1 reward for our players is not business-friendly,” he said.