Pennsylvania Primes For The First Round Of Satellite Casino Auctions

Pennsylvania will host an auction this Wednesday, with the winner receiving the first of 10 satellite (mini) casino licenses.
Envelope sealed with wax
A series of auctions dedicated to the sale of “mini casino” permits in Pennsylvania begins this week, with an inaugural bargaining session for the first of ten potential licenses scheduled to take place on Wednesday morning.
Ten land-based Category 1 and Category 2 casinos that currently operate within Pennsylvania’s borders will be allowed to participate in tomorrow’s bidding process in Harrisburg while resort properties Lady Luck and Valley Forge are ineligible until a potential second round of auctions begin later this year.
A minimum amount of $7.5 million for each permit has been established by the Pennsylvania Gaming Control Board, which means the state could be guaranteed as much as $75 million in up-front satellite casino revenue between now and May 16th — when the final Round 1 auction will be held.

Pennsylvania satellite casinos: the particulars

As defined by recent statewide legislation signed into law by Gov. Tom Wolf, a Category 4 gambling establishment (satellite casino) will be allowed to house between 300-750 slot machine terminals along with a maximum of 30 table games during its first year of operation.
By law, the mini casino cannot be placed within a 25-mile radius of an existing casino unless that property is operated by the corresponding auction’s winner.
Aside from jurisdictions in which brick & mortar establishments already operates, three counties in Pennsylvania (designated as “sixth class” with a population between 45,000 and 90,000) are prohibited from hosting Category 4 casinos:
  • Wayne and Pike (northeastern PA inbound from I-84 New Jersey — both jurisdictions share a border with Monroe County, which is home to Mount Airy Casino and in close proximity to Mohegan Sun and Sands).
  • Carbon (west of Monroe and Northampton counties, which host the Mount Airy and Sands casinos).
  • Fayette and Armstrong CAN host a mini casino, as they share borders with The Meadows racino (CAT 1) and Lady Luck Casino (CAT 3), which exempts them from Category 2 “Stand Alone” gambling establishments protected under the new gambling provisions for “sixth class” PA counties.

It is also worth noting that cities and towns across the state have had mixed feelings about hosting mini casinos, and approximately 40% of all Pennsylvania municipalities (1,017 out of 2,560) have opted-out, including Philadelphia.

How is an auction for a PA satellite casino won?

Tomorrow’s opening auction requires a representative of each casino to submit a singular bid to the Board along with the exact geographical location, county and township of the company’s satellite casino property via two sealed envelopes.
The highest bid will be announced publicly by the PGCB, at which point the first mini casino site will be revealed. Losing bids along with their locations will be safeguarded by the Board to ensure a competitive process throughout with a subsequent auction taking place early next month.
The winner of tomorrow’s bidding process will not participate in any Round 1 auctions that follow, but could still obtain additional licenses if all ten permits are not awarded due to lack of interest by the ten racetrack or stand-alone casinos. In that case, a second round of auctions would be held before September to include resort properties Lady Luck and Valley Forge.
Satellite casino license winners will have up to six months to submit an application for a Category 4 license and could be in operation before the 2018 calendar year ends.

Measuring the impact of satellite casinos 

The first few Category 4 licenses that are won should possess greater value than those that are awarded in later auctions since each competitor will be dealing with more complete information as each auction concludes.
Judging by official numbers released by the PGCB, slot machine terminals bring in roughly $100 in daily revenue each for existing casinos after taxes (but before payroll, overhead expenditures and customer retention costs), so it will likely take years before either mini casino property is able to turn an actual profit on the minimum $7.5 million fee investment.
Although it is difficult to predict outright winners in the mini casino permit process until the first few Category 4 licenses have been awarded, the Hollywood Casino near Harrisburg — operated by Penn National — appears to be a clear loser. The racetrack property has benefited greatly from its geographical separation from competing casinos since opening its doors in 2008 — primarily serving a rural central PA market. Yet it enjoys the fewest protective restrictions under new Pennsylvania gaming laws.
However, a recent merger between Penn National and Pinnacle Entertainment (operator of The Meadows racetrack/casino in western PA) could place the two companies in a much better position to influence the Category 4 licensing process and prevent rivals from creating a mini casino “noose” surrounding the Hollywood property.
More information regarding Category 4 “winners” and “losers” will be available in upcoming months as the chess pieces are arranged following each auction.

Auction process to be streaming live on Wednesday

Wednesday’s auction will be broadcast live to the public via the official Pennsylvania Gaming Control Board website and can be viewed here starting at 10:00am local time.
PennBets will provide follow-up news coverage and analysis following the conclusion of Wednesday’s auction.

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