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Penn National Gaming, Inc. (PENN)

March 07, 2013 11:15 am ET

Executives

William J. Clifford - Chief Financial Officer and Senior Vice President of Finance

Unknown Analyst

All right. Good morning, everybody. We're happy to have with us this morning, leading off on the gaming side, Bill Clifford, Senior Vice President and Chief Financial Officer of leading regional casino operator, Penn National Gaming. As you guys know, this will be conversations. I have some questions to ask, and then we'll open up halfway through to some of your questions.

Question-and-Answer Session

Unknown Analyst

So Bill, maybe we could just start off and maybe from the prism of Penn National, maybe you can just talk about the state and the status of the regional gaming consumer, what kind of trends are you seeing. Obviously, it may be hard to do that since we've had some bad weather to draw any kind of inference from recent spend. But if can you just give us a broad overview there, that would helpful.

William J. Clifford

Yes. I think, as I kind of predicted last year, I said the Street is going to go into absolute panic in the first quarter of '13 because the first quarter of '12 was absolutely a blockbuster quarter. I mean, it carried the entire year for Penn National. I personally made bonus on the first quarter of last year. And the rest of year was pretty flat. So I think what we're looking at from a comp perspective is people have got to really be a little bit more thoughtful and go back to -- I would argue, go back to '11 and take a look at where trends are relative to 2011 in terms of making a judgment call on what's happening in this quarter. Having said that, last year, there was no winter storms. It just seems like -- and what few winter storms we had were middling little things that happened on a Tuesday or a Wednesday. And this year, it seems like they cycle in every weekend. So clearly, and as you're seeing the numbers, based from the numbers that are public so far in February, in states where we've had the weather impacts, the impact is fairly large. Not to mention, they were also missing a day versus last year. So having said all that, I think the way we look at it is we haven't really seen any indications, because what we have seen when the weather is good is just unbelievable days. Now obviously, some of that is pent-up demand. I don't want to indicate, "Well, gee, as soon as the weather clears up, we're just going to have a rock 'n roll kind of year and we're just going to make a ton of money and charge type of stuff." But when you have -- when you look at the individual days and you look at the individual results by property and you look at the ones that are impacted by weather, you can clearly see that they're off 60% on some days when there's a snowstorm, and then when there's -- when we have good weather, we can be up as much 25%. So what I would say is, wait, wait til March is over. At the end of the day, what we've typically seen in our history at Penn is that by the time the quarter is over, you usually get to some kind of normalcy. A little bit -- obviously, that can be affected a little bit by any number of factors. But, and obviously weather can have a little bit of an impact. But when you roll January, February, March altogether -- and I don't know where March is going to end up obviously, we're just pretty early in the month. But that's how we're going to take a look, and we've kind of internally, after doing some analysis, come to the conclusion that, that's really -- it's kind of fruitless and candidly a waste of energy right now getting too worked up on analyzing exactly what's been happening so far this year.

Unknown Analyst

Okay. What we've seen the last couple of years, broadly speaking across regional markets, is that the promotional environment's been fairly stable. Obviously, with a focus on improving margins, given whatever the revenue pies might be in whatever specific markets, is that still the case right now? Or -- and maybe you can also talk about, too, about how maybe you're changing your marketing now versus 5 years ago and maybe given the different state of the gaming consumer.

