History of Penn National Gaming, Part 2: Mass Expansion to “Pinnacle” of Regional Gaming Despite Missteps

Written By Kevin Shelly on March 12, 2021

Peter M. Carlino, the son of Penn’s founder, Peter D. Carlino, led Penn National during its booming growth in the early 2000s, creating the third-largest publicly held gaming company in the country. But the chief operating officer back then, Kevin DeSanctis, is rarely recalled.

In fact, other than in Securities and Exchange Commission filings, annual reports, and archived corporate press releases, there’s little online about DeSanctis’ five-year tenure at Penn. This may be explained by Penn’s failure to buy Harrah’s Entertainment toward the end of 2006, which coincided with the finale of DeSanctis’ stint with Penn.

It is a significant side story worth mentioning as we recount Penn’s history, which dates back to 1969 in small town Pennsylvania. Imagine today’s gaming landscape if Penn had bought Harrah’s: A legacy Nevada gaming company combined with the biggest regional gaming company.

And while almost unacknowledged, a competitor credits DeSanctis with the behind-the-scenes financial management which made Penn’s growth period possible.

DeSanctis’ departure left a long leadership void at Penn at a critical time, with no second behind Carlino. It took Penn until February of 2008 to name a new COO – Tim Wilmott – ironically a Harrah’s veteran. Under Wilmott, Penn continued expansion into its position as the largest regional gaming operator in the country.

Failed attempt to acquire Harrah’s

The failed Harrah’s deal resulted in a $90-a-share buyout by private equity hedge companies Apollo Management and Texas Pacific, which beat out Penn’s offer of $87 a share.

By the time of the bid for Harrah’s, DeSanctis’ attention was elsewhere, having revealed his pending departure months before the Penn offer came up short.

Ultimately, the winning Harrah’s deal with the hedge funds went south. The company soon blew up, ending in recriminations, bankruptcy, and reorganizations for the new company, renamed Caesars.

Eventually, the slimmed-down and restructured company which owns Harrah’s Philadelphia became the real estate investment trust (REIT) known as VICI Properties Inc. (More of that later as it pertains to Penn, the casino REIT pioneer.)

The failed Harrah’s deal was a rare defeat for DeSanctis, a former casino regulator with a strong and steady career path.

Before growing Penn’s business, DeSanctis had been a top executive at Trump Plaza Casino – the recently imploded Atlantic City property once owned by former President Donald Trump. And then he worked for Steve Wynn in Las Vegas.

A void at the top for Penn, failure for DeSanctis in AC

It wasn’t the failed Harrah’s bid, but the $2.5 billion failed Revel Casino project in Atlantic City which put a tombstone on DeSanctis’ career, casting him a persona non grata in the world of gambling.

He’s not on boards or attending industry events as a speaker, the usual gigs for post-retirement casino execs. His LinkedIn listing has just 14 connections. Penn’s own account of the company’s history does not mention him once.

Revel was star-crossed, a project that burned through big bucks and suffered bad fortune. A commentator likened Revel’s tortured history to the Amityville Horror Story.

Funding the completion of the second-tallest building in NJ required a state financial lifeline after the project’s organizer, Morgan Stanley, pulled out. A worker died during construction. Three top execs perished in a plane crash.

Most critically, DeSanctis misjudged the looming market contraction facing Atlantic City.

All pre-opening marketing for Revel focused exclusively on lifestyle aspects, without mention of gambling. That was by design, not an oversight. Revel had two nightclubs, 13 restaurants, two live entertainment venues, and several swimming pools.

But it didn’t have a rewards program for loyal gamblers. Revel’s casino was entirely non-smoking and there was no food buffet.

I was on the pre-opening tour led by DeSanctis and then NJ Gov. Chris Christie in March of 2012. While wowed by the building’s size and the array of food outlets, I wondered then about a casino isolated at the Boardwalk’s undeveloped far end, designed with the gaming space on the second floor.

Flameout for DeSanctis after ties cut with Penn

Revel had a quick and spectacular flameout. So did DeSanctis’ reputation. And while he was no longer part of Penn by then, his failure partially reflected back on Penn.

