PENN NATIONAL G,\ 1\1 I N <.; I ~ C

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1 PENN NATIONAL G,\ 1\1 I N <.; I ~ C TESTIMONY BY ADRIAN R. KING, JR., COUNSEL TO PENN NATIONAL GAMING, INC. BEFORE THE PENNSYLVANIA HOUSE OF REPRESENTATIVES GAMING OVERSIGHT COMMITTEE SUPPORT FOR HOUSE BILL 1393 AND ELIMINATION OF THE MULTIPLE SLOT MACHINE LICENSE PROHIBITION March 22, 2016 Chairman Payne, Chairman Kotik and Members of the House Gaming Oversight Committee, good morning. My name is Adrian King, and I am a partner at the law firm of Ballard Spahr LLP. I serve as outside counsel to Penn National Gaming, and have been asked to appear before you today on the Company's behalf. Before I address the specific issue at hand - the possible elimination of the existing prohibition on the ownership of multiple slot machine licenses - I would like to briefly offer some information about Penn National which demonstrates both its commitment to Pennsylvania, and its unique ability to offer relevant testimony today. Background Penn National is a proud Pennsylvania company that went public in 1994 on the strength of nearby Penn National Race Course and its off track wagering facilities alone. Today, the Company has grown to become the nation's largest publicly traded regional gaming operator with 27 facilities in 17 jurisdictions across North America. Importantly, despite its growth, Penn National has never forgotten its roots and remains headquartered here - in Pennsylvania - an hour east of Harrisburg in the Borough Page I 1

2 of Wyomissing, Berks County. Between Hollywood Casino at Penn National Race Course and the Company's Corporate Headquarters, Penn National has over 1,400 Pennsylvaniabased employees, representing over $83 million annually in payroll. Last year Penn National contributed nearly $3million to local community and charitable organizations. And, since 2008, Penn National has generated approximately $2 billion in gaming revenue for the Commonwealth and over $1 billion in gaming taxes. Finally, Penn National continues to be a strong supporter of our state's horse racing industry. Each year, Hollywood Casino at Penn National Race Course proudly hosts the Grade 3, $500,000 Penn Mile race for 3-year-old thoroughbreds. At the 2015 edition of the event, the race card set a record for combined handle of nearly $4 million. 1 mentioned earlier that Penn National maintains a unique ability to offer relevant testimony at today's hearing. I base that statement on two factors that shape and inform the Company's perspective. First, Penn National has extensive experience operating multiple properties within the same state. Specifically, the Company has three (3) properties in Illinois, three (3) in Mississippi, two (2) in Missouri, two (2) in Nevada and four (4) in Ohio. In none of these jurisdictions has Penn National been found to possess monopoly power or other undue economic influence. Second, we are the only company to have been impacted by the Commonwealth's current "multiple slot machine license prohibition," as contained in Section 1330 of the Gaming Act For those of you in office when the Gaming Act was passed in 2004 (almost 12 years ago), you will recall that passage of Section 1330 ultimately led to Penn National divesting itself of the second race track that it then owned, Pocono Downs (which is now Mohegan Sun Pocono). Page I 2

3 Current Law The ownership of multiple slot machine licenses in the Commonwealth is presently governed by Section 1102(5) of the Gaming Act, Section 1330 of the Gaming Act and Section 421a.S of the Rules and Regulations promulgated by the Pennsylvania Gaming Control Board ("PGCB"). Section 1102(5) of the Gaming Act - contained within the legislative intent provision - states: The authorization of limited gaming is intended to provide broad economic opportunities to the citizens of this Commonwealth and shall be implemented in such a manner as to prevent possible monopolization by establishing reasonable restrictions on the control of multiple licensed gaming facilities in this Commonwealth. Section 1330 of the Gaming Act contains the express prohibition against the full ownership of multiple slot machine licenses. The operative part of Section 1330 states: No slot machine licensee, its affiliate, intennediary. subsidiary or holding company may possess an ownership or financial interest that is greater than 33.3% of another slot machine licensee or person eligible to apply for a Category I license, its affiliate, intennediary, subsidiary or holding company. Finally, Section 421a.5 of the PGCB Rules and Regulations, which is entitled: "Undue concentration of economic opportunities and control," effectively serves as the PGCB's fail safe with respect to preventing undue economic concentration. Working in conjunction with the multiple license ownership limitation contained in the Gaming Act, Section 421a.5 provides the PGCB with a framework to utilize when working to ensure that no slots licensee maintains monopoly power. Notably, the provisions of Section 421a.S are similar in many respects to those contained in the proposed legislation, HB Page I 3

4 Legislative Intent wjth resuect to Section 1330 of the Gamjng Act As set forth in Section 1102 of the Gaming Act, some of the key objectives of the General Assembly in 2004 when it voted to authorize gaming in the Commonwealth included providing "broad economic opportunities" to Pennsylvania's citizens, enhancing the tourism market, and stimulating economic development in all corners of state. Section 1330 of the Act arguably assisted in achieving these goals since limiting the ownership of multiple slots licenses demonstrably resulted in several of the largest gaming companies in the country submitting applications to secure a Pennsylvania slots license. In fact, three of the top five gaming companies in the United States (ranked by 2014 revenue) currently operate facilities in the Commonwealth - Las Vegas Sands, Caesar's Entertainment and Penn National - and several regional and local casino operators have also invested in our state - Cannery Casino Resorts, Eldorado Resorts, Isle of Capri Casinos, Mohegan Sun, Parx and Rush Street Gaming. That being said, with the economic development objectives of the 2004 General Assembly having been achieved, and Pennsylvania's gaming industry now mature and entering its tenth year, it is now time for the current version of Section 1330 to be repealed and replaced with a structure that allows the PGCB the ability to more effectively regulate and respond to both intrastate and interstate competitive forces, and thereby facilitate the success of Pennsylvania's gaming industry for years to come. Support for HB 1393 qnd Elimjnation qf tbe Multiple Slot Mqchjne License ProhibiUon Penn National supports the repeal of Section 1330 of the Gaming Act, and the enactment of legislation such as HB 1393, which would replace the existing rigid approach to the ownership of multiple slot licenses with a more flexible model which recognizes that a significant amount of industry consolidation has occurred since 2004, and will continue, Page I 4

5 and the PGCB should be allowed the discretion to determine if an operator owning more than one license might in fact enhance the operational efficiency of the Commonwealth's casinos and/or to allow them to better compete with competitor casinos in bordering states. Importantly, if the current Section 1330 restriction were to be eliminated and replaced with the language proposed in HB 1393, we note that the PGCB would most certainly enhance its ability to both maintain market competitiveness and enforce an "undue economic concentration" rule pursuant to the new statutory language. Finally, we note that if Pennsylvania were to adopt this more tlexible model, it would merely be adopting a regulatory best practice that is already in effect in leading gaming jurisdictions across the country, including: Nevada, New Jersey, Illinois and Missouri. On behalf of Penn National, I thank you for the opportunity to testify today. Either now or later in the hearing, I would be happy to address any questions that you may have. Page I 5