Question of the Day - 02 February 2018

You’re right about L’Auberge du Lac. But the Pinnacle Entertainment/Penn National Gaming/Boyd Gaming transaction is rather complicated, so bear with us.

On Dec. 18, Penn National announced that it was buying all of the assets of Pinnacle Entertainment for $2.8 billion. This included L’Auberge du Lac and 12 other casinos, two racinos, and a horse track (Retama Park). Penn promptly turned right around and sold the package to its landlord, Gaming & Leisure Properties Inc.

GLPI is a real-estate investment trust (REIT), an increasingly popular investment vehicle in the casino industry, because REITs have to pass 90% of their pre-tax income on to their shareholders. However, whether under the umbrella of Penn or GLPI, the Pinnacle purchase created geographic concentrations of ownership that were likely to trouble state regulators, as well as the Federal Trade Commission. For instance, the deal would give GLPI five properties in Ohio, where it's only allowed to own four. It would also have created a GLPI concentration of market share in St. Louis well over 50%.

Enter Boyd Gaming, flush with cash from having sold Borgata in Atlantic City to MGM Resorts International. Rather than pay a big tax bill on that income, why not reinvest it in real estate? Hence, Boyd is taking over the leases of four ex-Pinnacle properties: Ameristar St. Charles (in the St. Louis area), Ameristar Kansas City, Belterra (in southeast Indiana), and the Belterra Park racino in Ohio. In a simultaneous but unrelated transaction, Boyd purchased Valley Forge Casino Resort in Pennsylvania, thus extending its presence into three new states — Pennsylvania, Ohio, and Missouri. Boyd is already in Indiana, at Blue Chip Casino in Michigan City.

Both L’Auberge du Lac and L’Auberge Baton Rouge remained with Penn/GLPI, although it will now have two of the three casinos in the Baton Rouge market. Maybe we haven't seen the last of asset sales. What also remains to be seen is what becomes of the Ameristar brand. It’s a trademark that resonates so well with customers that Pinnacle chose to keep it when it absorbed Ameristar Casinos in 2013.

However, the big pre-Christmas sale leaves Penn/GLPI with four Ameristar-branded casinos (Council Bluffs, Black Hawk, Vicksburg, and East Chicago, Indiana) and Boyd with two. A Boyd spokesman says that no announcement has been made regarding the future of the Ameristar brand. However, Boyd will get the all-important player databases for the casinos, which will presumably be integrated into Boyd’s existing loyalty program over time.

The decision by Boyd to go back into Kansas City is interesting. It’s the only market in which a Boyd casino — Sam’s Town Kansas City — has failed, going out of business in 1998. We hope that Boyd has learned from the experience and will fare better this time. If it retains all the Ameristar players, it should be in good shape. Boyd will also have to undertake a dual challenge with the two Belterra-branded properties, both of which have struggled — in part due to geographic proximity — ever since casinos were legalized in Ohio.

Since you patronize L’Auberge du Lac, you'll now be a de facto Penn customer, but that has its upside. With this transaction, Penn becomes the largest gaming company in the U.S., lapping Caesars Entertainment, which means you’ll have a wide range of cross-promotions from which to choose. It also means that you’ll be incentivized to stay on the Las Vegas Strip, at the Tropicana Las Vegas. That’s one carrot that Boyd can't dangle in front of its players anymore, not since it blew up the Stardust.