Markets Wired

The Federal Trade Commission will require casino operators Penn National Gaming, Inc. and Pinnacle Entertainment, Inc. to divest casino-related assets in three Midwestern cities. The settlement resolves charges that Penn’s $2.8 billion agreement to acquire Pinnacle likely would be anticompetitive.

The services at issue

The complaint alleges that the proposed acquisition would harm competition for casino services in metropolitan St. Louis, Missouri; Kansas City, Missouri; and Cincinnati, Ohio.

Casino services include gaming services such as slots and table games, as well as related lodging, entertainment, and food and beverage services, according to the complaint. Typically, casino operators generate the vast majority of their revenues from gaming. Casinos are highly regulated, with a limited number of licenses granted in any given state, as well as age restrictions on who can gamble.

The consumer harm from the companies’ proposed transaction

According to the complaint, the acquisition, if consummated, likely would eliminate direct competition between Penn and Pinnacle in and around St. Louis, Kansas City, and Cincinnati. The combination thus would increase the likelihood that Penn would unilaterally exercise market power, and lead to higher prices and reduced quality for consumers of casino services.

The competition concerns and economic implications

Headquartered in Wyomissing, Pennsylvania, Penn operates 29 properties in 17 states, most under the “Hollywood” brand. Penn is a publicly traded owner and manager of gaming and racing facilities, as well as video gaming terminal operations, with a focus on slot machine entertainment.

Las Vegas, Nevada-based Pinnacle is a publicly traded casino entertainment operator and developer. Pinnacle owns and operates 16 properties across 10 states and manages a property near San Antonio, Texas.

Penn and Pinnacle are close and vigorous competitors in the St. Louis, Kansas City, and Cincinnati markets. In St. Louis, the acquisition would reduce the number of competitors from four to three, resulting in a highly concentrated market with just two properties that would compete with Penn, only one of which has a casino that provides significant competition. In both Kansas City and Cincinnati, the acquisition would reduce the number of competitors from five to four and would substantially increase concentration levels.   

As explained in the accompanying analysis to aid public comment, new entry or expansion is unlikely to deter or counteract the anticompetitive effects of the acquisition in any of the affected markets. In all the states that regulate these three markets—Missouri, Illinois, Kansas, Indiana, and Ohio—the total number of casino licenses available are limited, and all licenses have been issued. Entry (by a tribal casino) and expansion are possible in Ohio, but neither is likely or would be timely enough to deter or counteract the proposed acquisition’s anticompetitive effects due to the time and expenses involved.

The settlement preserving competition

The terms of the settlement require Penn and Pinnacle to divest the assets described below to Boyd Gaming Company within 10 days of when the acquisition closes. The parties must maintain the viability, marketability, and competitiveness of the assets until the divestitures are complete. The proposed consent order appoints a monitor to ensure the parties’ compliance with the order to maintain assets, the consent order, and the divestiture agreements.

• In the St. Louis market, Penn and Pinnacle must divest Pinnacle’s Ameristar St. Charles property, which is the highest revenue-generating casino in the market. The Ameristar St. Charles includes the casino and associated gaming equipment, hotels, restaurants, spas, customer data, and property rights, as well as a perpetual, royalty-free license to continue use of the “Ameristar” trade name. The proposed consent order will preserve four independent casino operators in the market.
• In the Kansas City market, the parties must divest Pinnacle’s Ameristar Kansas City, which includes the casino and associated gaming equipment, hotels, restaurants, spas, customer data, and property rights, as well as a perpetual, royalty-free license to continue use of the “Ameristar” trade name. The proposed consent order will preserve five independent casino operators in the market.
• In the Cincinnati market, Penn and Pinnacle must divest both of Pinnacle’s properties: Belterra Park and Belterra Resort. The divestitures include gaming equipment, hotels, restaurants, spas, property rights, customer data, and trade names. The proposed consent order will preserve five independent casino operators in the market.

The order also requires the parties to provide transitional services, if requested, to assist the divestiture buyer with the transfer and operation of the divested assets for at least 24 months.

The Commission vote to issue the complaint and accept the proposed consent order for public comment was 4-0-1, with Commissioner Christine S. Wilson not participating.

The FTC will publish the consent package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through Oct. 31, 2018, after which the Commission will decide whether to make the proposed consent order final. Comments can be filed electronically or in paper form by following the instructions in the “Supplementary Information” section of the Federal Register notice.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $41,484.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about how competition benefits consumers or file an antitrust complaint. Like the FTC on Facebook, follow us on Twitter, read our blogs, and subscribe to press releases for the latest FTC news and resources.