PENN Entertainment Inc (PENN) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Penn National Gaming first quarter results conference call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, April 26th, 2007. I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Thank you, Myra, and good morning everyone. Thank you for joining Penn National Gaming's 2007 first quarter conference call. We will get to management's presentation and comments momentarily, as well as your questions and answers. But, first, I'll review the safe harbor disclosure.

In addition to historical facts or statements of current conditions, today's call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations.

The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10K and Form 10Q. Penn National Gaming assumes no obligation to publicly update or revise any forward-looking statements.

Today's call and webcast may also include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP will be found in today's press release, as well as on the company's website.

Having taken care of that bit of business, I'd like to turn the call over to Peter Carlino, the company's Chairman and CEO. Peter?

Thank you, Joe. And good morning everyone. Welcome to our morning call. With me around the table, in the order that they appear, to my right, Robert Ippolito, Bill Clifford, Eric Schippers, Jordan Savitch, Steve Snyder and to my left, Len DeAngelo. And some, or all, or part of the group are here to help answer your questions. We had a great quarter, good quarter, this year. And so we're off to a good start in 2007 and happy to be so. It would seem that things are looking well as we look into the second quarter and -- as reflected in our guidance. Again, I want to thank Bill Clifford and his staff for just an excellent job in organizing data I think in a manner that is clear and understandable. It also helps when the numbers are good. And we really, really work, as many of you know, to do our best to give you a clear sense of what we're about here at Penn and try to make it as understandable as possible.

Not a lot to say this quarter. Knock on wood when I say that, but things are really going very, very well. Notably, our major construction projects at Charles Town, at Lawrenceburg, in Bangor, Maine, as an example, are going well on track and on time, which is much of the story as we go through the balance of this year and into the next. We've reported of course that we have closed on Zia Park. That's a very good thing. We see some opportunity to grow that property and our construction staff is looking hard at a new hotel there, because that is a market that would benefit from having a hotel.

And so, things are generally very, very good. And with that, that actually concludes my formal comments. As they say, not much to say. And I suspect you'll direct us to questions around activity in other states, but I don't want to steal all your thunder. So, operator, if you'll open the floor to questions, we can begin.

Thank you. [Operator Instructions] One moment, please, for our first question. Again, ladies and gentlemen, [Operator Instructions].

Got to be a -- a technical problem.

Our first question comes from the line of Larry Klatzkin from Jefferies. Please proceed with your question.

Hi, guys. Good results. Couple of quick -- first housekeeping questions. Just -- cash debt, capitalized interest for the quarter and maintenance CapEx.

Bill has a big smile on his face and he is ready and prepared, Larry, so go ahead, Bill.

Cash as the end of the first quarter was 170.8 million. Total debt was 2 billion 793 million, consisting of bank debt, total of 2.3 billion, capital leases at 10.2 million, Pocono Downs debt at 25.5. The two bond offerings at 250 and 200, brings us to that total number. Capitalized interest for the quarter was 3.1 million. And maintenance CapEx for the quarter was roughly 15 -- sorry, 14.6. And project CapEx for the quarter was 107 million. We spent roughly 2.7 million on some remaining items around the Katrina rebuild, for a total CapEx in the quarter of 124.2 million.

Great. A couple of questions, Peter, when do you -- this Chicago tax thing you won, when do you think you might see a recovery of that money? Or is that going to be on appeal for a while now?

We're not planning to spend it yet, Larry. But, look, the state will appeal, and I think that was predictable. We feel, as we said before, that we have a very strong case. If ever there was a case that cried out for justice, this is it. And I think we'll get it. But, it's in the courts, and if and when we win, we'll be able to get that money back. But, you know, it's one of those things. You put it on the back burner. We're dong the right thing and we'll just wait.

All right. As far as lobby expense the second quarter, you guys said that you're going to be spending some money, particularly in Kansas and such. What kind of increase in corporate would you expect?

I don't think we're going to disclose that, at least in advance. We'll be happy to report on that when it's all over.

For obvious reasons, Larry. We don't want to put numbers out there and it doesn't help us. And, yes, well, I think it's obvious. So no comment.

Okay. That's fair. And then, as far as table games, passes and West Virginia, how many units are you thinking about and what kind of margin might we expect?

We're looking at approximately 80 units, Larry. The margin, you know, it's going to be decent, probably in the low 20s.

Low 20s. And I guess the last thing is a couple of regulatory. As far as Maryland, is that dead for the year? And as far as New Jersey OTB, did you get going on that quickly?

Why don't we start with Maryland. Eric, why don't you --

Yes, nothing's ever dead in the legislature, of course, but the Governor has been looking past the gaming issue. We think it's more likely -- the debate is more likely to begin in earnest next year.

So, nothing this year, really.

We don't expect anything this year.

Good. Jersey?

We're still moving ahead, but slowly on that.

We have a partner in that transaction and it takes a little longer to get a decision point.

Yes, our partner is difficult.

I won't even follow up on that. Okay, thanks, guys.

Thank you.

And I'm being charitable.

Thank you. Our next question comes from the line of George Smith from Davenport. Please proceed with your question.

Hey, I had a question on Charles Town. It looks like margins there were at or near record levels. What do you attribute that to, and is it sustainable going forward here at nearly 31%?

First off, they're not sustainable. There was a fairly large real estate credit in the quarter. You can expect normal margins for the rest of the year. That was an aberration.

