- The federal courts should block the new Category 4 casino provisions because they treat existing operators unfairly and use “unconstitutional” language
- The mini-casinos place Penn National in a worse position than the other PA casinos.
- The law provides special treatment to Mount Airy Casino by excluding new casinos within the three surrounding counties. Mount Airy does provide a cut of revenue to these counties, but all other casinos are required to share a portion of revenue with the local/host governments.
Penn National has two mini-casinos in the works
Penn National’s objections to the new law didn’t stop it from bidding the outrageous amount of $50.1 million for the first Cat 4 license.
Since then it has bought a second license, so it will be building two new mini-casinos of its own. One will be near York and the other between Lancaster and Reading.
The cost of a Category 4 license dropped massively after the early euphoria. For its second license, Penn National paid just $7,500,003.
Penn National spokesman Eric Schippers told PennLive:
“We made a business decision to withdraw our lawsuits against the Category 4 (casino) law.
“While we continue to believe in the merits of our arguments, we have chosen to focus entirely on our development efforts for our two new casinos, rather than pursue what is likely to be a lengthy and costly legal battle.
“As previously stated, our goal in pursuing our Cat4 licenses is both defensive, in terms of protecting our existing investment at Hollywood Casino from new competition, and offensive in terms of penetrating more deeply into more populous market areas to our south and east, in order to drive incremental value for our shareholders.”
Penn National feared cannibalization
Having invested $57.1 million in licenses, Penn National lawsuit that would have invalidated the same licenses seemed rather bizarre.
The big issue for Penn National was the risk of cannibalizing its existing businesses. The Pennsylvania Cat 4 licenses authorize a geographical zone 25 miles in radius about a central point.
Since Penn National argues that its Hollywood Casino at the Penn National Race Course currently draws customers from a wide geographical area, any new mini-casinos in its catchment area will be detrimental to its business.
Having secured licenses that in effect prevent its competitors from operating in a large part of that catchment area, Penn National should now feel more secure that the cannibalization threat has receded.
Sands Bethlehem legal challenge remains
Penn National’s withdrawal from the lawsuit removes one possible risk to the state gambling laws, but another remains in play.
Sands Bethlehem also filed a lawsuit at the end of 2017. In this case, Sands alleges that the new law breaches state and federal constitutional law by demanding that high revenue casinos pay a special tax to subsidize smaller casinos.
The tax goes into a marketing fund that benefits smaller casinos which resulted from a prior case in which Mount Airy complained that the host fees casinos paid to the municipalities in their catchment area had a greater impact on smaller, less profitable casinos.
The state’s marketing fund solution seems to have caused as many problems as it was intended to solve.
Unlike Penn National, Sands Bethlehem doesn’t look likely to withdraw its lawsuit any time soon.