Realistic projections on how many slot machines are coming to Pennsylvania clarify one point: Don't expect to see 61,000 of them, the maximum number allowed by recently passed legislation. Just more than half that number is more likely, or about one-sixth the slots available in Nevada.

More debatable are predictions by slots proponents that the state's 14 locations will generate nearly $3 billion in revenue. In other words, slots players will lose $3 billion a year.

	Online Graphic: States' tax revenues from slots/casino operations

If that plan succeeds, state and local governments will derive about $1.3 billion in direct tax revenue annually, at least $500 million more than anywhere else in the United States. One billion dollars from that amount is intended for property tax reduction. The remainder would assist local governments where slots parlors are situated and pay off a $2 billion bond issue for a statewide economic development program supporting Pittsburgh International Airport, the Pittsburgh and Philadelphia convention centers and other projects.

Will Pennsylvanians stop going out of state to casinos that have table games and other entertainment, instead of just slots? How many Pennsylvanians who don't gamble now will do so once it's more accessible? How many Ohio and Maryland residents will cross into Pennsylvania to gamble, and will those states legalize slots to reclaim them?

Reasonable minds can differ when analyzing the many issues involved. They already have.

Consultants hired separately by the governor's office and Sen. Vincent Fumo, D-Philadelphia, a leading slots advocate, concluded that nearly $3 billion in Pennsylvania slots play was a realistic assumption. Senate Republican leaders, who generally voted against the legalization earlier this month, received a different analysis that cautioned $750 million less may be expected.

A gambling industry analyst, not employed by either side and undertaking independent review of the legislation's impact, said the top estimate could be true, but don't bet the house on it.

"My gut feeling is [$3 billion is possible] only if these are put in the optimal locations, and even then, you're getting close to the maximum of what Pennsylvania can realistically generate, and I don't think it will happen in the first year," said Sebastian Sinclair, president of Christiansen Capital Advisors. "Location is going to be the key."

Hitting the big time
The state's new Gaming Control Board will award 12 licenses, costing $50 million each, to operators of slot parlors with a minimum of 1,500 slot machines each.

Four will be at existing racetracks -- The Meadows in Washington County, Penn National near Harrisburg, Pocono Downs near Wilkes-Barre and Philadelphia Park, in Bucks County; two at tracks under development in Chester and Erie counties; one at a seventh track expected to be licensed in Beaver or Lawrence counties; one at a stand-alone slots parlor in Pittsburgh; two at such parlors in Philadelphia; and the final two at unspecified locations.

Those 12 licensees could immediately operate with up to 3,000 machines each, and with board authorization, could soon thereafter push their volume to 5,000 machines. In addition, two "resort" licenses will be issued for smaller parlors with up to 500 machines each, catering to overnight guests of facilities such as Nemacolin Woodlands and Seven Springs.

The maximum number of machines at the 14 locations is 61,000, on paper, but economic forces of supply and demand are expected to reduce that number. The machines typically cost $12,000 to $15,000, and operators won't keep adding slots if it simply spreads the same amount of cash and players to more machines, instead of generating additional revenue.

"You would expect to be close to capacity in Philadelphia and Pittsburgh, but Erie is probably never going to have anything close to 5,000, and the Poconos probably would never be anywhere close," said Gary Tuma, a spokesman for Fumo, the ranking Democrat on the Senate Appropriations Committee.

"Everyone who knows anything about this would be amazed if it gets to 61,000. It's probably going to be somewhere around 30,000 to 40,000," Tuma said. That range could give Pennsylvania at least twice as many slot machines as any state except Nevada (207,826), New Jersey (42,378) and Mississippi (39,324), according to Christiansen Capital Advisors.

Mike Jeannot, vice president of MEC Racing Pennsylvania, owner of The Meadows, said the track expected to have between 1,500 and 2,500 machines. Considering the more than 5,000 machines already in place at nearby West Virginia tracks in Wheeling and Chester, the addition of the planned Pittsburgh parlor and the possible new track in Beaver or Lawrence counties, it's unlikely The Meadows would profit from having more than that number, he said.

The Innovation Group, a gambling consulting firm for both government and industry, produced a comprehensive report for Fumo last year with different scenarios under which 12 Pennsylvania sites could generate $2.8 billion or more in revenue. The report was done before consideration was given to adding the resort sites, which would produce additional revenue, though less than elsewhere.

The Innovation Group's report suggested two-thirds of the nearly $3 billion which Pennsylvania is counting on would probably come from the eastern side of the state, which has both higher population and higher per capita income than the west. It's also where many people are accustomed to going to full-scale casinos in Atlantic City or slot casinos at Delaware racetracks.

Paul Girvan, managing director of the New Orleans-based consulting firm, said numerous factors including population density, distance between gambling venues and a region's propensity for gambling went into calculations about whether revenue projections are feasible. Ultimately, the specific locations for the final two sites selected by the gaming board will be crucial.

