Penn National Gaming issued its results for the second quarter of this year. During the earnings call with investors, Penn gave out some indication of its timeline for opening new mini-casinos in York County and Berks/Lancaster County.
Penn paid $50.1 million and $7,500,003 respectively for the two Category 4 licenses and just over a week ago added $10 million to secure an interactive gaming license.
Payback on this investment will take some time. The company said that it has not determined the precise location of the two new mini-casinos. In any case, it could see an 18-month process ahead before they will be ready to open their doors to customers.
Each new casino will have up to 750 slot machines and up to 30 table games. Pennsylvania’s casinos are running against the clock with the regulator which has set out a series of deadlines for completed applications and approvals.
Several of Pennsylvania’s casino are finding the timetable set out by the Pennsylvania Gaming Control Board (PGCB) a tough one to meet. Three of the five casinos that successfully bid for licenses have asked for extensions on the deadline to turn in their plans for the new properties.
Penn has already received a 60-day extension from the PGCB.
Penn National said:
“We are currently preparing our applications for these proposed facilities and will be submitting our first application to the PGCB by September 12th for a site in southern York County followed shortly thereafter for our location in Berks/Lancaster counties.”
Penn National—local boy made good
Penn National can trace its roots back to 1968 and the first authorized parimutuel betting on horse racing. Since then, it has grown into a company with a market capitalization of over $3.1 billion.
Its $57.1 million investment in Cat 4 casino licenses looks like the size of investment that would keep most executives awake at night, so the apparent slowness of the company’s delivery timetable seems surprising.
The reality is that Penn is currently engaged in buying Pinnacle Entertainment for $2.8 billion. It plans to close the deal in the last quarter of this year.
This means that management focus has to be on getting that deal right, so even though the expansion of gaming in Pennsylvania is important, the company’s national ambitions take precedence.
A slide from the earnings presentation shows just how big a deal this is for Penn National, and confirms that the local boy has indeed made good:
Online gaming for Pennsylvania
In the context of Penn National’s ambitions, online gaming in Pennsylvania ranks as small beer. The company has applied for the interactive gaming licenses that will allow it to operate online gaming, but the likelihood that revenues from this business will contribute relatively little to Penn’s bottom line.
Penn National CEO, Timothy J. Wilmott even appeared to indicate that any online gaming profits would be hard to come by:
“In addition, earlier this month we applied to the Pennsylvania Gaming Control Board for the approval to operate online casino games. Despite the state’s high tax rate, we chose to proceed with the hope that we can continue to work to bring the tax rate in line with that of other gaming jurisdictions around the world, and if successful, we plan to market the games to our robust database of casino and social gaming customers in Pennsylvania.”
Wilmott sees the online gaming venture in Pennsylvania as an opportunity to learn about the online gaming business so that they can “leverage this strategic opportunity long term.”
He thinks that over the next five to seven years more states will introduce their own online gaming legislation and wants Penn national to have a stake in that business.
During the earnings call to investors, Wilmott said that he expected that he would launch online gaming “sometime in early 2019.”
Sports betting to launch in time for the football season
Penn National is jumping in headfirst to take advantage of the opportunities afforded by the introduction of state-regulated sports betting in PA:
Wilmott told investors:
“During the second quarter the U.S. Supreme Court overturned the Federal ban on sports betting. We anticipate accepting wagers on sporting events at our casinos in Mississippi, West Virginia, and potentially Pennsylvania, prior to the start of the National Football League’s season opener in September.”
He added that the company is also heavily engaged in lobbying other states to introduce legislation following closely the regulatory models adopted in Mississippi and West Virginia. A tacit criticism of the Pennsylvania model where sports betting taxes of 36 percent are way out of line with national and international comparators.
Wilmott and Penn National are going to have a busy time in the year ahead.