William J. Clifford

Well, first of all, I would say people should kind of relax on the environmental -- or not the environmental, the marketing environment. You're going to have a great leading indicator of when it's a problem. And it's real simple. Listen to the earnings calls. And when the CEOs and the people in the earnings calls start talking about market share, share of wallet, how much they -- whether they're #1 or #2 in each market, when that conversation starts on the earnings calls, watch out. That means everybody has decided that they no longer care about EBITDA. As long as everybody at the -- on these earnings calls in the gaming sector is focused on EBITDA, the promotional environments are going to stay rational. That doesn't mean you won't have an occasional outlier here or there, a GM that runs amuck or whatever we have them every once in a while even internally, who's decided that he's solved the Rubik's cube and that he's figured out how to affect the macro environment. And what I mean by that is he somehow thinks that he's going to single-handedly convince consumers, who are perhaps not feeling that well this month, that they should really come out to his casino and spend a lot of money. It just basically, in our view, just doesn't work. I mean, the Penn thought process on marketing, and when you say what's changed since the last 5 years, is that we've really honed in on the concept that it's our job to make sure that we react to the macro and not try to affect the macro. And what I mean by that is if there's cannibalization, if the consumer's not spending, that is not the time to ramp up our marketing expense. It's time to be much more frugal about our marketing expenses and basically draw them back in. Convincing consumers to commit unnatural acts is kind of how we paraphrase it when I talk in these conferences, is really not a good idea. It's you really need to figure out what's the consumer, what's the customer looking for and figure out how to accommodate that. And you'll be much more effective with your marketing spend. I know that's kind of -- that's not a very specific comment. But what it is, is it says, "Don't spend money trying to reverse a negative trend. Don't try to run a special promotion if you know there's a snowstorm coming." Okay, that's kind of the idea. Don't have a big giveaway when there's a blizzard coming. That type of thought process. And literally, that's kind of what's happened in previous periods. So that's how I'd answer that one.

Unknown Analyst

Okay. Maybe turning over to your current operations. Can you talk a little bit about Columbus and Toledo? I guess, Columbus more so. Columbus, I guess, in our view and probably you share this, probably a little bit of a slower start of a ramp relative to our expectations. More recently, the operations have shown some degree of sequential improvement. Can you just talk about what changes you might be making in Columbus and the size of the market and capacity there? And then maybe you can talk a little bit of the 2 VLT properties that you've been building in Ohio as well.

William J. Clifford

Sure. What I would say about Columbus is, first, I would point out that Penn really takes a little bit different approach when opening new properties than some of our competitors. We tend to try -- we focus on awareness, we focus on some media campaigns and we try to -- we basically try to generate EBITDA and margins from the beginning. Some of our competitors prefer to take the approach to, call it, blow their brains out in initial promotions, run their marketing expenses through the roof, and then watch -- set up a high level of revenues, and then figure out how to ratchet those expenses back to get to their eventual margin. We think our approach, although sometimes gut-wrenching because you're watching revenues come in at lower levels than you might have otherwise hoped for, is proven to be -- to work and it's proven to work well. For instance, in Kansas with the Speedway, we've had -- we've gone through some rough patches there. But that property is ramping up nicely, moving -- it's going to get to the numbers that we thought it was going to get to. We've got some relieved partners. There's nothing like carrying some partners through that stretch, where you've -- they're looking at market share and they're looking at all the rest of it and saying, "Well, what's -- why aren't we getting our fair share," and we're saying, "Well, yes, but look at what you're generating in EBITDA." And then we actually went to the trouble to put a graph up of what other properties that were public and what they'd done on openings and their EBITDA levels were and what their EBITDA margins were for the first 6 months versus 2 or 3 years later. And we could basically show that even though they started off with stronger revenues, that effectively what happens is they end up ratcheting back expenses to get the revenues in line and everything ends up in the same place but that you'll make more money in the interim. With Columbus, I am not spending any time worrying about where Columbus is going to end up. And it's going to be -- in my world, it's going to be fine. It's showing sequential growth. It's showing increased visitation. It's showing improvements in the slot customer base. And clearly, the fact that Scioto was out first in the market with very aggressive marketing upfront was not ideal. But the reality is, over the long term, and I don't mean years, I mean a few more months, I think you'll see the Columbus property really come into its own in terms of getting an appropriate level of market share. And again, we look at it the same way is that we can't affect the macro. So as long as we focus on what we're good at focusing on, which is how to run great margins, that, that property will do fine. Toledo. Toledo is fine. It's moving along. I think it's going -- I don't think everybody is quite as disappointed in Toledo as they are in Columbus. Although on a realistic basis, on a pure penetration level, if you combine the 2 assets, Columbus is actually has a higher penetration level to the market than Toledo does. And as far as the 2 tracks are coming, I mean, the reality is those will get built -- they're going to get built for the least amount possible. There's not a whole lot of adjustments we need to do there because we're just focused on making sure that we build the properties for the least amount of capital that we can. There's some built-in components to building there that has an impact back in Columbus and Toledo. And when you factor -- depending on how you want to account for that, assuming that the new tracks bear all of the costs, I think the returns there will be adequate. If you back out the costs that are benefits back to Columbus and Toledo, I think the returns will be more than fine, so...

