Penn, Vegas in casinos’ ad war

An ongoing advertising war to influence Maryland voters’ choice in an upcoming referendum on whether to allow construction of a new casino at National Harbor has already generated $16.5 million in contributions from casino corporations with a stake in the outcome, including one important local player.

Opposition to Question 7, the ballot referendum, has been spearheaded by “Get the Facts, Vote No on 7,” a group with financial backing from Penn National Gaming Inc., the Pennsylvania-based racing and casino empire that owns Hollywood Casino at Charles Town Races.

The group, “For Maryland Jobs and Schools,” which is buying ads backing the proposed casino, is receiving its funding from Las Vegas gaming giants MGM Resorts International — owner of several strip casinos, including the Bellagio, the MGM Grand, the Luxor and the Excalibur — along with Caesars Entertainment, which was known until 2010 as Harrah’s, and operated more than 25 casinos under the Harrah’s, Horseshoe and Caesars brands.

While Penn is so far the leading spender in the ad war — to the tune of $9.5 million, according to the Baltimore Sun — it is facing off against much larger opponents with very deep pockets. MGM holds total assets valued more than five times as much as Penn’s, and Caesars is the largest gaming corporation in the world, with almost $9 billion in revenue last year. Together with Peterson Companies, the developer of National Harbor, the casino giants have spent more than $7 million, according to the Sun.

The ads urging a yes vote on Question 7 focus on the jobs that would be created in both the construction and operation of the new casino, and on the additional tax revenue it could generate for the state’s school system. The ads opposing the casino, on the other hand, allege alleged backroom deals between Maryland politicians and ‘out-of-state casino operators’ and dispute claims about job creation and school revenue.

The real reason for the ad war: a struggle for gamblers and revenue.

Reports filed by Penn with the Securities and Exchange Commission show they have been concerned about increasing pressure from competitors near their Charles Town casino. Casinos generally operate in a highly artificial market strongly protected against the entry of new competitors that could hurt existing operations’ profits. Within this environment, the entry of a new casino into a market often takes customers from existing casinos. Industry publications refer to this as ‘cannibalism.’

Hollywood Casino is a stalwart generator of profits for Penn. It was the first casino Penn constructed, and its success helped bankroll Penn’s transition from a Pennsylvania horse racing concern to a gaming empire of 26 casinos. By 2005, Penn had become the third largest publicly held gaming corporation in the country behind MGM and Harrah’s, now Ceasars.

Question 7 also asks voters to allow the introduction of table games in Maryland, not only at the new casino but also in the state’s five existing casinos, which currently only offer slots. Taken together with the opening of a new casino, the referendum represents a substantial threat to the bottom line in Charles Town.

Hollywood Casino has already seen slots revenue fall this year, even as overall revenue has remained relatively stable because of the explosive growth of table games, according to Penn’s SEC filings. Penn has already worried about the impact of a new slot casino at Arundel Mills, Md., and allowing Maryland casinos to offer table games could heighten the negative effects of this competition.

Any eventual reductions in revenue at Hollywood Casino will be felt directly in county budgets, which are substantially supplemented with slot machine and table game dollars.

 

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