Penn National Gaming Questions Satellite Casino Plan

Penn National Gaming Satellite Casinos

Penn National has to decide whether to protect Hollywood Casino or expand operations elsewhere in the state.

Penn National Gaming questions the fairness of Pennsylvania’s satellite casino rules. Eric Schippers of Penn National told The Morning Call, “We don’t have any of the protection of the overlapping casinos.”

When Penn National opened the Hollywood Casino in Grantville, it made the strategic decision to locate in a remote part of the state which is far removed from the population centers. That meant there were fewer potential customers nearby, but also no competition.

Meanwhile, many casino operators decided to locate near the population centers in order to compete for the city-based and suburban gamblers. These casinos exist in close proximity to one another already.

25-Mile Exclusion Zone

These two facts are the key to understanding Penn National Gaming’s objection to the 25-mile exclusion zone rules. Under the recently-approved Pennsylvania satellite casino bill, up to 10 satellite casinos will be built in the coming years. Only the state’s 12 license holders have the right to operate one of those casinos.

The exclusion zone rule is meant to protect already-existing casinos. No new casino can be built within a 25-mile radius of the existing casinos. That means satellite casinos will not be developed near the big cities. They will be located in the more remote areas of Pennsylvania.

Penn National on Hollywood Casino Revenues

Penn National says that, unlike most other casinos in the state, 50% of its customers come from beyond a 25-mile radius of the Hollywood Casino. Thus, if a competitor places a casino 50 miles away, it will disproportionately hurt its revenues. The same cannot be said for most other operators in the state.

That is why Eric Schippers, Penn National’s SVP for Public Affairs, told The, “We’re the only ones where 25 miles will not protect us. We don’t have any of the protection of the overlapping casinos.”

Jan. 16 Satellite Casino Process

In a process that plays out on January 16, the casino developers decide where casinos will be placed. The entire casino location process plays out like a game. Operators draw numbers to see who goes first. The first operator announces where their satellite casino will go, within the rules of the game: no new casino within 25 miles of the others.

After that decision is made, the number two operator will make their decision. As the process plays out, fewer options will present themselves and placement could get crowded. But through it all, the casino operators near Philadelphia and Pittsburgh will know they will not have to worry about new competitors, because overlapping radii mean no new casinos can go in the population centers.

Harrah’s Philadelphia Casino’s Exclusion Zone

Due to the way the plan is set up, Harrah’s Philadelphia Casino and Racetrack exclusion zone gets a 127-mile exclusion zone. Pittsburgh-area casinos receive an effective 95-mile exclusion zone.

Not so for Penn National Gaming. If it gets a low number, then another competitor is likely to build a casino near Grantville before Penn National gets a chance to make a decision. If Penn National gets a high number, it might decide to protect the Hollywood Casino by placing its satellite casinos within a short distance of its exist operation, as a firewall.

Why Penn National Is Unhappy

Either way, Schippers and other Penn National Gaming executives believe the process is weighted against them. They either miss out on a great opportunity in order to protect their existing revenue stream, or a competitor saps their existing revenues and they have to make do with a consolation prize in some remote part of the state — at a point of the process where the best positions will be picked-over.

That is why Penn National lobbied for a wider exclusion zone. The planners knew about the problems with the exclusion zone plan was adopted, but chose to pass it anyway. Schippers says they were told by state lawmakers, “We can’t give you a broader protective zone, because we need York and Lancaster.”

The other operators will say that they have much smaller exclusion zones already baked into the plan; the existing casinos already overlap with one another. But those operators chose to locate near one another, because it was nearest to Philadelphia or Pennsylvania. Penn National chose to locate far away from those populations for strategic reasons, then had the rules changed on it after the fact.