Unknown Analyst

Great. Second half of last year, you closed on an acquisition of a property formerly in Harrah's in St. Louis. Can you talk about what you're doing, the changes you're making at the property? I know you're rebranding it, you're replacing a very old slot floor. We were there in November, it is very old. And what's your outlook there is? And how does Penn come and make an acquisition and try to improve a property? Maybe what's specific about that market that was attractive to you to make the acquisition of the first place?

William J. Clifford

Well, there was a couple of things. We thought the price was right. That's one of the things about Penn is that we'll pretty much buy anything in any market if we think the price is right. Now what helped make the price right was obviously some advantageous tax treatment that we were able to effectively use to buy down the multiple. But what we liked about the market, generally speaking, was that it's a mature market. We see no risk to cannibalization. We think that's just basically the market is what the market is. It's absorbed the new capacity that's come into the market. And we looked at it as a very stable market going forward with good cash flow generation. And then on a free cash flow per share basis, it was a highly accretive transaction. We acknowledged that we need to spend some money on CapEx. We are cleaning up and freshening the floor, certainly replacing a good number of slot machines, the number kind of varies back and forth. One of the things right now is people need to keep in mind is that when they look at the numbers that we're seeing in St. Louis, we've probably got almost 500 or 600 machines out of commission currently. And the fact that there's a good amount of construction noise going on. Although it's not that disruptive at least for now, but it is having -- it does have some kind of an impact. And so looking at the numbers, we're more than happy with where our revenue levels are. We're just going to have -- we need a little bit of work on some of the expense side issues. Clearly, I don't mean to be disparaging to the former owners, but the place was filthy. It was disrepair. It was just -- I mean, elevators didn't work. Things that were -- that is clearly causing us to spend a little bit of money on R&M. And I would venture to guess that, that's probably -- it's probably not the only property out of that portfolio that's in that condition. But -- so we're going to clean that up and we'll freshen up the place. And it'll feel clean, safe, well-maintained and we'll be done with that by the end of the year. I think we're spending a little bit over $60 million in total, which was changing out all the systems. We clearly had some issues upfront with some of the transitions on the -- changing out systems. I would tell you that the transition or the change of ownership was actually more challenging for us than opening a property from scratch. And you wouldn't think it would be that way because you'd think the place is up and running, how hard is it to just take over. But we have literally ripped out every single system that was -- that the Caesars IT systems are almost all proprietary, which is part of the reason why makes it difficult. I can't imagine it's -- I don't -- I can't really speak to it, but I can't imagine -- we've never felt like proprietary systems were the way to go. But clearly, they do. And it makes transitions very difficult. So a lot of people had to relearn their jobs. We had clearly lots of amounts of overtime as people relearning it. And as you might imagine, people have been doing their job the same way for 20 years, and now one day wake up and the screen's different on their little thing where they've got to do their job, "Oh, I hate this system, it's terrible." But until they've learned that it's probably about 4 generations ahead of what they were working on, and then they say, "Oh, no, this isn't so bad." But at any rate, I kind of digressed there. I think the property is going to do fine. I think we've got some work to do. We've clearly had -- we had some issues with getting some of the marketing lists. We had customers showing up that we supposedly had gotten every customer who'd ever been to the property. And we'd have people showing up to the cage with their cards and no information on them. We've since rectified that. That was kind of a hiccup for the first few months. But we're past that. And I think we're moving full speed ahead.

