I wonder if the ACS will blame the competition in Indiana for these drops?
Gaming Board reverses prior decision, lets Penn keep its Joliet casino
by Maisie Ramsay The Illinois Gaming Board decided to allow Penn National Gaming Inc. to retain ownership of the Empress Casino in Joliet, reversing its 2005 decision that required the company to sell the property to get approval for its acquisition of Argosy Gaming Co.
Feb 20, 2008
Penn said in a statement that it plans to pump $50 million of improvements into the casino because of the move, but it has not released specific plans or start dates.
The Illinois Gaming Board did not respond to calls by press time. Its decision was announced late Tuesday afternoon.
However, the decision suggests the board is unconcerned that Penn’s share of the Illinois casino market is anti-competitive. Penn currently operates three of the nine casinos in Illinois.
“Penn has operated casinos in a manner that’s not created economic concentration,” said Tom Swoik, executive director of the Illinois Casino Gaming Association. He said the company has not used joint advertising or promotions to boost revenue, actions that would put other Illinois casinos at a competitive disadvantage and ring alarm bells at the Gaming Board.
Previously, Penn had agreed to sell the two Illinois Argosy casinos to secure approval of its Argosy acquisition to assuage concerns of an anticompetitive market share.
Analysts’ opinions of the board’s decision were mixed. Sumit Desai at Morningstar Inc. was unenthused. The Joliet casino comprises only a “small part of the overall portfolio,” he said.
The Empress Casino comprised 7.8 percent of Penn’s income from continuing operations and 9.2 percent of revenues in 2007.
Analyst David Katz at Oppenheimer & Co. Inc. was upbeat about the decision. “It is material and it is significant in that the Illinois casinos have been a very profitable venture,” said Katz.
However, he added that continuing competitive pressures in the Illinois gaming business would continue to pose challenges for the company.
Nicholas Danna of Sterne, Agee & Leach Inc. said the move was an “incremental positive,” but echoed other analysts’ concerns about competitive pressures in Illinois gaming, specifically the smoking ban.
Citing the smoking ban as a major disadvantage for Illinois casinos, he said “the balance of power has shifted to Indiana.”
Illinois charges a higher tax rate than Indiana, 24-hour gaming is not allowed and gaming positions are restricted to 1,200, said Swoik.
Two Indiana racetrack-casinos have gaming positions limited to 2,000, but there are no such restrictions on the other operations in the state, said Michael Smith, president of the Casino Association of Indiana. All Indiana gaming operations can operate 24 hours a day.
Illinois casino revenues fell in January, a slump Swoik attributes to competitive pressure and the smoking ban that took effect Jan. 1. The Illinois Gaming Board reported that adjusted gross receipts from casinos dropped 17.5 percent in the month of January, to $131 million from $159 million in January 2007.
Adjusted gross receipts at Empress dropped 28.6 percent in January compared with the same period last year, to $14.9 million from $20.9 million.
Penn stock has been trading around $50 a share in February despite a pending $67 per share buyout from Fortress Investment Group LLC and Centerbridge Partners LP that is expected to close mid-June.
Danna says the price could indicate doubt that the deal will go through. “That’s an abnormally large spread for a deal that’s going to close in four months,” said Danna, adding that credit markets are tight and some private equity deals for the buyout have fallen through. “If the deal falls apart [shares will] fall to the $40 range,” he said.
The stock closed at $47.27, down 35 cents. The stock took another dip in after-hours trading, falling to $46.65, a drop of 62 cents.