"When it gets down to the folks making the decision, it will have a lot to do with the amount of local support, and the integrity and reputation of the operators," Girvan said. "The commission, I'm sure, will look at what are the physical plans for the development, as well as making sure these facilities have the capability of maximizing revenue for the state."

Windfall or folly?
Also last year, University of Nevada Las Vegas professor William N. Thompson produced a report for the governor's office finding "room for considerable market growth" among Northeastern gamblers. Although he is a critic of government dependence on gambling for revenue, he found that 11 Pennsylvania locations together could support 35,500 machines and raise $1 billion annually for property tax reduction.

In large part, Thompson based his analysis on the amount of revenue per day from players' losses in slot machines in other states. In 2002, West Virginia's slot machines each generated $217 per day, New Jersey's $232 per day and Delaware's $278 per day. Other states went lower and higher, with great variables in how states approach how much supply to allow.

Thompson said that in Pennsylvania, $226 daily would be needed from each machine to meet tax goals with about 35,000 machines. "It is reasonable and feasible for each of the machines to produce wins averaging between $217 and $278 per day, with a great likelihood the revenues will be toward the upper ends of the range," his report said.

Steve Crawford, the Rendell administration's secretary for legislative affairs, said the amount of industry lobbying activity supporting the legislation, and apparent interest in licenses, supports the notion that sufficient revenues can be generated to satisfy both the state's needs and those of profit-driven casino operators.

Not everyone in Harrisburg agrees. Opponents of the legislation argued against it as poor public policy, but also raised concerns about the financial projections.

Erik Arneson, spokesman for Senate Majority Leader David "Chip" Brightbill, R-Lebanon, said an Alexandria, Va., consultant, Vox Populi Communications, evaluated the state's potential gambling markets and saw a $2.2 billion to $2.3 billion potential in gross revenue from 32,000 machines, or less than $800 million for reduced property taxes.

Because of that, Arneson said, GOP leaders successfully pushed for the slots bill to include a $400 million reserve fund from initial gambling revenues, before any property tax relief may take place. That is to cover potential dropoff in slots revenue once the state and local taxpayers become dependent on it.

He said Senate Republicans also included a provision that no tax relief will take place until at least $500 million in annual revenue from the 34 percent tax comes in. That is expected to be 2006-07 at the earliest, but analysts caution it may take longer than that for the slots casinos to reach their full potential.

If less money is generated than had been promised by proponents, property tax reductions will be commensurately less. If the 5 percent tax on gambling revenues for economic development falls short of meeting the anticipated $150 million annual cost to cover a $2 billion bond issue, Arneson said, either the gaming board or lawmakers would have to look at a means of making up the difference.

Weighing the costs
Critics of Pennsylvania's gambling move, on both moral and economic grounds, prefer to look at the amount of money it will cost per consumer rather than analyze the machines and their revenue.

State Rep. Steve Samuelson, D-Northampton, noted that if about one-third of adult Pennsylvanians patronize the slots, as a recent state poll suggested, that could be 3 million players. To achieve $3 billion in revenue, each on average would have to lose $1,000 a year by gambling, or about $20 per week.

"That's a significant amount of money coming out of Pennsylvania's families," said Samuelson, who voted against the bill and complained it had too little advance discussion. "If people have that kind of disposable income, right now they're spending it on Pennsylvania's small businesses and shops and restaurants. The money has to come from somewhere."

Analysts say such statistics can become over-simplified, ignoring the likelihood that Pennsylvania will rely on many out-of-state visitors to gamble here. Then again, the Innovation Group estimated that potential state revenue would drop by more than $300 million if Maryland and Ohio legalize slots, and West Virginia adds table games to its racetracks.

One way or another, there's a lot of money to be derived by the state, but also a risk involved in counting on the type of revenue that has been projected.

Of the seven other states with at least 10 million residents, Illinois, Michigan and New York have legalized slot machines at casinos or racetracks, but with nothing like Pennsylvania's intent of maximizing state and local revenue. Only Illinois has come close, deriving $720 million in state and local taxes from $1.7 billion taken in at 10 casinos, but state limits effectively cap those operations at about 1,000 slot machines each.

Consumer demand would entice the Illinois casinos to put in many more machines if they were allowed, thus generating hundreds of millions more revenue for the state.

"There always seems to be some kind of gambling expansion bill introduced, and they haven't gone anywhere," said Gene O'Shea, spokesman for the Illinois Gaming Board. "It's always been a touchy issue for the Legislature."

Of the other states, most either generate far less casino gambling than Pennsylvania is counting on, or tax the industry at far lower rates than what Harrisburg has approved.

Tomorrow: The nuts and bolts of the new state Gaming Control Board.