Unknown Analyst

Great. On November 15 of last year, you announced a nice transformational splitting out of the company into a PropCo, OpCo structure. Can you share with us or give us a sense of where you are in the approval process and the steps that you're taking to secure all the necessary approvals? Particularly maybe you can share with us some of the feedback that you might be getting up from some of the state gaming commissions.

William J. Clifford

Sure. The way I look at the regulatory process is it's just kind of a 4-step process. The first step, which is basically socializing the concept with the gaming regulators, bringing them up to speed with what we're doing, giving them the macro view, explaining the transaction, explaining how we're going to recapitalize the company and what's going to happen with the different assets, where the ownership of the assets is going to lie, explaining the rent contract, et cetera. They then go into the next phase, which is what I call the phase of them figuring out how they approve it within the constructs of their regulations or their statutes. Nobody has done this before. Nobody has -- gaming has turned around and done a tax-free spinoff of their land and building assets with a rental contract. So a lot of the states are a little bit -- they've got regulations but they're not really specifically drawn up to address this particular situation. So they're in the process -- and that's where I'd say a good -- most of our states are is in Phase 2 is figuring out what forms do we fill out and who needs to get licensed and what aspects of the transaction do they need to formally approve on, which ones do they simply need to be aware of, et cetera, et cetera. That's where the bulk of the states are. Then we get into the process of what I call the blocking and tackling, which is they tell you which forms you have to fill it out. You take pallets full of paper and ship it off to every state. And we make the local Kinko's guys really very happy because a lot of times they want 2 and 3 copies of the same form or the same data to go to different agencies within their different groups. And so you pool that together and they go through their process of doing their investigations, reading the papers, et cetera, et cetera, and then you get into the approval process. I think probably what most people are most interested in is when does all this get wrapped up. It's all great to know the details. I think there's -- some states are going to move a little quicker than others, and then you've got the individual states' personalities. We have some states that don't mind being first and happy to be first. They think it shows leadership and that their state's got their act together. Then we've got states that are happy to be quick, but they don't want to be first because they don't want to be embarrassed because they don't want some other state to figure something out that they haven't figured out and somehow end up that they've approved something that they shouldn't have approved. And then there's the guys that just kind of don't really care and they're fine. And then there's the states that say, "Well, I just can't stand the fact that some other state might find something I didn't find. So I'm going to wait until the very end." That's typically -- unfortunately, that's Missouri and Louisiana tend to operate down that path. So I guess, of the 19 states roughly we need to get approval in, I would expect that you'll see some coming out here in the next couple 2, 3 months with some approvals. And then we'll go through a period, where they'll be -- they'll kind of come in regularly, and then it'll just be kind of a herding the cats approach at the end to figure out, which -- whatever laggard states there are that are late for whatever reason. And they're all under-resourced, they're all -- nobody has enough staff, nobody has enough time. There's just amazing story that you get from every state that's the same. You'd think they were all sequestered or something or that Obama was in charge of them because, of course, the first thing they can't get done is the transaction that's actually got big money involved. So they spend a lot of time worrying about whether some dishwasher has reported that they had a drunk driving problem, can be as important as figuring out whether they get the REIT approved. I would summarize from the feedback perspective, we have not had any information or even inkling that there's going to be an issue with getting this approved. Nobody has raised an issue that is, in any way, challenging to finishing it up. I would characterize where we stand today -- now, this could change. I'm not going to sit here and tell you that this is absolutely, right. But as we sit here today, there is no reason to believe this thing is not going to get approved. It's just a matter of what the timing is.

Unknown Analyst

Great. Can you share with us post this transaction, post the spin, the acquisition philosophy, the leverage philosophy for both PropCo and OpCo?

