Penn National has canceled their lawsuit against Pennsylvania Gaming Control Board (PGCB) and Gov. Tom Wolf. Originally Penn National objected to the new Category 4 casino licenses that legitimized the new mini-casinos in the state of Pennsylvania.
Their case was based on the following points:
- The Category 4 licenses are unfair to the existing operators use “unconstitutional” language and the federal courts should have stopped them going through.
- Penn National would soon find itself suffering more damage, caused by the mini-casinos, than any of the other PA casinos.
- Mount Airy Casino received preferential treatment since the law excluded new casinos within the three surrounding counties. The Mount Airy Casino pays a percentage of their revenue to these counties in return, while all other casinos share their revenue with the government of their home state.
Penn National to launch Two Mini-Casinos
Penn National’s objections did not stop them from making an incredible bid of $51.1 million for the first of the Category 4 licenses. However, while they may not have not come out as the winner of round 1, they did manage to buy the second license. Reports have shown that they plan to build two mini-casinos of their own – the first said to be close to York while the second will be located somewhere between Lancaster and Reading.
After the initial novelty and enthusiasm wore off after the first round, Penn National pay a mere $7,500,003.
“We made a business decision to withdraw our lawsuits against the Category 4 (casino) law.
“While we continue to believe in the merits of our arguments, we have chosen to focus entirely on our development efforts for our two new casinos, rather than pursue what is likely to be a lengthy and costly legal battle. As previously stated, our goal in pursuing our Cat4 licenses is both defensive, in terms of protecting our existing investment at Hollywood Casino from new competition, and offensive in terms of penetrating more deeply into more populous market areas to our south and east, in order to drive incremental value for our shareholders.”
-Eric Schippers, spokesman for Penn National
Penn National Concerned Over Cannibalization
After investing almost $60 million in licenses alone, it strange to think that if Penn National’s lawsuit were successful since it would have invalidated the exact licenses they just spent an incredible amount getting ahold of.
Another issue Penn National face after getting the license is the cannibalization of its existing businesses. The Category 4 license authorizes a geographical zone 25 miles around a central point. Penn National has previously argued that their Hollywood Casino currently attracts customers from far and wide, and a mini casino in the same area would have an adverse effect on its business.
Now that they have their license, and prevented the competition from ‘fishing in their waters’, protecting a large part of their revenue catchment area, Penn National should feel less concerned with the cannibalization threat.
Legal Challenge From Sands Bethlehem Still Stands
While the decision to withdraw their lawsuit takes away one of the biggest obstacles facing state gambling laws. However, another remains - Penn National’s withdrawal from the lawsuit removes one possible risk to the state gambling laws, but another remains in play.
At the end of 2017, Sands Bethlehem filed a lawsuit. In their case, Sands Bethlehem claimed the new laws break both state and federal constitutional law because they require high revenue casinos to pay a tax that subsidizes the smaller casinos.
The money from this tax goes into a marketing fund. This benefits the smaller casinos, which has resulted in a prior case involving Mount Airy. They complained the host fees casinos paid to the municipalities of their catchment areas had a greater and more adverse effect on these smaller and less profitable casinos.
Overall, the marketing fund seems to have created more problems than it could ever hope to solve.
Unfortunately, Sands Bethlehem are unlikely to follow the example of Penn National and drop their lawsuit any time soon.