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Penn National Gaming (NASDAQ: PENN) owns 12 casinos, 7 racetracks, and off-track betting facilities in 14 states and in Ontario, Canada.[1] In 2009, the company generated $2.37 billion in revenue but incurred a net loss of $265 million.[2]

State regulations are a mixed bag for Penn. On the one hand, a loosening of gambling regulations in Pennsylvania let Penn install 3000 new slot machines in its Granville, PA racetrack - each of which can generate $200 per day. On the other hand, tight gambling restrictions keep competitors out of the market, and the absense of gambling in many states adjacent to Penn properties means the company can draw out of state visitors to its casinos. For instance, the company's casino in Lawrenceberg, Indiana (responsible for 20% of the company's revenue) has benefited from influxes of customers from Ohio and Kentucky. Both Kentucky and Ohio are re-examining their bans on casino gaming and other states in Penn's market areas, such as New Jersey, are granting licenses for new casino development. These new licenses encourage new competitors to enter Penn's markets.

Penn has also been affected by the sluggish US economy. In a sluggish economy, consumers cut back on Discretionary spending and unnecessary expenditures -- which hurts the gaming industry. As a result, fewer people go to casinos or race tracks when money is tight. As a result, companies in the gaming industry, including Penn, have felt the negative effects. In 2009, the company's net revenue fell 2.2%.[2]

Company Overview

Penn owns twelve casinos, seven racetracks, and five off-track wagering facilities in the United States, and collects managerial fees for operating a casino in Ontario, Canada. Its casinos and racetracks generate revenues primarily through house winnings in table games, slot machines, and wagers on races. Penn also earns revenues from food, beverage, accommodation, and other services.

Revenue Sources[3]

Gaming (91% of Revenue)

Winnings, the revenue generated for "the house" in table games, slot machines, and wagering odds against casino customers.

Non-Gaming (9% of Revenue)

Penn National Gaming also sells food and lodging services to their customers. Of all the casinos and racetracks owned by the firm, only 5 of the properties feature hotel accommodations. Penn National Gaming's 10-K records net revenue after it factors "promotional allowances" against gross revenues. Promotional allowances are free or discounted food, beverages, accommodation, or other services given to customers as a means to attracting them to gaming.

Business Growth

FY 2009 (ended December 31, 2009)[2]

  • Net revenue fell 2.2% to $2.37 billion. Revenue at the company's top three casinos fell by $58.7 million, $21.9 million, and $14.0 million respectively due to a decrease in consumer spending on gaming activities caused by economic pressures.
  • The company incurred a net loss of $265 million down from a net loss of $153 million in the previous year. Total operating expenses increased by 2.2% due to impairment losses, depreciation and amortization, and a $6 million clean-up charge from a fire at one of the company's casinos.

Trends and Forces

The Gaming Market Is Vulnerable to Declines in Consumer Discretionary Spending

A constriction of consumer discretionary spending has reduced gaming revenues across the gaming industry. In a sluggish economy, consumers cut back on Discretionary spending and unnecessary expenditures. Gambling is usually at the top of the list for people to cut, just because there is a greater probability that they will lose money rather than make money. As a result, fewer people go to casinos or race tracks when money is tight. As a result, companies in the gaming industry, including Penn, have felt the negative effects. In 2009, the company's net revenue fell 2.2%.[2]

Penn's Riverboat Casinos in the Southwest are Vulnerable to Hurricanes

Because many of Penn's casinos are located on the shoreline, they are extremely vulnerable to natural disasters like hurricanes. For example when Hurricane Katrina hit, Penn National Gaming closed three of its casinos in Louisiana and Mississippi in anticipation of Hurricane Katrina. The storm damaged two of the casinos, and they were not re-opened until the next year. Any hurricane that is projected to make landfall anywhere near one of the company's casinos will force the company to shut it down until things are safe or until the damage has been repaired. Many of Penn's casinos are located upon rivers or other water bodies and are vulnerable to damaging floods or other disruptive weather.

