Penn National Gaming is acquiring Prairie State Gaming, an Illinois slot machine route operator in an all cash transaction. No purchase price was announced in Friday’s statement. The deal will give Penn ownership of more than a thousand video gaming terminals in over 250 Illinois locations.

In 2009, former Illinois Governor Pat Quinn signed a bill into law allowing video gaming terminals to be offered at any business holding a liquor license, which in the state equates to selling wine by the glass. Thousands of so-called “slot-cafes” have sprung up since then, taking a big bite out of casino revenues. Prairie State Gaming was one of the top five route operators in the state with nearly $10 million in EBITDA (earnings before interest, taxes, depreciation and amortization) generated by the machines in the fiscal year ending June 30th.

Penn National Gaming owns three casinos in Illinois including Hollywood Aurora and Hollywood Casino in Joliet. They recently spun off about 20 casinos to real estate investment trust, GLPI, and now own M Resort in Henderson, Nevada and are in the process of purchasing Tropicana Las Vegas in a $360 million deal which will give them their first foothold on the Las Vegas Strip.

The acquisition of profitable machines on a slots route gives the company revenue without real estate or lease confinements, while giving them a share of the emerging cafe market, that by some estimates accounts for nearly 40 percent of all gambling revenue in the state.

Jay Snowden, Chief Operating Officer of Penn National Gaming, commented, “The planned acquisition of PSG is consistent with our proven long-term strategy for growth through accretive acquisitions,”

2 Responses

  1. Steven Norton

    These earnings might be toast, once Illinois realizes that they have issued a bill for businesses to print money. For an investment of maybe $100,000, a coffee shop, hair salon, bowling alley, truck stop, night club or retail mall can obtain a liquor license, which permits that establishment to have 5 VLT machines. And if those establishments are well located, can earn $182,500 per year (or more) in slot revenue, if their machines win $100 per machine, per day. By comparison, the Grand Victoria in Elgin won $877 per slot per day in 2006, but now that Rivers is open and VLT’s are allowed in Kane County, their win is down to $337 per day, but Rivers has taken the top spot in IL at $791 per slot per day.
    And yes the State and local governments get 30%, but at one time riverboat casinos paid 70% on certain levels of win, after investing possibly $100 million or more. In many jurisdictions, to sell liquor, requires a privileged license, similar to a casino. But in IL, communities have the control, and the concept of a new business paying meaningful new taxes is irresistible. So we now have 20,730 machines, outside our 10 riverboat casinos, in 4,965 locations and the numbers are growing.
    With the State needing tax revenues, it shouldn’t take it long to realize that many states tax slot win at much higher rates, like 55% in Pennsylvania, to over 70% in New York; and have required substantial investments, like the $500 million by the Cordish Company at its Maryland Live casino, South of Baltimore; where the slot tax rate was 67%.

    Reply
    • Lars Jones
      Lars Jones

      Thank you for another valuable insight, Steven. Those numbers and what they mean are indeed staggering. Our readers would do well to read your commentaries for the sheer depth of knowledge you bring to each discussion.

      Reply

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