Penn National Gaming closed on $600 million of financing through a debt offering and stock sale Thursday and then found out that the company can reopen nearly 25% of its casino portfolio next week.
“We’re finally seeing a little light at the end of the tunnel,” Penn National CEO Jay Snowden told CDC Gaming Reports. “It’s a limited reopening, but being able to welcome back some of our team members is good news.”
Penn, whose 41 properties in 19 states have been closed since mid-March in an effort to slow the COVID-19 coronavirus pandemic, will open its five Louisiana properties at 25% capacity and 50% of gaming positions on Monday. On Thursday, the company’s five Mississippi casinos will open under similar conditions, including mandatory social distancing and other health and safety protocols.
Snowden said the company is still determining how many employees will be brought back initially. The company furloughed 26,000 employees nationally on April 1.
L’Auberge Baton Rouge
“We employ several thousand people at our casinos in Louisiana and Mississippi,” Snowden said. “These are some very happy phone calls we’re making to bring folks back.”
Snowden isn’t sure what to expect from customer traffic but is hopeful after seeing customers return to casinos in Deadwood, South Dakota, and at several tribal locations in Oklahoma this week.
“People are going to want to come back, and we want them to be comfortable, safe, and (to) have fun,” he said.
New financing
Penn National’s additional financing – which might increase by $90 million in 30 days if underwriters exercise options – gives the company additional funds to “accelerate the rollout” of its “omnichannel growth strategy” that includes its partnership with sports media platform Barstool Sports.
The deal with Barstool, in which Penn paid $163 million for a 36% ownership stake, includes Barstool-branded retail sportsbooks in Penn’s regional casinos and a mobile sports wagering application and online casino site that are expected to launch in the fall.
During the company’s recent first-quarter earnings conference call, Penn National said it had enough liquidity on its balance sheet – $730.7 million in cash at end of March – to survive without any revenues until the end of the year. The company now has more than $1.3 billion in liquidity.
With Louisiana and Mississippi allowing casinos to reopen next week, and other states expected to follow into early June, zero revenues will become a non-existent scenario.
Snowden said investors were supportive of the debt raise and stock sale. Penn’s shares were up near $40 a share when the Barstool deal was announced in January.
“You’re getting a good price for Penn, and with the Barstool strategy, we’re going to be a stronger company,” Snowden said.
Shares of Penn closed at $17.72 on the Nasdaq Thursday, up $1.18 or 7.13%.
Snowden said Penn decided to tap into the friendly credit markets – MGM Resorts International, Wynn Resorts, and Everi Holdings have also recently obtained new financing – to give the company’s balance sheet another boost.
“We had enough liquidity to get us through the end of the year, but we decided to significantly solidify the balance sheet going into 2021,” Snowden said. “The financing allows us to invest in our interactive strategy and accelerate that rollout. We wanted to come out of (the pandemic closures) as a strong company and playing offense. The interactive strategy gives us the firepower to do that.”
Growth through Barstool
By branding Penn’s retail sportsbooks with the Barstool name and jointly launching the mobile sports wagering app, Penn hopes to infuse its 20 million-member customer loyalty program with Barstool’s younger demographic. The average age of Penn’s loyalty program members is mid-50s; roughly half of Barstool’s 66 million-person audience are Millennials or Generation X.
The company will spend $8 million to $10 million to develop the sports betting app and rebrand the sportsbooks. In the two years since the Supreme Court ruled that sports betting could expand nationally, the activity is now legal in 18 states. The most recent states to launch are Michigan, where Penn operates Greektown Detroit, and Colorado, home to Ameristar Black Hawk.
M Resort near Las Vegas/Shutterstock
Snowden expects other states to look at sports betting and online gaming to increase tax revenues lost during the pandemic.
“So many states have been hurt financially,” Snowden said. “They are thinking about these activities much differently now.”
Nevada sports betting
He said Penn is exploring other markets to increase its sports betting presence, including Nevada. He said Penn plans to take over the sportsbook operations at its M Resort at the far southern end of the Las Vegas Valley so it can launch a Barstool brand. The company also owns two small casinos in Northern Nevada.
“The great thing is, our interactive strategy is 100 percent owned by us,” Snowden said.
Penn took several steps to reduce costs when the casino closures went into effect, including selling the real estate of Tropicana Las Vegas and an under-construction casino in Pennsylvania for $337.5 million in rent credits to Gaming and Leisure Properties (GLPI).
Penn will continue to operate the Tropicana while it is owned by GLPI, but Snowden said the company anticipates owning own M Resort “indefinitely.”
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
