Penn National Eyes ‘Opportunities In Online Gaming’ As It Acquires Pinnacle Entertainment For $2.8 Billion

Penn National and Pinnacle = ?

First things first, this is a big deal in the world of gaming. Penn National Gaming acquired Pinnacle for $2.8 billion in a stock and cash transaction. The deal has already been approved by both boards of directors and is expected to close in the second half of 2018.

In short, it creates a bigger regional gaming company. Penn National operates 29 facilities in 17 jurisdictions, including the Tropicana in Nevada and a string of regional Hollywood Casinos around the country. Pinnacle operates 16 facilities in 11 jurisdictions.

The new entity will be 41 properties across 20 jurisdictions with approximately:

• 53,500 slots
• 1,300 tables
• 8,300 hotel rooms
• 35,000 employees.

Four of the Pinnacle properties will be sold to Boyd Gaming:

• Ameristar Casino Resort Spa St. Charles (Missouri)
• Ameristar Casino Hotel Kansas City (Missouri)
• Belterra Casino Resort & Spa (Indiana)
• Belterra Park Gaming (Ohio)

The rest of the Pinnacle portfolio is headed to Penn National.

Here is Penn National CEO Timothy Wilmott, speaking on the deal:

“By combining our highly complementary portfolios and similar operating philosophies, we will be able to leverage the strengths of both our companies and create an unparalleled experience for our regional gaming customers, while generating significant value for our shareholders and business partners.”

The combined company will benefit from enhanced scale, additional growth opportunities and best-in-class operations, creating a more efficient integrated gaming company. Going forward, we will have the financial and operational flexibility to further execute on our strategic objectives, while maintaining our track record of industry-leading profit margins and generating significant cash flow to reduce leverage over time.”

The online gambling impact?

Penn National is almost certainly going to be a part of the expansion of online gambling in the US. Penn National addressed the issue both in its call about the acquisition and in its presentation about Pinnacle.

From its press release, Penn National stated that “the combined company will benefit from additional promotional opportunities in online and social gaming, which will help provide an additional boost to property level performance.”

Here’s a slide from the presentation; see the fourth column:

In the short term, a lot of that focus will be on the social casino segment. PNG recently expanded into social gaming with its Penn Interactive Ventures division and the recent acquisition of Rocket Speed, Inc.

Pennsylvania and Penn National

Pennsylvania legalized online gambling and poker this year. Penn National owns Hollywood Casino at Penn National Race Course. It will almost certainly apply for licenses to operate online casino games, and possibly online poker. (That’s despite the fact that it has pushed back against a high tax rate on online slot machines.)

The Pinnacle acquisition gives Penn National and even bigger presence in the Keystone State, as the Meadows Racetrack and Casino is part of the acquisition.

Being able to leverage online gambling to market two different properties would clearly be of interest to PNG. We know that online gambling is valuable as a marketing tool for activating new or lapsed land-based gaming customers. The goal of the combined entity will be to grow its regional gaming business in states like PA, and online gambling is complementary to that goal.

Penn National, Pinnacle and other states

The acquisition of Pinnacle does not expand Penn National greatly into states that are considering legalizing online gambling in the short term. But it does take it into new states, such as Colorado, Iowa and Louisiana. (Penn National is already in Illinois, one state that seriously considered online gambling regulation in 2017.)

If Penn National is investing in PA online gambling, it would make sense that it would like to see that investment ported to other states. The Pinnacle acquisition will broaden PNG’s reach in the gaming space. That could potentially translate in its ability to lobby statehouses down the road.