Normal being you get 29%-ish?

Yes, high 28s, 29.

Do you have the dollar value of that real estate credit?

It was 1.3 million.

Okay. And, Bill, what were pre-opening costs during Q1?

Roughly 1.4 million.

Okay. Got it. And, Peter, bigger picture, what do you see out there in terms of acquisition opportunities? Would you say that they're abundant, there's currently a dearth of them, multiples are egregiously high? What's your perspective on Penn's ability to expand via acquisition at this point in time?

How about close to zero. That wouldn't surprise you with our mindset, George. We're -- much of what has traded in recent times you can bet we've looked at pretty closely. And for one reason or another just have not been there. In this market, I like to say the winner loses. I'm not sure I'd be happy to say that we won one of these bakeoffs for new property. These are very competitive times. Good for the industry, glad to see it. Doesn't bother us particularly. We've obviously spent and are spending a lot of our focus on new stuff, new states, new places where one can get in at a more rational cost. And if you take the long view, today's today. Who knows what tomorrow will bring? So, that there's no sense of panic or real concern. We've got so many good things to play with here over the next couple of years. And we see opportunity emerging in some other jurisdictions, and there are a few things that we might be able to put our hands on over time. So, that -- I just think it requires caution and discipline, same kind of approach that we've always brought to it. So, that's the best answer I can give you right now. But, I kind of like where we are. We've got plenty of growth and we'll stick to our knitting.

Okay. I have just one more I guess for Len. Looking at two properties, there seems to be a bit of variance versus at least what we were looking for, Joliet and then in Biloxi. This quarter's level of EBITDA, would that be an okay indication of quarters to come?

For both of those?

Yes.

At Joliet there -- yes, there is a little bit of a turnaround. You know, we had a couple of tough quarters there. They're controlling costs a little better and we expect a little improvement going out. Biloxi is just knocking the ball out of the park right now. They're doing extremely well. I hope it's sustainable. We expect it to be, but who knows yet? It's still early in the recovery cycle there.

Yes, I would just add to that that obviously the first quarter is the best quarter relative to the Gulf Coast. I wouldn't expect you to see the same EBITDA for the quarter in the first quarter playing out through the second quarter, third and fourth. Certainly it's a very strong quarter and we would expect good results going into the second, third and fourth quarter. But you're not going to run $8 million a quarter at Boom Town.

I actually lied and have one last one, guaranteed. Could you describe what your economic participation would look like in Kansas, if something were to come to fruition?

Well, yes, I think that's a Steve Snyder question. Steve?

Yes, based on the legislation, George, we would be the developer and owner of a destination facility in southeast Kansas.

Other than manage it.

Yes. We would own the facility, and we would manage the gaming operations inside those four walls on behalf of the Kansas Lottery Commission.

Okay. I understand.

Yes, the key distinction here in Kansas is that, like West Virginia, the operation needs to be state-owned and operated. And then there is an independent review board that those who wish to apply for a management contract have to go before. You first have to have, of course, in your hand the approval of your host community. And the Cherokee County is looking at voting on this on June 5th.

And you think things, I mean, they're positively disposed toward gaming in that county?

Yes, they are in dire need of economic development in that county and the numbers look pretty good from what we've seen.

Thanks. Have a good day.

Thank you.

Thank you. Our next question comes from the line of Joseph Greff from Bear Stearns. Please proceed with your question.

Good morning, everyone. In the first quarter, margins, by and large, not just at Charles Town, were better than what we had expected. Is there anything one time-related or insurance-related that's helping? Or is it just you guys are doing a good job managing it? And then just on the topic of insurance, Bill, can you remind us when your -- the insurance renews? I believe it's June or July and sort of what you're expecting in terms of renewal pricing?

I'll take the insurance and leave the margins to Len. On the insurance, our -- most of our insurance cost which is related to the property renews on August 8th. It's a little early to tell exactly where insurance rates are going. I don't -- we don't foresee any remarkable decline. We're hopeful that they'll hold steady, maybe in the 5 to 10% would be in our mind a success story in terms of what we expect to get back from the insurance carriers. There's nothing in the quarter related -- relative to one kind of insurance that all flows through as predicted.

On the margin front, I would -- there's really nothing unusual in there, other than the real estate tax that we mentioned at Charles Town. It's kind of normal business as usual operations at most properties right now. Some markets are a little stronger than others and that helps.

Okay, great. And, Bill, did you talk about what your corporate expense is for this year within your guidance?

No, we haven't given any specific guidance there. I think you can expect that, without getting too circumspect here, we'd rather not approach that detail level for the simple reason that if we gave you the guidance in the second quarter, it wouldn't be too hard for you guys to figure out the incremental expense that we might be spending on referendums are. So, we'll beg off on that question.

Okay. Thanks guys.

Thank you. Our next question comes from the line of David Katz from CIBC. Please proceed with your question.

Morning. Most of mine have been asked and answered. But at one time there was an executive search going on, right? After Kevin's departure. How is that going? I mean, there obviously seems to be a number of those going on in our industry and I just was curious what you're finding out there and sort of where all that stands.