William J. Clifford

Yes. Well, the acquisition philosophy is, as much as possible, as quick as possible and just good a price as it is possible. I think on a leverage basis, one of the things in the PropCo world, right, the trick is to be able to buy, you have to be able to buy assets for less than your trading multiple. It's not really real complicated. The keep -- there will be a desire on the PropCo side to get investment grade from a debt side, that's obviously for purposes of optimizing results on the spread between the acquisition price and what you're paying for your cost of debt. And so that probably turns into something with leverage in the 5.5, maybe as high as 6, to keep investment grade or to get to investment grade. I don't know if we'll get investment grade out of the box based on all the different banks we've talked to and all the ratings advisory groups and guys who formerly worked there, et cetera, et cetera. Rating agencies aren't, generally speaking, the most aggressive group on the planet. And so they're going to probably be a little hesitant to go straight to investment grade. And they'll have a bunch of their own internal reasons, God only knows what they'll be. They'll claim, of course -- I mean, one of the issues will be the single tenant issue. I think, I'm actually kind of hopeful that if we can get them to be impartial and thoughtful about it, they'll understand that what we've done with the structure really mitigates 98% of any concerns you could have with a single tenant. But who knows? We'll see what happens. And so that's the thought process there. So really, probably in the 5.5x. On OpCo, starting out of the gate roughly at 5.5, I don't think we'd want to go any higher. In fact, I would expect that the desire would be to get -- 5.5, what I mean by 5.5 is that it's on implied leverage basis, that includes 8x on the rent. Other than that, it's starting at a 3x leverage on a pure EBITDA basis. So I think depending on how the -- that one's probably going to be a function of how the capital markets handle the OpCo leverage in terms of there's always a blend between leverage and cost to capital, right? For a while there, it looked like if you had a good leverage, you were going to get a big, huge cost of debt advantage. That seems to have gone away. It seems like as long as you're under, what, about 12, you're okay or at least 9. So I mean, at the end of the day, it's hard, as a company, to sit there and say, "Here's what we're going to be feel comfortable with." We feel -- we do feel comfortable with the EBITDA concept and in terms of what we've got projected, in terms of where the company's going. So clearly, we wouldn't feel uncomfortable with taking leverage from 3 up to 4, 4 to 5x. But that's going to be tempered a little bit by what the market -- how they react. So in other words, if the bond market and the bank market doesn't like leverage at the 4.5x of OpCo, we probably -- and your cost of capital is going to go way up, we'll probably keep it lower.

Unknown Analyst

Great. And now might be a good time to take some of your questions. Who wants to ask the first question? You're the lucky guy, Tim [ph].

Unknown Analyst

[indiscernible]

William J. Clifford

Well, it's hard to quantify because we're the new guys. They can probably tell you better what our impact is on them, then they can -- then we can tell what their impact is on us. There's a good number of Internet cafés across the state. We seem to be getting some really good traction with the legislature and the Governor's Office, explaining to them that those guys, although they're paying tax on the initial buy-in, that the amount of taxes getting generated out of casinos is much more advantageous for the state of Ohio. There's some legislation that's in process right now. We have gotten great feedback to date obviously that it's going to go pretty well from our perspective. Not exactly sure what the cure is going to be. Our preference would be to outlaw them completely. The problem is, is that a lot of these Internet café owners are -- have pretty good contacts with some people in the legislature. And so there's a bit of a struggle going with that. We don't have any evidence of this in Ohio. But Internet cafés are a problem in Florida. And I was talking to somebody in Florida, and they were explaining that some of the Internet cafés' ownership is owned directly by members of legislature. So you can imagine how well eliminating Internet cafés is going in Florida. We don't have -- we have not seen that in Ohio. At least in Ohio, they're not as blatant about it. Apparently, in Florida, legislators don't have any problem just putting their name right on the business application. That isn't the case in Ohio. So there may be some indirect ownership or via some hidden shell companies or something like that. But listen, it's not good. Clearly, when you go into these cafés, and Tim Wilmott's been there and some people have been into these cafés, I mean, they're clearly going to have -- they clearly have -- are going to have some kind of an impact. Now the argument is, of course, that they were there first. So therefore, blah, blah, who is it for us? Now obviously, our counter is, "Well, yes, but they're illegal." So can't let that get in the way of a good argument, anything like facts, right? So I think you should see some news in the next 30 to 60 days in terms of what's going to happen with the Internet cafés. And then I do expect that there will be some legislation certainly curtailing some of their actions and activities in terms of whether it's actually completely eliminating them or whether it's regulating them. Obviously, we'd prefer to get rid of them, leaving them to live to fight another day is never a good idea. But we'll see where that goes, okay?