Revel opened in April 2012, nearly six years after DeSanctis had left Penn. Gamblers shunned Revel. Despite its hugeness, the casino with 130,000 square feet of gaming space consistently ranked at or near the bottom for revenue in NJ.

By March 2013, DeSanctis was out at Revel, his gaming career ended.

By September 2014, having twice gone through bankruptcy filings, the building’s doors were padlocked. That same year, three additional Atlantic City casinos closed. The multiple casino closures rippled through the region with huge job losses and a 32% city tax hike. Rebranded as Ocean, the building did not reopen until the summer of 2018.

Penn after DeSanctis: Another deal gone bad

Shortly after DeSanctis left Penn, the company in 2007 explored going private with a buyout to two private equity firms in a deal valued at $6.1 billion. But the deal ultimately collapsed in July 2008.

Speaking during a 2008 conference call discussing the blowup, Carlino said: “This was not the result we expected when we entered into our agreement one year ago.”

But the failed deal still had a plus side. Penn National got $1.475 billion, including both a $225 million break-up fee and a $1.25 billion equity investment by the two firms. The company used proceeds from the new deal to pay down outstanding debt in its revolving credit line and buy back company stock.

Wilmott joins Carlino for Penn growth period

The man eventually tapped to become COO in early 2008 was Wilmott. He also joined the board in 2014 and became CEO of Penn for a time before his retirement in 2019.

Wilmott served as a steady and staid transitional leader, bridging the Carlino era – the founding Carlino died in November 2013 – and paving the way for the current Jay Snowden era of leadership.

There were two missteps, though.

Nevada properties bought during Wilmott’s tenure never fit into the Penn model of regional gaming. M Resort, outside Las Vegas, was purchased in 2010, and Tropicana Las Vegas in 2015.

Neither panned out for the company built on regional drive-in gambling facilities. Penn sold the Tropicana for $307.5 million in 2020 for a loss of about $52.5 million. 

M Resort, described as a beautiful hotel in the middle of nowhere, has struggled to draw patrons and has faced large layoffs since the pandemic hit in March 2020.

Still, the Carlino-Wilmott leadership era was characterized by aggressive growth and expansion which saw the Hollywood Casino brand, purchased back in 2003, flourish from three to 15 properties. That was a combination of new builds and rebranding of acquisitions.

One key property was the Hollywood Casino (pictured in lead image) that adjoined the original Penn National Race Course in 2008 in Grantville, PA. – less than 50 miles west of its Wyomissing headquarters.

Opening of Hollywood Casino Columbus
Wilmott (third from left) at Hollywood Columbus opening 2012 (AP Photo/Kantele Franko)

Birth of the GLPI REIT

Facilitating Penn’s massive growth was a financial innovation, formalized in February 2013, which changed how most large brick-and-mortar gambling companies do business.

Penn National spun off a new real estate investment trust with ownership of most of its properties. The reorganization reduces taxes and capital costs and overcame license ownership restrictions for a time. But it eventually also forced the removal of Carlino as the CEO of Penn due to regulatory concerns.

A former rival called the move “brilliant” and said the innovation “redefined the future of the industry.”

Penn’s REIT – Gaming and Leisure Properties, Inc. or GLPI – would own the land and buildings for 21 of Penn National’s 29 casinos and racetracks, with Penn National Gaming continuing to operate all but two of the properties under a lease agreement.

Peter M. Carlino at Penn HQ on Aug. 29, 2002 via Las Vegas Review Journal

As GLPI’s top exec, Carlino is in the top 10 for compensation nationally among REIT leaders.

For a time, the younger Carlino ran both GLPI and Penn as CEO. Eventually, antitrust concerns led him to leave active leadership of Penn National, and Wilmott became CEO. Today, Peter M. Carlino remains a non-voting member of the Penn board and CEO of GLPI. Additionally, a family trust still retains a position as a substantial player in Penn National.