Legislation Would Increase Competition While Making Some of Penn's Properties more Profitable

Penn National Gaming's capacity to develop or acquire properties is contingent upon licensing from state regulatory boards. Legislation that legalizes gambling and provides new licenses in states without gaming may open up new opportunities as well as competitors for Penn National Gaming. A new Ohio casino would compete with Penn's Argosy in Lawrenceville, Indiana; the Argosy casino is currently the only casino in the Cincinnati metropolitan area. Furthermore, states such as Pennsylvania and New Jersey have granted new licenses for the development of new gaming facilities. While this may create new competitors, it also allows Penn to expand. For example, Pennsylvania law has permitted Penn to add as many as 5,000 slot machines to its existing racetrack facility.

Penn's Competitors in the National Casino Industry

Penn's casinos draw many regional customers across state lines, from areas where gambling is not legal - for example, their Charles Town, West Virginia casino caters to customers in Baltimore and Washington, D.C. areas. Penn competes directly with several large gaming corporations and many smaller and independently owned gaming institutions in the Southeast, Midwest, and Mid-Atlantic United States. On a national scale, Penn competes against multinational firms like Harrah's Entertainment (HET), Las Vegas Sands (LVS), Boyd Gaming (BYD), and MGM MIRAGE (MGM).

Also, Penn competes with many independent casinos, racetracks and gambling operations, notably those of Native American tribes, such as Foxwoods Resort Casino, the largest casino in the world by square footage (4.7 million). Finally, Penn National Gaming competes with a growing niche of Internet gambling.

The following are three of Penn National Gaming's market competitors, though this is only a sample of the diverse competition:

  • Harrah's Entertainment (HET): Harrah's Entertainment is the largest gaming corporation in the world, with over forty famous brand-name casinos, resorts and golf clubs, such as Caesar, Harrah's, and Bally. Aside from its ownership of numerous Las Vegas and Atlantic City, New Jersey properties, Harrah's owns casinos in a number of states that compete directly with Penn National Gaming's casinos in the Southeast and Midwest. For example, Harrah's Joliet in Joliet, Illinois competes directly with Penn National Gaming's Empress Casino; the Margaritaville Casino and Resort competes with Penn's Boomtown Biloxi in Biloxi, Mississippi; and the Harrah's brand has competed with Penn's Hollywood Casino with three casinos in Tunica, Mississippi, since 1993.
  • MGM MIRAGE (MGM): MGM Mirage is the world's second largest gaming corporation. MGM is less diversified than Harrah's into non-Las Vegas holdings, but it still owns several casinos in locations that diminish Penn National Gaming's share of local gaming markets. For instance, MGM Mirage bought the Gold Strike Resort and Casino in Tunica, Mississippi in 1997, competing with both Penn's Hollywood Casino and Harrah's three Tunica casinos. The MGM Grand Atlantic City, a casino under construction and slated to be completed in 2012, will be the latest entrant into the regional mid-Atlantic gaming market and a competitor with Penn's Charles Town Entertainment Complex.
  • MTR Gaming Group (MNTG): MTR Gaming Group is smaller and has fewer resources with which to compete than some of Penn National Gaming's other market competitors. However, MTR Gaming Group owns several properties of importance, including the Mountaineer Racetrack & Gaming Resort in Chester, West Virginia, and Presque Isle Downs & Casino in Erie, Pennsylvania. Both compete with Penn National Gaming's Charles Town Entertainment Complex in Charles Town, Pennsylvania, the largest earner of revenues in Penn National Gaming's owned casinos and racetracks.


  1. PENN 2009 10-K "Properties" pg. 2-7
  2. 2.0 2.1 2.2 2.3 PENN 2009 10-K "Selected Financial Data" pg. 31
  3. PENN 2009 10-K "Revenues" pg. 43