Law permits several options for Penn in York County
Two weeks ago, Penn National Gaming won the first license for a Category 4 satellite or “mini-casino,” paying more than $50 million for the license in a move recognized as protecting its turf against competition from a new class of casino even as the operator sues to block the law provision creating the Category 4 facility.
Category 4 casinos, created under the massive gaming expansion package signed into law in November by Pennsylvania Governor Tom Wolf, are casinos limited to 750 slot machines and 30 table games. The first of 10 was auctioned by the Pennsylvania Gaming Control Board January 10, with the second auction slated for this week.
Penn centered its bid in Yoe, York County, the location of its subsidiary Mountainview Thoroughbred Racing Association—operator of its flagship Hollywood Casino at Penn National Race Course outside of Harrisburg. The way the law is written, satellite casinos may not be located within 25 miles of a current casino, but may be located anywhere within a 15-mile “buffer zone,” giving Penn a 30-mile radius surrounding Yoe in which to locate the new facility.
Penn’s lawsuit challenges both these provisions as creating unfair competition for its existing facilities, claiming the new facilities are going to siphon business from existing casinos, not the least of which is its own Hollywood Casino. However, according to a new analysis from consultancy GGH Morowitz, if planned correctly, the new mini-casinos could grow the market.
“GGH Morowitz has extensive experience, having analyzed most major existing and potential gaming markets across Pennsylvania, including bordering states,” said Cory Morowitz, GGH Morowitz co-managing partner. “Given the unique attributes of the new Cat 4, existing competition, location-specific considerations and applying a range of variables, as well as our proprietary models and algorithms, we have identified discrete ‘pockets’ of opportunity, areas more susceptible to cannibalization, and optimal levels of capital investment that directly impact the value of these licenses.”
GGH Morowitz’ analysis identified several points relating to the potential profitability of the new mini-casinos”
• New Cat 4 Licenses have potential to cannibalize existing markets, but will grow the overall Pennsylvania gaming market over time. “GGH Morowitz has identified as many as 15 key sub-markets (some of which overlap) where a Cat 4 license may be viable through both cannibalization and growth based upon availability, proximity and population drivers,” the study said.
• Overall profitability driven by a variety of factors, including location, specific branding/cap-ex and marketing and promotion strategies. “Overall profitability (i.e., yield) for these sub-markets will vary widely and not all will support substantial capital investment, so right-sizing of a project suitable for a specific sub-market/location, as well as employing targeted branding/marketing strategies, will be critical.”
• Potential yield and capital investment factors should directly drive auction prices. “Range of overall yield vis-à-vis total cost of entry (including facility acquisition/build-out and cap-ex) will drive auction value for each license.”
Michael Kim, GGH Morowitz managing partner, added, “Away from the leverage afforded existing incumbents through the current phased sealed-bid structure of the new Cat 4 auction process, similar to many casino license RFP/M&A opportunities with which we have been recently involved, bids are likely to be driven by a combination of pro forma multiples, strategic access or ‘defensive’ premium, and other location-specific competitive advantages available in each sub-market.
“While we have identified several potential sub-markets that could be compelling for a new Cat 4, as more direct access to population or prime locations moderates, bidders must be cautious for potential to face diminishing value and/or more marginal return on investment as the auctions progress.”
Meanwhile, officials and media in York County are examining the 30-mile radius created by Penn’s Category 4 license centered in Yoe, a small borough about 10 miles from the Maryland border in central Pennsylvania.
According to a report in the York Daily Record, leading contenders include municipalities such as Manchester Township and West York, where officials have said they are open to casino proposals.
Kevin Schreiber, president and CEO of the York County Economic Alliance who had pre-bid conversations with Penn National about possible locations in York County, told the newspaper he believes the local casino will likely end up close to the city of York, and not in the more rural southern end of the county near Maryland.
West Manchester Township is among the most likely destinations, he said, adding that the township is receptive to a proposal.
“We looked at it and didn’t see any detrimental impacts if sited appropriately,” Kelly Kelch, West Manchester township manager, told the newspaper,
West York Mayor Shawn Mauck also told the newspaper he would welcome a Category 4 casino, saying it would provide a “wonderful synergy” to what the city already offers. “We can’t miss an opportunity like this,” Mauck said.
Springettsbury Township, east of York, was one of more than 1,000 communities to opt out of the mini-casinos, which bans them under the new law. However, officials say they are open to reconsidering the decision, saying the short window between the law’s passage in November and the December 31 opt-out deadline was the main factor in opting out. The law permits any community to “opt back in” for a mini-casino by simply passing a new resolution.
Elsewhere in the state, community officials began anticipating the next auction, and reacting to the precedent set by Penn with its $50 million price tag when the minimum bid set by the law is $7.5 million, with an extra $2.5 million for table games.
“I was shocked,” Randy Seitz, president and CEO of Mercer County’s Penn-Northwest Development Corp., said of the Penn bid in an interview with the Sharon Herald. “We were guessing the first bid would be $10 million to $15 million.”
“We hope to have a casino here in Mercer County,” Peggy Mazyck, CEO of the Mercer County Visitors and Convention Bureau, told the Herald. “The tourism board feels it would help to become an all-season destination… What we’re doing is sending letters out to the casino owners, and saying all of the things we have that would be attractive, like our traffic counters on I-80 and I-79, and I-376 starts here in Mercer County and goes all the way to the airport.
“Something I hear almost every single day from businesses is the struggle to fill positions,” she said. “These are the kinds of amenities that, if done properly, can draw people to live here, pay taxes, and buy homes.”
The next auction is this Wednesday, January 24.
