An unanticipated shock wave was sent throughout a newly-created Pennsylvania gambling market Wednesday when Hollywood Casino operator Mountainview Thoroughbred Racing (a subsidiary of Penn National) submitted a winning bid of $50.1 million to acquire the rights to the first of ten possible Category 4 locations.
The borough of Yoe, Pennsylvania was chosen as the “center point” for the satellite casino, which would make it the most convenient PA gambling establishment for inbound I-83 traffic coming from Washington, D.C. and Baltimore.
The astronomically high bid, which is $100,000 larger than the cost of obtaining a full casino license in PA (see section 2B of this PGCB application), demonstrates the value Penn National places on its regional customer base and appears to be aimed at maintaining its market share in an increasingly competitive Keystone State environment.
“We were really looking at this from one eye on defense, one eye on offense,” Penn National Senior VP of Public Affairs Eric Schippers
. “In terms of defense, we looked at: we’re a competitor to come into that area, it would have caused significant cannibalization of our business. In terms of offense, we looked at where could we drive incremental value for our shareholders.”
Only four out of a possible ten Category 1 and Category 2 operators participated in the January 10th auction. The identity of the other three participants along with their corresponding bids and locations were not revealed by the Board in an effort to safeguard against collusion while ensuring an ongoing competitive process.
Are PA mini casino licenses really worth $50 million?
Upon breaking down the numbers of Penn National’s $50.1 million bid, it immediately becomes clear that the Yoe-area satellite casino could experience a long road to profitability.
With a maximum allotment of 750 slot terminals per mini casino, the brick & mortar satellite business could expect to generate roughly $75,000 daily from slot revenue after taxes going by current PA revenue trends
. Considering casinos must also account for payroll, property costs and maintenance along with customer retention on top of that, the per-day revenue number would likely fall to around $10,000 per day for all slots.
The property can also capitalize on revenue from 30 table games (which requires a separate license at a cost of $2.5 million) during its first year of operation, compacts with hotels, entertainment, plus food and beverage services.
While $50 million may not be an impossible initial investment fee to overcome, the York County region enjoys only a slight socioeconomic edge (in terms of median household income) when compared to current nationwide trends, according to DataUSA
. In other words, Penn National’s bid comes off as a defensive move
that would require highly efficient cross-promotion efforts with its Hollywood Casino property in Grantville
to pay medium-term dividends.
Penn National stratagem becomes clearer?
The southeastern Pennsylvania location could effectively secure Penn National’s positioning in that region by means of a two-pronged approach pending a second “Round 1” auction scheduled for Wednesday, January 24th.
Although the company is prohibited from participating in future Round 1 bids, it has recently entered into a merger agreement
with Pinnacle Entertainment — owner of Meadows Casino
in western PA. The result of that agreement could be that Meadows moves to secure a winning bid and establishes its desired mini casino location along I-76 westbound from Philadelphia to Harrisburg. This would provide the Hollywood Casino with a clear geographical buffer zone
to attract tourists from the greater Philadelphia area as well as Maryland.
However, that possibility would seemingly interfere with Meadows’ own need to position a mini casino along I-79 in Greene County (near Miner’s Monument) to attract northbound gamblers from West Virginia to Pittsburgh, which is home to Rivers Casino. Lady Luck Casino would also stand to gain from such a Category 4 location but is restricted from participating in Round 1 auctions due to its status as a resort property.
Moreover, winning bidders are subsequently omitted from the process until at least May 16th — and may only re-enter the process if the state fails to sell all ten licenses before that time.
Penn National files lawsuit disputing satellite casino provisions
sky-high bid isn’t the only major action taken by the gambling operator this week. The mini casino portion of sweeping gambling legislation signed into law last October
by Gov. Tom Wolf
has drawn consistent criticism from Penn National, and has resulted in a new lawsuit
questioning the constitutionality of 25-mile restriction zones which the operator believes are partial towards its competitors.
Although a handful of PA gambling stakeholders contemplated Wednesday whether the legal action might disrupt the Board’s auctioning process, there is no information available at this time to suggest that will be the case, as the $50.1 million payment is due no later that this Friday, January 12th.
Pennsylvania a big winner
The $50 million license purchase windfall will improve the state’s prospects of fulfilling its $32 billion fiscal year (ending June 30th, 2018) budget, and far exceeds the $7.5 million minimum bid per satellite casino license set by the PGCB. Pennsylvania’s fiscal outlook could further brighten if a similar high-end bid is received at the next mini casino auction to be held in two weeks.
With Wednesday’s drama quickly spreading across PA gambling news outlets, it will be interesting to see whether more casinos participate in the January 24th session — which is now expected to draw significantly more than the 100 YouTube live stream viewers who were in virtual attendance yesterday.
Our readers who are interested in viewing the bidding process as it occurred can do so by watching this video beginning at the 27:57 time stamp.
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