Owed $48.5 million by the California tribe it helped open a casino 14 months ago, Penn National Gaming Inc. announced last month that it will hand over the $390 million Hollywood Casino Jamul-San Diego on May 28.
The planned action was noted in Penn’s SEC filings on February 28. Penn itself did not release a statement on the situation.
Penn had loaned $98 million to the tiny Jamul Indian Village under “delayed draw term loans and limited completion guarantee” leaving Penn owed $48.5 million by the tribe and will face another $29.4 million in costs associated with terminating its management contract.
The Jamul Indian Village Development Corp., the business arm of the tribe, issued a statement saying that it had long sought to ultimately operate the casino, which it will operate as Jamul Casino after May.
“We are grateful to Penn National for all their hard work and leadership in bringing what was a very challenging development project to fruition,” said tribal Chairman Eric Pinto, in a statement. The tribe said it would keep the “current executive management team,” and retain “a highly qualified transition” team” to handle rebranding and the transfer of management.
Leading the casino will be David Patent, formerly of Caesars Entertainment but now head of the gaming consultant Patent Enterprises.
San Diego Gaming Ventures, the California subsidiary of Penn, said in a statement, “San Diego Gaming Ventures’ loans to Jamul Indian Village Development Corporation remain outstanding,” adding, “However, San Diego Gaming Ventures’ only material recourse for collection of these loans is from positive cash flow, if any, from the casino operations or from the sale of these loans to a third party.”
The Jamul casino, built on a tiny four-acre reservation in a rural town, was fiercely opposed by most local officials, many of who continue to oppose the facility and do everything they can to fight it. One of the most vocal has been Dianne Jacob, a longtime member of the San Diego Board of Supervisors, who called the casino “Hollywood Horror Show” when it opened late 2016 along Highway 94, a two-lane road.
After the SEC filing became known, Jacob wrote on Facebook: “SEC filing shows huge bet on Hollywood Casino has gone bust. Penn National is bailing due to fat losses. No surprises here. The Jamul project has been a disaster from the get-go.”
She added, “Penn National has a lot of expertise in operating casinos, and Jamul was a bad bet for them. How in the world do the Jamul Indian Village folks think that they can do any better than Penn National in turning around this casino and making money off it? They’re dreaming.”
Jamul Action Committee, which has fought the casino in many arenas, and continues to challenge it in federal court, issued a statement through its spokesman Glenn Revell: “Penn clearly is in the business of gambling. They gambled on the success of an operation in a community that never embraced them. Unfortunately, the consequences of that greed will be borne by their shareholders. Anyone opening up an operation of this size in a community that does not embrace them should well know it’s a high-risk venture at best.”
Because the reservation is so small, the complex is eight stories, with 1,000 employees, more than 1,700 slots and 50 gaming tables. It has eight restaurants, a bar that offers outdoor seating and a view of the surrounding mountains and a sports bar named after the late San Diego Padre Tony Gwynn.
A Glutted Market?
Jamul’s problem may be indicative of a larger problem facing the region and possibly the state.
California has more Indian casinos than any other state and San Diego County has more casinos than any other county in the state.
Given the new casinos that have opened recently, and the mega-expansions that are going on, some experts opine that the market may finally be glutted.
That is the thrust of an investigative report last week by the Union-Tribune, which concluded, “Over-saturated could also describe the fiercely competitive and dizzyingly dynamic San Diego-area casino industry, where the region’s 10 Indian gaming properties are locked in a $1 billion expansion battle for customers.”
It cites the Jamul–Penn National “divorce.” This comes at the same time that Pala Casino Spa & Resort just announced layoffs, despite just commencing a $170 million expansion. The tribe cited from “an increasingly competitive Southern California casino resort market,” and said, “As our new amenities open to the public, we expect to add to our workforce as business dictates.”
Six area casinos are or have just completed extensive expansions in what has become an intensively competitive market. Despite Jamul opening last year, for most of the last ten years the Golden State has not added to the 60 or so casinos operating. At the same time the market grew about 5 percent annually.
Usually a casino takes about a year for a casino’s shakedown cruise to produce a well-running facility. But according to area gaming experts Jamul got off to a rough start that were only made worse by a community that never ceased its opposition combined with the very small footprint. It was too small to accommodate something that most casinos rely on to generate traffic, a buffet.
Alan Meister, an economist based in Irvine who issues the “Indian Gaming Industry Report” each year, doesn’t agree that the market is full.
He told the U-T: “While I think the market is not saturated, there is very strong competition given the number of tribal casinos operating in the region. I think there is still room for growth, but it’s about trying to expand the market and grow the market. … These new amenities give them access to new segments in the customer market. They can draw from further distances, get them to stay longer and spend more.”
