Penn National jockeys for position in Maryland

Casino operator seeks slots at Rosecroft, Laurel Park

February 06, 2011|By Hanah Cho, The Baltimore Sun

In the past year alone, national casino operator Penn National Gaming has become a dominant player in Maryland's horse racing and gambling industries.

Penn National opened the state's first slots parlor and acquired an ownership interest in Maryland's two major thoroughbred racetracks. And with last week's purchase of shuttered Rosecroft Raceway in Prince George's County, the company has positioned itself to win big if gambling is expanded in the state.

"We planted a large flag in Maryland, and we're there for the long haul," said Peter Carlino, Penn National's chairman and CEO, during a conference call with analysts last week.

Over the past decade, Penn National has grown from an operator of a single racetrack into a gambling powerhouse in the United States. While most of its properties are casinos, the Wyomissing, Pa.-based company has retained its horse racing roots.

Penn National's racing strategy is clear: Tracks cannot survive without slots. So the company has snapped up properties in markets where opportunities exist to legalize the machines.

While Annapolis lawmakers are considering legislation to add gambling venues and table games, legislative leaders and Gov. Martin O'Malley say they intend to hash out a plan for the future of Maryland's slots program over the summer. Thus, any action on gambling bills would likely take place during next year's session.

And Penn National will be ready.

Penn National has mounted a lobbying effort for slots at Rosecroft, where slots have not been authorized, and at Laurel Park, a thoroughbred track in Anne Arundel County. The Cordish Cos., a Baltimore-based developer, won the single slots license designated for the county and plans a slots facility at Arundel Mills mall.

"There's no future for these racetracks in the absence of slots," Carlino said. "No one should be surprised that that is our sole focus in trying to get the racing industry back to a healthy level."

Penn National also is part owner of Pimlico Race Course in Baltimore, home of the Preakness Stakes, the middle jewel of the Triple Crown. Penn National officials have not expressed interest in putting slots at Pimlico, which is profitable because of the Preakness. Slots have been designated for a site near Baltimore sports stadiums, but no one has won that license.

Penn National's foray in Maryland follows a pattern established in other states. In West Virginia, Penn National's Hollywood Casino at Charles Town Races is one of the country's best-performing racinos, or racetrack paired with a casino.

Penn National agreed in 1996 to buy the financially beleaguered Charles Town racetrack contingent on a major condition — that voters in Jefferson County approve a referendum on slot machines. At the time, the track was on the verge of bankruptcy, having lost $2 million that year amid declining wagering and attendance. Management said the track would close if the slots measure failed.

With horse owners and other racing supporters, Penn National ran an aggressive campaign, contending that slot machines were crucial to saving the track. After the referendum passed, the track underwent a $20 million renovation and reopened as a glitzy casino in 1997.

"They took a chance with Charles Town and Charles Town took a chance with them," said Ken Lowe, president of the Charles Town Horsemen's Benevolent and Protective Association. "Prior to being successful with slots, horse racing was done there."

Last year, Penn National rebranded Charles Town under its Hollywood theme with the addition of poker, blackjack and other table games after winning voter approval though a second referendum.

Penn National has set its sights on other states, where the company hopes to succeed in legalizing slots at its racetracks.

In Texas, the company is awaiting regulatory approval of a joint venture to own and operate Sam Houston Race Park in Houston and Valley Race Park in Harlingen. In the meantime, Penn National executives say they hope slots gambling will gain support from Texas lawmakers as they seek to close the state's budget gap.

Penn National recently acquired its second racing property in Ohio, where the governor is studying a proposal to put slot machines at the state's racetracks.

Steven Wieczynski, an analyst at Stifel Nicolaus in Baltimore, said Penn National's investments in recent racetrack acquisitions are minimal for a company that generated nearly $2.5 billion in revenue last year. Penn National, for instance, paid $26 million for its stake in the Maryland Jockey Club, which operates Laurel Park and Pimlico.

The concern for investors, Wieczynski said, is that Penn National's tracks continue to lose money. The company took a $14.4 million charge in the fourth quarter to reflect the lower value of the Maryland Jockey Club and lobbying costs to fight — unsuccessfully — the Cordish Cos.' planned casino at Arundel Mills mall.

"It does drag on your income statement," Wieczynski said.

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