That's an interesting question, in fact, one I should have anticipated but haven't. Because -- the answer is it's ongoing but not in a particularly aggressive way. Look, obviously things are going fine here, in fact, have scarcely ever been better. So there's no pressing need to do anything. Obviously, for the long term we want to continue to beef up our staff and succession is critically important. So there is a huge focus and responsibility to do that. Pickings are slim in the industry. Executive talent is very, very limited, particularly the kind of talent that matches up with the kind of depth and folks and quality of skills that we have here. So that we, me, the board, being very, very careful and cautious as we sort of pick our way through the process. But -- I probably shouldn't say this. There's not a desperate sense of urgency about that, because we have great confidence in the folks you have here. But it's not forgotten. It is ongoing and we'll just have to see how it plays out.

I mean, I have confidence also and the quarter supports that. But have you sort of framed out what kind of skill sets you'd be looking for or what kind of executive you'd want to add or anything like that?

Wow, that's a tough question to answer this morning and particularly in a public call. But, look, we're always looking for the best of the best. I mean, that is the kind of talent that we have at Penn, both at the property levels and certainly here at corporate. So we're looking for somebody with just stellar capabilities. You know what we've had in the past, so you can use that as a baseline of the kind of talent we're looking for. It's there and better. My view is from my personal viewpoint that the person we find has got to be at least three times smarter than I am, tougher, more capable. Just go down the list. So, if I get run over by a freight train that we've got the right kind of leadership here. So, look, those are partly platitudes, but that also is the fact of how we run this business. So we've set a very high bar at Penn, and that's the only guideline I can give you.

Okay. Nice quarter. Good luck.

Thank you. Our next question comes from the line of Chuck [Aker] from Aker Capital management. Please proceed with your question.

Good morning. Couple of questions. I was recently in Baton Rouge and looking around at that whole area and have had conversations with the folks down there as well as the Pinnacle people. They're very optimistic that they're going to be able to do a large scale property in Baton Rouge and clearly would have a significant impact on the market. Your thoughts at the present time?

Chuck, we remain consistently opposed to what Pinnacle wants to do in the Baton Rouge market. We think that the Louisiana Gaming Commission would make a huge mistake to allow that kind of venue shopping. I mean, let's look on the horizon, find a better market, pack up our bags and go there. Not what was intended by the Louisiana legislation. And we think it's wrong.

Secondly, I think it's evident that that market is shrinking and will continue to shrink over time as the Gulf Coast normalizes over the next couple of years. So they are dumping a pile of money into a market that clearly has all the capacity that it needs.

So, third, they've got a tough row to hoe. They may get past the gaming commission, but they've got to get by local referendum. It's not at all together clear to us that they're going to win that referendum, and I assure you we will do everything in your power legally to oppose them at every turn. And I mean everything. We have no intention of letting them walk in there.

And then finally, if by chance they get there, our job will be to make sure that they're very sorry that they ever arrived. So, this is a personal -- this is a definite personal fight. We think this is a huge mistake and we intend to prove that to the Louisiana Gaming Commission. So this is an all-out battle. Somebody will win or both will lose. But I think we just have to wait and see. I do think it could be quite a while before they get there, though.

Right.

You get the tone of our response.

I get the tone. It's something that I'm used to.

That's the way we operate here.

Perhaps more important is long term. Now that you've acquired Zia Park and talked today about hotels there and you have a plan afoot for hotel rooms at Charles Town and elsewhere. Just give me the benefit of your thinking about return on investment when you add hotel rooms into the mix of your gaming assets.

Sure, well, let me give you two points of view about that. First, philosophically, Chuck, we're not in the hotel business. You'll hear us say it time and time again. We're not into building hotels for the sake of building hotels. We're not in the hotel business. Our hotels are built only in those places where it serves our gaming process. That is to say, where clearly it's going to attract people from a distance. Baton Rouge is a good example, for example. Hotel in that market, despite what Pinnacle wants to do, makes absolutely zero sense. Since a hundred percent of the business is 30 minutes and in. It could, it's an example of utterly local market. We could build a big hotel there, but I'd like to know why. So, that would be one thought.

Now, in New Mexico, that's a very remote market. And our folks come from a very long distance. Real clear to us that we can enhance our gaming revenues by getting people to come, stay and stay longer. Bill, why don't you talk a little bit about the return approach.

You know, I think we certainly target -- internally we start out with targets at the 20% threshold. Clearly that's a bit challenging on a hotel project. But in markets where we've seen customers driving or that we've got a significant amount of our customers coming in from far distances, which is what we've -- we see that at Zia Park. We see that at Bangor. And at Charles Town, although the customers are closer in, there's just such enormous volume that we believe that there's enough demand there for people that will want to use the hotel and make it worthwhile. If we accomplish 20% incremental, which includes not only the -- obviously the cash rates and comp rates, and you can do those. Although in those markets there won't be any comps. And then you add in the incremental gaming revenue, we believe we can get somewhere in that 20% range, depending on what construction costs are. And obviously everybody's expectation is that it will take some time. We'll probably start with closer to mid-teens and then build to 20 over time.

We're pretty careful about that, Chuck, as I think you know. And we're not deluding ourselves. And we're not in the business of building edifices. That's just not what we do.

Very good. Thanks so much.

Thank you.

Thank you. Our next question comes from the line of Justin [Feliciano] from NCPI. Please proceed with your question.

All right. Thank you. Good morning, everyone. Just quick question regarding Joliet. Is there any more talk of possibly being able to keep that property and not having to divest it?

