Penn National gets San Diego launch date

Penn National gets San Diego launch date

Thursday, October 6, 2016 Posted by Andy McCarron
Company also launches first Rocket-powered social casino

Penn National has announced that its Jamul Casino near San Diego, California, will finally open its doors next week after the project became held up by manoeuvres in Washington DC.

The Jamul Casino has been developed by Penn in partnership with the Jamul Indian Village of California, near San Diego. It will manage the facility for an initial term of seven years and will earn 30% of net revenues as a management fee and well as a 2% licensing fee for the use of the Hollywood Casino name.

Union suggests the opening of Jamul will provide two immediate benefits to Penn National. “First, the management fee stream will begin, which we estimate could contribute $12-15m of cash flow per year and be worth about $40-45m on a present-value basis,” they told clients in a note this week. “Second, the opening of the property will allow Penn to recapitalize the project, which it had funded from its balance sheet.”

Elsewhere in the Penn National empire this week, the company also launched its first social casino offering on following on from the $60m Rocket Games acquisition in early August.

The Union analysts pointed out that though the contribution from Rocket Games is relatively insignificant right now (the operation generated circa $6m in EBITDA in the first half this year, pre-acquisition), they believe the business will have significant room to ramp up and will be complementary to the land-based casino business.

“Today, many social gaming enterprises are garnering double-digit multiples, representing considerable accretion to the circa 6.5 times initial multiple Penn paid for this business,” they wrote. “We expect the social gaming business will begin ramping in 2017 but will really begin to pay dividends in 2018.”

Turning to the Tropicana Las Vegas property, which Penn National bought in April 2015 for $360m from its previous private equity owners Onex Corporation, the analysts suggested they were confident that Penn would hit circa $30m of property EBITDA by the end of 2017. Noting that it was only in April this year when the property was more fully hooked up to the Penn National rewards programme Marquee Rewards, it said the company had already reported a 30% uplift in slots revenue in the second quarter after only two months of full rewards operation.

“With the favorable economic backdrop and tailwinds behind the Las Vegas Strip, including a renewed south end of the Strip, we expect a successful ramp at Tropicana accelerating in 2017,” the analysts concluded.

Totally Gaming says: There are a lot of moving parts with Penn National, and it will be interesting to see how the company makes its mark in the social casino side. However, it is particularly interesting to see what effect a rewards scheme can have on the revenues at a Las Vegas property. Penn is now following the well-trodden path taken by Caesars and MGM Resorts International towards integrating social casino with land-based rewards programmes.

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