The capstone to Wilmott’s career at Penn was the 2018 purchase of Pinnacle Entertainment for $2.8 billion. The buy solidified Penn as the leading regional casino company, and relegated Carlino to his current non-voting chairman emeritus status on Penn’s board (due to antitrust regulations).

Pinnacle a “transformational acquisition”

An investor presentation at the tail end of 2017 informing the market of the intended buy, Penn called the Pinnacle plan a “transformational acquisition.”

Unlike so many such announcements, the big boast was warranted.

The money highlights:

  • Transaction valued at approximately $2.8 billion.
  • Pinnacle shareholders got $20.00 per share in cash plus 0.420 shares of Penn. That made the implied value of Pinnacle shares $32.47.
  • That meant a 36% premium for Pinnacle investors.
  • Existing Penn shareholders would own 78% of the combined company.
  • Four existing properties were spun off to Boyd Gaming Corp. in a sale valued at $575 million cash.
  • The real estate for two Penn properties would go to GLPI, and net $315 million in cash.
  • A whopping $100 million in synergy savings were anticipated within two years.

The operating highlights:

  • Enhanced Penn’s position as a leading regional gaming operator.
  • Increased geographic diversity.
  • Synergies predicted to increase cash flow.
  • Accelerated growth and increased customer experience.

Reaching regional gaming dominance

The buy meant Penn would be far bigger than Boyd, then the No. 2, and dwarf Eldorado, Red Rock, and Churchill Downs in the regional gaming category.

The one promise the purchase did not fulfill was feeding new customers to the Trop and M Resort.

Some of the new properties include:

  • A cluster of four properties in Louisiana, a new state for Penn. One is just two hours from Houston, Texas.
  • A property in Vicksburg, Mississippi, filling a gap between existing Penn properties.
  •  An Ameristar property 38 miles from Denver.
  • The Meadows in Western PA.

Of the transaction, Wilmott said:

“Our acquisition of Pinnacle Entertainment marks a significant milestone in Penn National’s 24-year history of growth as a public company, which has been predicated on our unwavering commitment to deliver exceptional entertainment to customers, support for the local communities where we operate and enhancement of value for our shareholders.”

The market did not react perhaps in the way Penn expected to the massive purchase. Despite a nice stock run from $14.10 to $31.33 in 2017, the following year saw $PENN drop from $30.74 to $18.83. In 2019, Wilmott’s final year as the face of Penn, the stock price rose from $19.45 to end the year at $25.56. What would come next for Penn stock, no one could have predicted. (More on that to come in Part 3.)

Penn early on sports betting, slow to embrace online

Under Wilmott, Penn was first to open a retail sportsbook in PA at Hollywood Casino on Nov. 17, 2018 though the company would be late to online sports betting in the state.

According to a competitor, Carlino’s 2019 departure from Penn and Wilmott’s exit Jan. 1, 2020 paved the way for the eventual plan to pivot the company focus from casino properties to online gambling.

Despite Penn’s long history of phone betting on horse races, Carlino opposed internet gambling long before mobile sports betting emerged as the new shiny thing.

“He hated it,” said the competitor, who heard him rail against the way gambling was heading.

“I don’t know it, I don’t trust it, I can’t touch it,” was Carlino’s reaction to online gambling, she recalled him saying, even while he recognized online was the future of gaming.

Despite the resistance, Penn was the first to launch an online casino in Pennsylvania on July 15, 2019 under the Hollywood Casino brand.

The departures of Carlino, Wilmott, and other brass from their era allowed for a younger and hipper Jay Snowden to ascend in Penn leadership, which was quickly followed by the Barstool Sports buy-in early in 2020.

Penn’s modern era is the subject of the third and final piece in our three-part history of Penn National Gaming. Find our full Penn National historical timeline and list of properties here.

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Kevin Shelly

Kevin C. Shelly is an award-winning career journalist who has spent most of his career in South Jersey. He's the former assistant city editor of The Press of Atlantic City, where he covered the casino industry and Atlantic City government as a reporter. He was also an investigative, narrative enterprise, and features reporter for Gannett’s Courier-Post.

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