You know, we can't shed any real light on that. Our position is, I think, clearly understood by the Gaming Commission in Illinois. We -- and they have been very supportive of -- in a divestiture of giving us time to do so in a stable, rational way. So, they've been really terrific in that sense. The problem is there's not a lot of stability in the state of Illinois. I mean, you can't get three weeks that things are stable. So I don't know. And the landscape there changes daily, hourly, weekly. It's like no place else in the United States. It's just a very unstable place. So, I don't know and I wouldn't want to predict kind of what they would do or can do at any given point in time. I think they clearly understand what our desires would be. And, look, it's a day-to-day process. We're not looking through it or past it. We're running the property. That's what we're doing. And I think we've got to get down a little farther, see what happens with legislation. If something terrible were to happen, for example, they might have one view. If it was something more expansive or positive for the industry, perhaps it's another view. But my point is that it's just too far away for us to give you any real color right now.

Okay, so are you pursue, are you out there actually shopping it? Are people coming to you guys? Or what's the process at this point?

Let me say that we have done the things that we need to do to be prepared to execute their will and desires when the time comes. So, we -- but at the moment, there's nothing actively happening. The property is not for sale. Again, we want to see what happens with that market and try to get ourselves to a very stable position. But our desire, let me be clear, is to keep this property. It's a wonderful property. We think we should own it. But, again, we'll do what we're asked to do.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Bill Lerner from Deutsche Bank. Please proceed with your question.

Thanks. Peter, a question on Massachusetts. Can you just kind of share your thoughts on where you're at there and what you think the propensity of the state is in order to move forward at this point.

That's a fair question. We have Eric Schippers, who is our Vice President of Government Affairs, here today, because we anticipated there would be a number of these other state questions. So, Eric would you --

Yes, the governor is a new governor, Deval Patrick, has publicly stated that he's at least open to the idea of expanded gaming, and as such has formed a task force that's studying the issue. And it's likely to come back with results some time in the summer. So I think that it's difficult to predict where this issue is going to head until they come back with their results.

Okay. I appreciate that. And --, okay, I'll guess I'll ask you off line. Thanks.

And I mean, our view about that is obviously it's better the governor is examining the issue than he says no way on my watch. So, in that sense there's some positive aspects to it.

Yes, it's a very fluid situation there. There's a lot of support in the legislature. There's still a lot of detractors in the legislature. But I think the key is the new governor is at least being open to considering the idea in a thoughtful deliberate manner. There's talk of whether this is just limited to spots at the race tracks or potential destination casinos. And it's all still soup right now. It's just difficult to determine where the final landscape is going to be on this.

I'll make this point, I've done so before. I think you can fairly assume that any place where there's a breath of life around a gaming issue that our company is well represented there. We may not come up with a perfect solution, but believe me, we're very engaged everywhere and anywhere where there's life in the gaming business.

That's helpful. Thanks guys.

Thanks.

Thank you. Our next question comes from the line of Ryan Worst from Brean Murray. Please proceed with your question.

Thank you. Good morning, guys. Good quarter. Just another question on a state issue. In Missouri, could you guys provide an update on the latest proposals there for the loss limit?

Yes, as you probably know there was a filibuster in the senate. The house had approved the notion of a 2% tax increase in return for lifting of the loss limit. In the senate, a compromise was struck whereby the tax would increase to 4.25% to break the filibuster. The industry is united in opposition to that plan. The bill is sort of in limbo at this point waiting a third reading. It's yet to be seen if it will actually come up for a third reading. But the important thing here is the industry is opposed to it. We just think that that's too high a cost in return for the lifting of loss limits.

Eric, are you opposed to anything above 2% or could there be a compromise between 2 and 4.25?

No, there you're going to get into some debate with the industry. There are actually some players in our industry who would be willing to accept, I think, a higher percentage than we would. I think another key distinction here is that Kansas has just approved gaming. And we think it's imprudent to try to deal on any type of tax increase when you have yet to see what the impact of Kansas might be. It may be a year from now that the legislature is begging for an opportunity to try to make us more competitive against the neighboring states. So to try and settle for any type of higher tax when you've got gaming on the horizon next door is probably not the best idea right now.

I'll make a gratuitous comment. It often amazes us how foolish some of our competitors at times can be around some of these issues. Again, it's just solid prudence. I mean, it's never growth at any cost. I mean, so we analyze this stuff pretty carefully and you've got to be real careful. So we've been opposed to anything other than a nominal tax increase. Others have a more, I don't what, masochistic view of what they're willing to accept. In this case, fortunately the number's high enough that I think there is unanimity and everybody recognizes it's not a good idea.

Thanks, good point. And just in Kansas, what's the quickest that there could be a casino in Kansas City at the race track?

My guess is that there could be slots at the race track would be -- I think we penciled this out, I think 210 days, is about all?

Yes, they have to form the regulations around it, so that obviously factors in.

The regulations have a finite time frame. There will be temporary regs May 15th or sometime in that time frame. They'll go through their selection committee designation. Selection committee will refer to the Lottery Commission their preferred management contracts. I think we've penciled it out based on the legislation. It's 180 or 210 days that you could actually have a property designated and potentially be in an existing facility a first drop.

I guess then the question is whether somebody's prepared to go ahead and invest the money in advance.

Right. Right. That's why I'm saying in an existing facility.

Then there's still the potential of a lawsuit that could change the time line a little bit.

Right. Okay, thank you very much.

