Penn National Gaming says it will launch online gambling in Pennsylvania early next year. CEO Timothy J. Wilmott covered the plans in some detail during a presentation surrounding the Q2 results for 2018.
Penn operates one of the nine PA casinos that applied for interactive gaming licenses under a new law enacted last year. Each applicant paid $10 million for a full suite of licenses covering all three categories:
Penn has a land-based partnership with Scientific Games in a number of jurisdictions, but it hasn’t yet announced an alliance for online gambling.
Penn has very little relevant experience, so this PA venture is an opportunity to learn the business of online gambling. Think of it less like a short-term profit opportunity and more like a far-sighted investment.
To use Wilmott’s words, Penn plans to “leverage this strategic opportunity long term.” Here’s more:
“Despite the state’s high tax rate, we chose to proceed with the hope that we can continue to work to bring the tax rate in line with that of other gaming jurisdictions around the world, and if successful, we plan to market the games to our robust database of casino and social gaming customers in Pennsylvania.”
Wilmott added that he expects many more states to introduce online gambling bills over the next “five to seven years.”
The introduction of state-regulated sports betting provides another new opportunity for Penn. Wilmott said the group will open sportsbooks in at least two markets before football season, barely a month away.
“During the second quarter the U.S. Supreme Court overturned the Federal ban on sports betting. We anticipate accepting wagers on sporting events at our casinos in Mississippi, West Virginia, and potentially Pennsylvania, prior to the start of the National Football League’s season opener in September.”
Mississippi and West Virginia are both on track to issue their first sports betting licenses in the coming weeks.
Pennsylvania may drag behind, likely looking at a launch closer to the holiday season. The 36-percent tax makes the market relatively unattractive, but Penn’s home state is certainly on its radar. PA sports betting licenses are available for $10 million.
Wilmott told investors that Penn is actively working to shape online gambling and sports betting legislation in other states, too. In the future, it would prefer the more operator-friendly framework in place in West Virginia, for example.
Pennsylvania’s new law and the introduction of state-regulated online gaming makes the headlines, but Penn’s sights are set on the pending $2.8 billion acquisition of Pinnacle Entertainment.
In the meantime, the group has also invested $57.1 million at auction for two of PA’s new satellite casinos. Given the focus on Pinnacle, a return on this investment is likely some time off.
Penn has asked the Pennsylvania Gaming Control Board for a 60-day extension on the deadline to submit plans. It expects to have the paperwork ready by September 12, and it figures to be another 18 months before the mini-casinos are built.
Sports betting should be live before football season in Mississippi and West Virginia, but Wilmott sounded less confident about that target in Pennsylvania. A projected Q1 2019 launch for online gaming indicates that Penn isn’t exactly rushing its fences.
Overall, the quarter’s numbers looked pretty good for Penn, including a welcomed increase in margins for many properties:
Wilmott’s comments emphasized the improved margins:
“Penn National delivered another strong quarter in which we exceeded our guidance for income from operations and adjusted EBITDA. Our solid second quarter results are largely attributable to same store revenue growth at nearly two-thirds of our gaming operations and the continued success of our ongoing margin enhancement initiatives. As a result, all three of the Company’s operating segments generated year-over-year adjusted EBITDA growth. Our margin enhancement initiatives, which began last October, continue to yield results, with ongoing focus on procurement, marketing and labor.”