Unknown Analyst

[indiscernible]

William J. Clifford

Yes. That's Nevada and New Jersey. What's amazing to me is that everybody's so excited about the Internet gaming's aspects in New Jersey. And it's like they've timed out all the incremental revenue they're going to generate. Well, some of that incremental revenue is going to come out of Atlantic City. And some of that incremental revenue is going to come out of the locals markets in Las Vegas. Our philosophy -- and right now, we're still in a wait and hold. I think people are a little exuberant here. I mean, one of the -- the Street is infamous for this characteristic, right, Wall Street. If something happens...

Unknown Analyst

Except for JPMorgan.

William J. Clifford

Except for JPMorgan, right. If something happens and the Street automatically assumes that it's going to be up and running in a week, right? And the reality is the issues around regulating Internet gaming and putting it in place and actually having it work, I think, is going to be a lot longer than people think -- even though they've passed the legislation, they still haven't figured out how to control underage gaming, compulsive gaming, actual physical verification of the customers in the state of New Jersey or in the state of Nevada. And those issues, you'll probably hear other people say they're happy with it. Well, just because they're happy with it, it doesn't mean the regulators are happy with it. And there's -- I would just say it's going to take longer than we expect it. Relative to Penn's strategy, there's another piece, I guess, I should say. In our research on this stuff, there's not really huge significant barriers to entry in terms of the product itself in terms of what you need to be up and running. You can -- if you're willing to spend $2 million, $3 million, you can be up and running in about 2 months. So barriers to entry in terms of becoming competitive with a platform are pretty minimal. The trick is obviously to get customers. So how do you get customers? Well, that's marketing. And I think the other piece that we kind of are a little bit gun-shy about is that we don't -- aren't really aware of any really high-margin business on the Internet, regardless of -- maybe there's a couple out there, I don't know. But other than the porn industry, I guess, but -- and even they're not good anymore, okay? They used to make money. So the reality is that the Internet, by its nature, right, whether it's stock trading or anything else, just basically cuts it down to where your margins are almost nothing. Now if they leave it in a way -- and so this is -- so I'm on kind of a long-winded answer. Our view is if it's set up in such a way that anybody can play, it's really not going to be a high-margin business anyway. If it's set up in a way where the existing operators have a huge advantage, well, then we're going to be the prettiest girl to dance because we're in more states than anybody else is in gaming. And so we don't need to get ourselves hooked in today with a partner. We're not going to have any problem finding people that are going to want to partner up with us on the Internet gaming side if we needed a partner, whether it's whoever you want to name of guys out in that business. So our view is we're going to kind of still -- I know it sounds like we're not being proactive and wasting enough money. But we're going to kind of do our research, meet with the guys. We've met with a number of prospective partners, but we just haven't pulled the trigger on announcing any kind of alliances with them because candidly, I don't -- we don't really think that it's prudent for us to do so at this time. We think there'll be plenty of time to react and there'll be plenty of time for us to figure out the right direction.

Unknown Analyst

Great. Next question?

Unknown Analyst

Can you talk about any update on Massachusetts in terms of the timing on when you think if you do win the license, a property would open? And also an update on Maryland or Toronto.