Thank you. Our next question comes from the line of Felicia Hendrix from Lehman Brothers. Please proceed with your question.

Hi, good morning, guys. I have a few questions. First was -- I was wondering if you could just give us an update on your Riverside hotel that opened up earlier this month?

Sure, we had a successful grand opening and we are in really the first month of operation right now. The little -- we're trying to hold rate on this, since it's not a giveaway hotel. It's not a comp hotel. We're coming in the market above most other hotels in the market in terms of rate. It's a very nice product. So we're slowly ramping up occupancy. And I would give it time, six months, probably in the 5 to 6-month range before we see the full impact of it.

Has it started to drive more traffic to your casino floor?

I would -- yes, we are getting some traffic from it at the moment. But I wouldn't say that it's in the numbers yet.

Okay. And then, wondering if you could just give us your thoughts on what's going on in Maine and the potential risk coming from the Indians there, Washington County?

Well, we're looking at who will answer that.

Felicia, this is Steve. Washington County, you may have looked at it on the map, you may not have. It's on the Canadian border. From a highway access standpoint to Bangor and our primary market, which is really south and east of Bangor, it's a difficult ride if you've ever made it. My condolences. We have not taken a position on the initiative and don't intend to take a position on the initiative. We'll leave it up to the voters to decide. If the voters do choose to accept slots and a race track in Washington County, we wouldn't envision it having significant impact, if any, on our operation in Bangor.

Yes, this is a local political thing. The legislature, the governor and ultimately voters will have to decide. And since it does not have a real impact on us, we're just not --there's no reason for us to get involved. We're just focused on what we're doing.

Yes, we're challenged, quite honestly, to see the economics and the financial return of a project in that marketplace, but that's for others to decide.

Right. Last question is just housekeeping. Your tax rate was higher than I though it would be. What was driving that?

That's a great question. The tax rate is partially a function of the fact that we're doing better out of some of the higher state tax jurisdictions. We've also got a new concept around 1048 with the new rules on accounting for tax positions that have been taken relative to our expectations, which posits a likely higher charge on some tax positions in the past. The other option -- the other issue is really around lobbying expenses, which historically -- any thing on a statewide or a national level is non-deductible for tax purposes.

Okay, so just you might have put this in your guidance, but what should we use going forward?

Yes, I think we've indicated a rate in the guidance piece.

Okay.

You know, in terms of what we think's going to be there for the full year, we're looking at roughly 44.5.

Yes, okay. I see that. Great. Thanks so much.

Thank you. Our next question comes from the line of Harry Curtis from J. P. Morgan. Please proceed with your question.

Hi, a couple of questions. First of all, I don't know if you mentioned Lawrenceburg, but can you give us an update on the approval process and the timing of the barge? And then, Peter, maybe a little bit more difficult question to answer. But I wonder if you could share your thoughts where you stand today on the advantages of being a public company versus a private company?

That's a different matter.

I'll take Lawrenceburg. We've gotten through some of the approvals relating to the Corp of Engineers, so we are working now on some of the parking lots around the property and that parking lot is still on schedule versus our schedule here in the release. We still anticipate opening that parking facility in the second quarter of '08. We are also working on the harbor, if you will, for the new barge. We are moving quickly in that direction and we're beginning to put in some of the bulkheading around that, and we're currently on schedule again for the second quarter of '09 for that. Did that answer that part, Harry?

And I'm eagerly awaiting your answer.

Oh, gosh. Look, being a public company has served us immeasurably well, or maybe I should say measurably well, over these last 13 years, so we're quite happy functioning as a public company and, as I said earlier, really happy with our prospects over the next couple of years. I guess the issue is really one of value. Isn't that really always the question? Obviously we have -- it would surprise you, I have gotten some calls from various people when a flurry of activity occurred around Harrah's and pretty well had reported that certainly we have -- as a company are not for sale. Somebody put up some huge number, I guess, that's something we'd always have to consider. And it's pretty much our standard answer that Penn looks at everything. So, barring -- given the prospects of this company and the tremendous future we have over the next couple of years, I find it difficult to imagine that somebody could get to a number that might make sense. But, who knows? So, no, so that's sort of a canned answer, but that's the only answer I can give you.

Okay. I appreciate the canned answer.

Thank you. Our next question is a follow up question from Larry Klatzkin from Jefferies. Please proceed.

Hey, guys. As far as the possibility of getting more positions in Illinois or also a downtown Chicago casino, do you see either of those happening?

No, I'm sorry. Could you repeat that Larry?

Yes, as far as Illinois goes, possibility of getting more positions in Illinois? Then the other side of it, potential of a Chicago downtown casino?

Well, there's a bill that's currently pending by Representative Lou Lang that we commonly refer to around here as the kitchen sink bill. And that would include slots at the racetracks, as many as four new Chicagoland casinos, and the ability to purchase additional positions that exist for the existing license holders. There, I think the sponsor recognizes the industry is highly fractured on this, as well as the racing industry is fractured on this. So, the best I can say is, he is trying to find common ground. It remains to be seen if common ground can be found, because it is so expansive.

All right. And then --

Let me say something heretical. I haven't even said it to our group here. But, you know, in some respects I am not sure that we couldn't support getting or creating opportunity for the racetracks to have some slots, perhaps a limited number and under some limited circumstance. I -- the problem with the tracks having problem, or difficulty, economic difficulty, has absolutely nothing to do with the casinos. So, I want to make that very clear.

