Penn National also filed a lawsuit about the state's new law on mini-casinos

Penn National Wins First Mini-Casino Auction With Hefty Bid Of Over $50 Million

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The Pennsylvania Gaming Control Board revealed that Penn National Gaming submitted the winning bid in a blind auction for the state’s first Category 4 mini-casino on Wednesday morning.

The bid of $50.1 million caught everyone off-guard.

Penn National wins

Along with its bid, Penn National announced the proposed location of the mini-casino would be in the vicinity of Yoe. Penn National can build the Pennsylvania casino within a 10-mile radius of the precise latitude and longitude intersect it selected.

Penn National has until Jan. 12 at 4 p.m. to cut a check for $50.1 million or its bid will be thrown out and the next highest bid selected.

The next Category 4 auction will be Jan. 24, at 10 a.m.

The state authorized up to ten Category 4 casinos in a gaming expansion enacted in the fall, one that included the legalization of online gambling.

More on the bid from Penn National

If $50 million-plus seems a high price to pay for the right to operate a casino with 300 to 750 slot machines — Penn National could also pay an additional $2.5 million to add no more than 30 table games — it’s because it is.

The $50.1 million bid was well above the statutory minimum of $7.5 million, and well above even the high-end projections for the first Category 4 auction, which were in the $25 million range. In fact, the price is more than Pennsylvania charges for a full casino license, which is $50 million.

However, the high-price gives Penn National the advantage of choosing the first location, and in so doing, Penn was able to select the best area to generate revenue and the best area to protect itself from cannibalization by other mini-casinos.

In a statement to Online Poker Report, Senior Vice President for Public Affairs at Penn National Eric Schippers had this to say:

“We’re happy to be the winning bidder. However, as reflected by our pending Federal lawsuit against the Cat4 provisions in the Gaming Act, we’re not happy to have to be in the situation of paying this much to help protect our flank at Hollywood Casino.

The Gaming Act put us in the perverse position of having to essentially bid against ourselves to protect our market share in Central Pennsylvania.  Nonetheless, we think the area we’ve selected will provide us the best opportunity to play both defense and offense in terms of maximizing our combined investment in Pennsylvania and we’ll be seeking to generate incremental value for our shareholders.”

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The Penn National lawsuit

The lawsuit Schippers is referring to was filed earlier this week.

Penn National isn’t trying to stop the bidding process; it’s trying to stop the construction of the casinos. That might help explain why Penn National put forth the top bid.

The suit challenges the constitutionality of the mini-casinos provision in the recently passed legislation. It calls into question the 25-mile buffer zone it created around existing casinos.

The provision authorized mini-casinos, so long as they were located at least 25 miles away from an existing casino and the host community didn’t opt out.

These zones place Penn National at a distinct disadvantage.

Hollywood Casino at Penn National Racecourse is located in Grantville, in central Pennsylvania. Because of its isolated location, Hollywood Casino’s 25-mile buffer zone doesn’t overlap with other casinos or state borders.

The concentration of casinos in the Philadelphia and Pittsburgh areas creates continues buffer zones of 127 miles and 95 miles respectively, according to a white paper submitted by Penn National. Penn National has also claimed that two-thirds of its customers live outside the 25-mile protective zone.

This PGCB graphic illustrates the issue:

Because of this, Penn National believes its Hollywood casino is extremely susceptible to cannibalization from the mini-casinos.

“We’re the only ones where 25 miles will protect us,” Schippers said. “We don’t have any of the protection of the overlapping casinos.”

Adding fuel to the proverbial fire, when the law was hastily passed, it later came to light that three counties surrounding Mount Airy Casino were made off-limits to mini-casinos.

Dustin Gouker contributed to this article.

- Steve covers nearly every angle of online poker in his job as a full-time freelance poker writer. His primary focus for OPR is the developing legal and legislative picture for regulated US online poker and gambling.
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