Penn National: The Attraction of Regional Gaming

| About: Penn National (PENN)

by Conley Turner

The outlook for the regional gaming industry in the US is improving against a backdrop of moribund finances in many states, cities and municipalities. While having faced in many cases staunch resistance by legislators and citizens alike prior to the advent of the current economic malaise, casinos and other gaming operations are now being looked upon more favorably.

By and large, the introduction of a gaming operation, whether it be a simple slot machine parlor or a more elaborate all inclusive casino resort, is being viewed as a source of economic regeneration for faltering local economies. The stakeholders consider it as an antidote for pressing economic hardship much of which has been brought about by chronic unemployment. To this point, at least 12 states have some commercial variation of a gaming operation. This does not even take into consideration the 29 states that have casinos on the Tribal lands of Native Americans. That number continues to grow as a result of both company specific and industry efforts to encourage states to foster a more favorable legislative environment for gaming.

One company that has been very successful in this regard has been Penn National Gaming (NASDAQ:PENN). The company has been a serious advocate for the revision of state level laws to allow for gambling. A prime example of this was when voters in Ohio in November of 2009 approved a constitutional ballot initiative that paved the way for casino gaming in the state. Flash forward one year later and Penn is now in the process of planning and building casinos in the cities of Columbus and Toledo. A similar and successful campaign was undertaken in the State of Maryland which ultimately led to the September 30th opening of the Hollywood Casino Perryville, the first casino to be opened in that state. Opened only two years after voters in that state approved the introduction of slot facilities, this new property boasts 1,500 slot machines. The casinos owners agreed to a percentage of total revenue from the casino to go the state's horse racing and breeding industry. At this juncture, a comparable effort is being undertaken in the state of Texas by Penn.

To this end, legislators everywhere who favor gaming in their jurisdiction are quick to point out such benefits. In the case of the Perryville property, over 350 full time jobs were created with close to 80 percent of the employees residing a relatively short driving distance from the property. It stands to reason then that a significant amount of the earnings of these employees will find its way back into the regional economy. They will likely shop for food, clothing and other necessities and entertain themselves in their general home area. This basic argument can be applied to other areas throughout the country that are considering gaming.

One of the compelling reasons for the growing popularity of regional gaming facilities is their favorable proximity. Patrons find them easily accessible as they typically located within relatively short driving distances from their homes. At a time when household spending is still down from pre-crisis levels, it is simply more economical to go to a local gaming establishment than to drive for several hours and have to stay overnight in a national destination such as Las Vegas or Atlantic City. The local operations, many of which are situated on Indian Reservations, offer customers reasonably priced entertainment and ample gaming options. Couple that with a good sense of security and these gaming operations appear to be gaining favor among patrons. As such, regional gaming operations are increasingly capitalizing on this opportunity.