William J. Clifford

Massachusetts. Well, right now, we're in the beauty contest with the city, which is between us and MGM at this point. And we're in those wonderful negotiating periods with the city, where they want more and more and more, and we want to give less and less and less. And I think there's been some discussion around whether the city might put both people forward or whether they'll actually make a decision. We actually would prefer they just made a decision and send one up to the state. That would be our preference. I think the other -- otherwise, I think it just gets all muddied up and I think, quite candidly, the city is going to have to come out in favor of one or the other. I guess, they could punt. But I don't think the city is going to actually advocate that authority. I think they're having too much fun with the selection process. And I think they're going to try to lever us against MGM for as good a deal as they can get, and maybe they'll pick somebody. They've indicated -- we've heard from the state that they're going to -- they think they can get the selection done sometime next year, which means probably -- sometime next year, I mean, we've heard February and March. But the pace in Massachusetts would hardly support that they'll get it done that quickly. So that probably stretches itself out somehow another into the summer. Assuming that you get into the summer, then it's probably 2 years to get anything up and running, so you're probably looking sometime in the middle of '16 would be my guess to determine when it's done. Maryland. Maryland is -- has proffered their RFP process. Now you can't open before '16 in Maryland, so -- but they're starting the process early and quickly under the assumption that there are going to be somebody who might create some mischief with the process, which I have no idea who that one might be. But somebody might protest that they didn't win, take it to court and those kinds of things. And Canada, I'm not sure that actually is a valid thought process. I think our theory will be to try to create a -- we will be competitive. We will propose an alternative. And I think we're going to make it interesting in terms of how they actually proceed. But we're still working the details out on that. So I can't really give you any more details other than it'll probably be a little bit creative. And it won't be just your standard Penn National proposal to build something because we clearly understand how well-loved we are in the state of Maryland. And the gracious appetite they have to offer us up opportunities is not exactly first and foremost on their minds. And clearly, there's a built-in bias towards picking MGM. So we'll see. I don't think you'll see us spending tons of money there. But it'll be probably be interesting. Yes, what was the other one?

Unknown Analyst

Toronto.

William J. Clifford

Canada. I don't know if there is a human being on the planet that understands what's going to happen in Canada because they've talked about figuring what they're going to do outside of Canada or outside of Toronto, and then figure out what to do inside Toronto and then how to change the government. Then they had a change of heart on a few issues. And so that's one of those processes. We have a biweekly executive staff meeting at Penn, and we talk about pretty much the same things you just talked about. We've just gotten to the point where we tell the guys that work on Toronto, "Tell us when you know something." And that's kind of where we're at. So we don't see -- I mean, we're involved outside Toronto. We don't -- we're not going to try and win the multibillion-dollar project in the City of Toronto if that happens, so...

Unknown Analyst

Okay. We have time for one final question. Tim [ph]?

Unknown Analyst

[indiscernible]

William J. Clifford

No, that hasn't really been our -- well, because they're both really new markets. So I'm not really sure that we have any interest in delaying. On the other hand, we don't have any interest in increasing our expenses either. So what you're going to see is that we're going to let it take its natural course in the most cost-efficient manner possible to get it up and running. You're not going to see us to do some kind of massive acceleration on the construction or go to 24/7 shift construction work or anything like that in order to get up and running earlier because both of those returns are, quite candidly, in the adequate range, right? So there's really no impetus on our part to go out there and do anything heroic. But we will -- we'll build them as soon as the approvals are in place. And as soon as all the different contracts and permits and everything else are available to us, we'll start construction. But it's not a -- that's kind of a -- this one, it's just going to take its course, right? We're just going to let it happen on its natural course, and we'll be open sometime in '14, most likely. And then we'll see what happens. I mean, it'll be fine.

Unknown Analyst

Great. All right. Thank you, Bill.

William J. Clifford

All right. Thanks.

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Source: Penn National Gaming's Management Presents at J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum (Transcript)
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