Penn National Execs Assess Competitors' Impact Here
YOUNGSTOWN, Ohio -- The performance of a competitor to the Hollywood Casino in Columbus has Penn National Gaming Inc. executives expressing optimism about their planned Austintown racino, even though they admit the Columbus roll-out "has not met the company's expectations."
During a conference call this week following the release of the Wyomissing, Pa.-based company’s second quarter results, Penn National’s CEO downplayed as “an issue of missed expectations” the softer than anticipated performance of its Ohio properties, which contributed to disappointing results for the second quarter. The company reported revenue of $761.4 million and a loss of $12.2 million for the period.
“The issue largely has been that Ohio has not ramped up as quickly as we would have hoped, and that’s where the bulk of all this is,” Peter M. Carlino, chairman and CEO of Penn National, told analysts, investors and reporters. Despite that, he characterized the Ohio results as “terrific” and represented “the kind of return on investment most gaming companies in America would be thrilled to have.”
Still, said Timothy Wilmott, president and chief operating officer, the Columbus casino “clearly has not met our expectations. I expect us to be the market leader there.”
While the gaming market is experiencing overall softness, executives said the underperformance of Columbus was attributed in part to competition from MTR Gaming Group’s Scioto Downs Racino, which is offering hefty incentives for customers. Even though Scioto is spending twice as much as Penn National in the market on promotions, he said Hollywood Columbus and Scioto Downs are about even now in terms of revenue.
Penn National is developing the Hollywood Gaming at Mahoning Valley Race Course in Austintown and another racino in Dayton. The company is “very encouraged by prospects” for both projects, which will also compete with full casinos in their regions, “given how well Scioto has done up against us in Columbus,” said William Clifford, chief financial officer. “The fact that we’re having some troubles in Columbus” indicates that Ohio customers might be more receptive than anticipated to a product that offers more limited gaming options than a full casino, he observed.
“So if anything I would say that our expectations in Youngstown and Dayton are actually looking up versus what we might have originally thought,” Clifford continued. Both racinos are expected to open next year.
Clifford acknowledged that “cannibalization” in markets where new competing products have been introduced is “well within expectations.”
Wilmott said he expects the Columbus market to build over a couple of years, much as Penn National’s Indianapolis property did after its opening in 2008.
Penn National’s Columbus and Toledo casinos are generating “very reasonable return” on investment, Clifford added. He anticipates a 20% cash-on-cash return for the combined properties over the first year. “By any stretch of the imagination, we would do projects all day long -- forever -- if we can get projects with 20% return in the first year, because we are absolutely confident that those metrics are going to improve over time,” he said. “We are not worried in any way, shape or form about returns.”
Wilmott said Penn National now will be “just a little bit more conservative with the amount of slot product” it will put on the floor initially at the Austintown and Dayton racinos “and let the market grow into the addition of more slot supply,” opening with 1,000 video lottery terminals at each. “I think that’s the [lesson] from Toledo and Columbus,” he said. More machines will be added “when per unit thresholds hit a certain number that gives us confidence that the added capital will give us good returns,” he said.
Penn National said May 1 that its plans for the Austintown racino included up to 1,500 video lottery terminals (slot machines).
Steven Snyder, senior vice president, corporate development, said the company is “very comfortable” with the underlying assumptions associated with a proposed racing and gaming facility in Mahoning Township, Pa., just east of the Ohio border. Penn National announced the day after the May 30 groundbreaking for the Austintown project that it would partner with Endeka Entertainment on the project.
“We’re very comfortable given the proximity to Austintrown, with of course the focus being penetrating further into the Pittsburgh marketplace,” Snyder said.
Copyright 2013 The Business Journal, Youngstown, Ohio.
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