PNGI Continues Looking for Growth Markets

PNGI expects to continue to pursue new opportunities in racing and gaming in 2011.

Penn National Gaming Inc., which reported a loss of $153 million for the fourth quarter of 2010 because of pre-tax impairment charges, said 10 of its 15 gaming properties increased net revenue and that it intends to “expand its presence to any jurisdiction considering the expansion of gaming.”

The Pennsylvania-based casino and racing company reported net revenue of $630.2 million for the final three months of 2010, up from $555.8 million for the fourth quarter of 2009. For all of 2010, net revenue was $2.459 billion, up from $2.369 billion for all of 2009, PNGI said in its latest earnings report.

The net loss attributable to shareholders is from writing down “goodwill and other intangible assets” associated with the company’s initial purchase of two Illinois riverboat casinos. Otherwise, PNGI said its cash-on-hand position is healthy; during the fourth quarter of 2010 the company repaid $85 million of a $145 million loan.

As usual, Hollywood Casino at Charles Town Races in West Virginia was the company’s top income generator at $123.67 million for 2010, up substantially from $103.35 million for 2009. Hollywood Casino Lawrenceburg in Indiana was next with $95.13 million in income from operations last year, up from a loss of $431,000 for 2009.

PNGI said its “unconsolidated non-gaming affiliates”—Laurel Park and Pimlico Race Course among them—were a “drag” on adjusted earnings before interest, taxes, depreciation, and amortization. The company said the impact was mainly attributed to $14.4 million in impairment and lobbying costs associated with the two Maryland Jockey Club racetracks.

PNGI owns 49% of the MJC properties, while MI Developments owns 51%. On Feb. 2 the company was approved to purchase bankrupt Rosecroft Raceway, a southern Maryland harness track, for $11 million pending any legal challenges. It already operates Hollywood Casino, a video lottery terminal-only facility, at Perryville in Maryland.

PNGI president and chief executive officer Peter Carlino Feb. 3 said Laurel and Pimlico “have recently generated significant losses” but are poised to receive financial concessions from horsemen and the state. The long-term plan, he said, is to win approval for VLTs at Laurel.

“We remain prepared to deploy our extensive racing and gaming industry knowledge and strong financial resources to work with political leaders, local horsemen, and community members to secure a license to operate VLTs at Laurel Park,” Carlino said. “We are ready to do the same in Ohio, where we are monitoring efforts to bring VLTs to the state’s seven racetracks, two of which we own.

“Penn National remains highly focused on leveraging its facility development and operating expertise to expand its presence to any jurisdiction considering the expansion of gaming.”

PNGI had $246 million in cash on hand at the end of 2010, according to officials who took part in a Feb. 3 earnings teleconferece. Capital expenditures for new projects in 2011 could total $289 million.

PNGI, like other publicly traded companies, doesn’t offer details on prospective purchases. The company has, however, said it is contemplating relocating one or both of its Ohio tracks—Beulah Park near Columbus and Raceway Park, a Toledo harness track—should it determine its soon-to-be-built full-scale casinos in those two markets would cannibalize racetrack VLTs.

“The racetracks in Ohio are not optimally located (given the planned casinos),” Carlino said. “It doesn’t take a genius to figure out some places aren’t being served.”

Republican Ohio Gov. John Kasich is studying expanded gambling in the state and hasn’t yet said whether he will move forward with racetrack VLTs. Carlino said there would be opportunities for racetracks should they get VLTs, but it’s not a deal-breaker for PNGI in Ohio.

“If the tracks are not included, we’re still blissfully happy,” he said.

Carlino said the pending Rosecroft purchase is geared toward potential gaming at the facility near Washington, D.C. He wouldn’t venture a guess at that possibility but said: “There’s no future for these tracks in the absence of slots.”

Carlino and other PNGI officials during the earnings teleconference said neighboring Pennsylvania has the best gaming model with reasonable license fees, a serviceable tax rate, and well-located facilities. Carlino criticized the Maryland law, which awards 7% to purses and breed development and 2.5% to racetrack capital improvements from VLT revenue.

“It ignores the people who have the real investment in the state—the racetracks,” he said.

Legislation being fashioned in Maryland would shift some of the capital improvement money to racetrack operations.