There's a general thought -- our bad times owed to all these casinos in the market. The reality is that fewer and fewer people are going out to racetracks. I think we all kind of know that, everybody it seems but people in the racing business. Fortunately here at Penn we figured that out early on and while we love the racing business and we work hard at it and in some cases do well, recognize that in every market it's getting tougher and tougher. So, that I think they've got to get over that complaint.

But, fairly, I do say these are companies that have been there a long time, and my solution to the problem of revenue and balance in the state of Illinois is create more opportunity. I mean, obviously you can't get more of something when you try to tax it to death. There's an inverse relationship that a lot of governments just don't figure out. You can't tax your way to success.

So that creating more positions to meet demand, perhaps is a sentiment to help the racetracks, it's not to take money from a limited number of casino companies in the state. Obviously, that is a foolish idea, given the opportunity to compete at some level. So, that's the way I think about it. That's what I'd like to see the state do. We're capacity constrained. The others are capacity constrained. Let's unleash that and let the market be what the market is and the state will be the beneficiary of it. It's the only answer to this. So I actually don't oppose giving the racetracks some opportunity. Whether it should be three, one, zero new casinos in the market, I'll stay out of that. But, as far as the racetracks go, and that's what's driving a lot of this, I'd say give them some slots and let's move on.

All right, cool, Peter. And then next question is Atlantic City, Las Vegas. You guys still have a desire?

Oh, absolutely. Look, we -- as reticent as we were to speak about those markets for many years, and you know we've been through this before, I would never utter those words, because it really wasn't part of our mission. A couple of years ago, a year and a half ago, I think we finally said, oh, we've got to go there. And indeed we do. I've also said these are two very different markets. And I just said to an internal staff meeting here, in fact an all hands meeting at our corporate offices the other day. Las Vegas doesn't need another casino. It doesn't need Penn National. So, our entry there would require a particularly focused thought about how to get there. And we've played with a couple of different approaches and maybe we'll get there soon, or maybe we'll get there later. But, I think we have to approach that market with enormous caution.

Now Atlantic City is a different story. Atlantic City can use probably five, six new dramatic casinos. There it's just an issue of finding the right ground to do it, and getting the city to get enough gumption to create the property and open the town to new opportunity. Imagine if Las Vegas had taken Atlantic City approach, where would it be today? Well, we've got this limited piece of ground. And they've got to change their mindset and take a whole different view about building that city. There's no reason that AC can't be the Las Vegas of the east. They've got a long way to go in changing their mindset about that.

That having been said, we would do a very large facility in that market with the absolute confidence that you could do very well.

Now, you're referring I assume to Bader Field and opening that up?

Well, that's one possibility, but there's others. I think it's a whole change of zoning as they look at downtown. And I've spoken publicly in Atlantic City last year, for example, about the need to use eminent domain to clean up some of the junk that's down there. I've said it before. I mean, you've got swatches -- it looks like Dresden after the Blitz. I mean, still all these years later when one goes down to Atlantic City. And I mean that. I don't mind being quoted on that. Just take a look at the open spaces with a house here and a house there. There is a real need for the council there and for government there to take charge of that city and make a difference.

So, we're enthused about it. We'd love to be there, but this goes beyond just our company. I just think Atlantic City is the largest missed opportunity in the United States.

Would you be against buying someone else's facility? Or would you really look to do a green field, new facility?

Well, we're not against anything, I think you know. I mean, we've looked at everything that can be looked at down there in terms of existing facility. Let's talk openly about, say, the Trump assets. I mean, they're out there, and it's all a question of price. This gets down to price and return and return for our shareholders. Can we do something intelligent? Can we add value?

By the way, we've walked from, over the years, numbers of opportunities that we actually could have had when we couldn't answer the question comfortably, can we add value? That's what we're about. And sometimes we think we can and I think generally -- well, in every case where we've made an acquisition, we have. In other cases, we concluded we probably couldn't and -- you know, I'm sort of fond of saying, we're not in the gambling business. Maybe our customers are, but we're not. And I think we have to be real careful about that.

Good. And then, in Las Vegas, I know Boyd and MGM both had plots of land that they wanted to donate to a JV, have someone else build it for half ownership. Would you get into a situation like that?

I'm not aware of the pieces you're talking about or the opportunity you're talking about. The answer is, potentially, sure. We would never turn our nose up in a JV. In fact, we're actually -- we've looked at a couple. So, you bet. Look, it all gets down to the transaction. I mean, the answer is, yes, yes and yes. If it makes sense for Penn and the shareholders, then you bet we'll do it.

All right. Great. Thanks, guys.

Thank you. Our next question comes from the line of Joe Fath from T. Rowe Price. Please proceed with your question.

Hello?

Mr. Fath, your line is open. [Operator Instructions]. We're unable to hear you.

I have no question. I wasn't in the queue.

Thank you. Our next question comes from the line of Adam Steinberg from Morgan Joseph. Please proceed.

Hi, guys. Real quickly on your Biloxi property. Are you trying to renegotiate that lease, trying to make that little -- make that more feasible to do something there, or --

I'll let Steve follow me after that. The answer is yes and we did it. Go ahead, Steve.

And we already filed it and have amended the lease agreement with the landlord. The lease agreement prospectively will be a flat 5% of AGR.

