Casino Consolidation Continues, Penn National Gaming and Boyd Gaming Scale Up

U.S. casino operator Penn National Gaming, Inc. (PENN) has agreed to acquire Pinnacle Entertainment, Inc. (PNK) for $2.8 billion, with the deal expected to close by the end of 2018. PENN will own 78% of the combined entity (41 properties, 53,500 slots, 1,300 tables and 8,300 hotel rooms), with PNK owning the balance. PENN and PNK were ostensibly already partners; in 2013, PENN spun off Gaming and Leisure Properties (GLPI), a REIT that owns much of the land PNK operates its casinos on. As an adjunct to the PENN/PNK deal, Boyd Gaming (BYD) agreed to buy 4 PNK properties, from PENN, for $575 million. In a separate transaction, Boyd Gaming announced it has acquired Valley Forge Casino Resort for $280.5 million; the company’s first asset in PA; the 2nd largest commercial gaming state in the nation.

Howie Long-ShortPNK shareholders will receive cash and PENN stock worth $32.47/share; or 48.5% premium to PNK shares at the close on October 4, the day prior to the first reports of merger talks. PENN shares hit a 52-week high on Wednesday, closing at $30.90. It’s been a busy year for local casino operator mergers. Earlier this year, Eldorado Resorts (ERI) bought Isles of Capri Casinos Inc. for $1.7 billion and GLPI bought the Bally’s Casino Tunica and Resorts Casino Tunica (properties in Mississippi) for $82.6 million.

Fan Marino: High rollers, like the guy who bet (and won) $880K on Mayweather to beat McGregor, will be pleased to learn that the revised tax code “largely preserves the ability for our customers who itemize to net their gambling income” – The American Gambling Association. Here’s a fun gambling story, some guy won $37,600 on a $47 10-team NFL parlay last Sunday.

Penn National Gaming strikes $2.8B deal to buy competitor

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Consolidation Trending in Gaming Industry

Consolidation is trending in the global gaming industry. In the U.K., tighter regulations that could result in dramatic revenue declines for gaming and sportsbook operators are driving the movement. Both Paddy Power Betfair (PDYPY) and William Hill (WIMHY) are exploring potential mergers with CrownBet; though no deal is imminent. In North America, fierce competition between regional companies has crippled profitability growth; as a result, operators are considering potential mergers. Penn National Gaming (PENN) is in discussions with Pinnacle Entertainment (PNK), to form an entity that would control 45 gaming properties within 12 states and Canada; it would not own any real estate on the Las Vegas Strip.

Howie Long-Short: PENN and PNK and are ostensibly already partners; Gaming and Leisure Properties (GLPI), a REIT owned by PENN, owns most of the land where PNK operates its casinos. Creating a larger “network” of casinos would in theory keep regional players from competing properties, but that seems like wishful thinking to me. Legalized sports gambling is a potential $150 billion market. The big players (MGM, CZR) are coming to town armed with megaresorts; how can smaller operators without the resources compete? I should point out that the Australian entertainment group Crown Resorts, owns a 62% stake in CrownBet (OTC: CWLDY).

Fan Marino: After Michael Flynn agreed to cooperate in the Russia investigation, odds of President Trump’s impeachment soared. Betfair was quoted saying, “Trump has hit his shortest price yet to leave office before the end of his term”; the company has impeachment currently sitting at 4/6 (59% probability). Paddy has the odds at 4/7 (63% probability); the company’s Head of Trump Betting (yes, that’s a title) said that prior to news of Flynn’s cooperation, odds sat at 11/10 (47% probability).

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