A significant improvement, obviously, just in terms of dollars and cents. But really now, it does give us the flexibility without penalty to do whatever it is we think we need to do in that market.

Yes, and what we have at that site, what we've accumulated in this process is a site now that includes about 23 contiguous acres of really prime back bay waterfront property. So we've got a tremendous opportunity back there to continue to explore options as it relates to the development of that project.

We could well look at a hotel. Well, we could well look at it again with the same criteria that -- and hurdles that that would have to jump to get there, but we now have the ability to do it. For any of you who have been down and looked at it, the site is dramatically improved. We've cleaned it up. And I mean not just hurricane-related, but as we've acquired these properties, razed some of the ugly stuff that was around us, it's pretty nice. I was down there about a week ago, two weeks ago, and it looks terrific. So -- and we have a lease that allows us now to, at no penalty to us, to proceed and do more, if it's warranted.

The last, the next question on the Casino Rouge, your margins down there, I mean, at [42%]. How sustainable is that? Or, will that start to come down as that property -- as the market also kind of starts to come back to more normal levels?

I think that we've answered your question there. You know, you have the leverage on the margin on the upside and you have the leverage on the margin on the downside. And I don't see that being sustainable long term as the market normalizes.

And by the way, we've been saying that for a very, very long time, at a time when, as we did these calls, people where expecting, I don't know, wonders forever. And I think Bill was very quick, very early to say, don't count on it. This is not sustainable. It's great to have it now, but it won't be there.

You've certainly held it for longer than I thought.

Well, we count every day as a lucky day, so --

Last question related to your guidance. I mean, and the EBITDA is up from what your guidance was when you announced your fourth quarter earnings, you gave the full year guidance. You're now at up about $0.03. Is that all due to Zia, or is there some strength in other properties that you're seeing that you weren't anticipating before?

Certainly there's some increased improvement in operations for other properties as well. We're also looking at recognizing that this does include some of these upcoming expenses that we really didn't have projected around some of the lobbying. And just generally we're feeling pretty good about what we're seeing in terms of the underlying strength of our properties.

Okay. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Dennis Forst from Keybanc. Please proceed with your question.

Yes, good morning. Maybe just to finish up on Adam's question. Bill, you said feeling good about properties. Do you care to be specific about which properties? Because it looked like that line number, existing operations and corporate, is up about $15 million from the guidance you gave with the fourth quarter release.

No, I don't think I'm going to go there. We've never given -- really, unless there was something particularly unusual about individual properties, we've never really given property-by-property guidance. And the reason for that is that we're not perfect on each property. We do better on some properties than we think we're going to do and we do worse than others. And we don't want -- the reality is you're projecting the future. And so I think there's a certain amount of anomalies and variations that happen quarter to quarter, property by property that quite candidly are just random events. That's how I would describe them. And so, I don't think we want to necessarily go out there and indicate that we've got a crystal ball and exactly how each property is going to do.

Okay. Now -- I wanted to see if somebody would mind expanding on the comment about the Kansas lawsuit. That kind of bothers me a little bit that it could get tied up in the courts for some indefinite amount of time.

Yes, Dennis, it won't be an indefinite amount of time. The governor has asked her attorney general to file a suit contesting the validity of the legislation. The question around the legislation relates to the constitutional ability in Kansas for the state to operate the lottery. This legislation is meant to be an extension of that lottery. And the question that will be challenged directly to the Supreme Court by the attorney general, who has agreed with the governor's request, is whether or not this legislation conforms with that Constitutional requirement, that only the state is empowered to operate games of chance. And that's why my earlier comment that we would be the manager on behalf of the state of the gaming operations inside the facility.

Okay. What is the timing of the attorney general filing that and then the Supreme Court pontificating on it?

I think the only thing I'm comfortable saying is I expect it to be more quickly than Pennsylvania.

Okay, that narrows it down a little bit. And then, also, maybe Peter can expand on what he mentioned about Trump properties. He threw out a comment there when I think Larry was asking about AC. What have you heard about what is going on with those Trump properties and what the likely outcome would be with that?

Well, the only thing that we've heard is obviously what's been announced publicly, that they've hired Merrill Lynch to explore strategic options. Anything beyond that, it would be more appropriate to ask them for comment than us.

Okay. Then lastly I just wanted to make a comment that I kind of disagree with Peter's comment about giving slot machines to racetracks. I see no reason why racetracks are by heritage entitled to slot machines. I think the states should auction off those licenses everywhere, whether it's in Kansas or Florida or anyplace. It would maximize the money for the states and throw it open to those companies that are in the casino business, rather than those companies that are in a 19th Century business.

Well, you know, that's a point of view and maybe I share some bias with the racing industry since I've been in it for 35 years. You know, I used to think in the early days, when I was president of Penn National in my first lifetime back in 1972, that we were a sport. And indeed, we are a sport. But it took many -- maybe a couple of decades for me to realize that there's gambling going on here. In fact it is a gambling business. It is a state-licensed gambling business for many, many years in most areas.

And I do think that legislature should have taken the racetrack industry into account as they look at expanded gaming. And that's just my personal point of view and I'm not, and this is probably, my staff is probably looking aghast -- what is he, you know -- at me for saying that. Because I'm sure we would all like to stall competition. But from an ethical and a fairness point of view, I think I would have created an opportunity for slots at the racetracks. They are licensed businesses, in some case businesses that have invested great deals of money in these states and have a lot of employees.

And let me say this, just one side, this is maybe off the point, but there's a very good reason for slots at racetracks. And it is not that slots necessarily make racetracks instantly profitable. But I can say what may appear heretical, that slots are actually a very green activity. When you do what we've done at Charles Town, as an example, and -- with the power of slot machines, and create this economic engine, it has had such an extraordinarily profound impact throughout the entire community that surrounds it. I mean, when you go for miles and miles around that racetrack and you see white picket fences and little four-legged things running around, it's because of the slot machines at that racetrack. And Eric has the statistics. But there are thousands and thousands and thousands of new owners, breeders, all preserving green space, open space, selling feed, straw, things of that sort. So the economic engine of a racetrack is enormous. The peripheral employment is enormous. All of that is helped by slot machines. So, when you put the two together, it is an amazingly dynamic package. So that I think many missed that.

Okay. Thank you.

I should also throw out there that in this discussion with the legislature, in this debate or this effort to find common ground, there has been some discussion about subsidies to the tracks in lieu of slots. That would be on a more Constitutional framework. In other words, everyone would pay a percentage and it would of course come in return for expanded position. That is just in this soup, as I discussed or described it before. Some of the tracks, frankly, may want that, given the instability in the marketplace. Some of them are absolutely going to want slots for the reasons that Peter just described. It's just too gray an area right now to see where this thing's going to head.

But I must say, philosophically, I'm opposed to one company and industry subsidizing another. I mean, I just think that is a foolish, stupid idea, goes away from -- it's stupid, it's not a good thing to do. So, if you want to help the racetracks, find a way to help them.

Well, we agree a hundred percent on that.

Okay.

Thank you. Our next question comes from the line of John Maxwell from Merrill Lynch. Please proceed with your question.

Hi, just one comment or question on Indiana. If the slots at the track, Bill, goes through, does that impact Lawrenceburg at all, or do you think those two tracks are just too far away? And you're probably more concerned about whether Ohio or Kentucky legalizes.

Well, Eric, do you want to talk about the politics, Steve?

I think the question was about the impact on Lawrenceburg, not the politics.

Yes, we get roughly 10 to 15% of our business comes out of the Indianapolis areas, so obviously, we're, from that perspective, wouldn't be too happy about it. Having said that, though, we're still very enthusiastic about the prospects of the entire Cincinnati market. Quite candidly, we run into capacity issues at Lawrenceburg all the time, so on a longer term basis if it happens, obviously we think we'd have a short term impact and then I think we believe that the market is strong enough on a long term basis that we'd grow right through whatever decline we saw coming out of the racetracks and up in Indianapolis. Assuming of course that the legislation gets done and, as I understand it, there's a fairly large delta between the two sides in terms of getting the legislation actually approved.

Okay.

We're so capacity constrained there that -- I'm not suggesting that we would take it lightly, but we have got bigger problems, that is, finding the ability to create space and parking and room to meet the demand we have today and stop people riding by our place to go down the road to our competitors. So, we're doing that and I think we're in good shape.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Ricci Harek from KBC Financial. Please proceed with your question.

Good morning. Looking at the actual numbers for Lawrenceburg, it doesn't look like there's a profound impact, but looking at French Lick, I'm wondering -- there's maybe not a lot of overlap, but in terms of the tone of marketing spend in the area, in terms of patterns of visitation, are you seeing any sort of impact at all from those guys? Or are they just too far away?

Yes, they're a little too far away. We're seeing a little impact from the Belterra group only because they have a new highway that connects to 71, but it's again, to follow up with Bill's comment, the market's so big, we're growing right through any of that.

Has marketing subsided a little bit at Belterra? I think they had started out reactionary, a little.

Yes, they're moving more south towards Indianapolis right now.

Thanks very much.

Thank you. Our next question comes from the line of [Karl Isatoo] from Keybanc. Please proceed.

Morning, guys. How's it going?

Good.

Just had a quick question, I don't know if you've already touched on this. On the corporate overhead number, it just looks like it was ramping up in '06 and it came down a bit in this quarter. I don't know if it's related to Zia Park or if you can give us some guidance on what kind of run rate it would be. I know you don't want to give any indication on what you might spend on the local front, but kind of ex-that, what we can kind of model out in the future.

Well, if I give you a normal run rate and then tell you where the thing is. I mean, our normal run rate is pretty flat year over year. Relative to what we did in the third and fourth quarter last year, we had some referendum efforts in Ohio and some other one-time type events toward the end of last year in our corporate overhead number. Looking forward, you know, I think we're going -- I'm going to just beg off that question again.

Okay.

Thank you. We have a follow up question from the line of Larry Klatzkin from Jefferies. Please proceed.

Sorry about popping up one more time. But additional table games in West Virginia, is that in the year forecast, guidance, or is that, you're just assuming that doesn't happen by year end?

It doesn't happen by year end, Larry.

All right. That's all.

Thank you, and Mr. Carlino, I have no further questions. I'll turn the conference back to you.

Well, that sounds good. I thought we'd skim off easy today, but there have been a lot of probing and challenging questions. So it wasn't as easy as I thought. Well, look, we thank you all for joining us this month. Again, it was a very good quarter and very happy about the way things are going here at Penn. So that's the message for today and thank you very much. Thanks operator.

Thank you. Ladies and gentlemen, that concludes our conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day.