PENN Entertainment Inc (PENN) 2010 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Penn National Gaming third quarter earnings conference call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded Thursday, October 21, 2010. It is now my pleasure to introduce Mr. Joe Jaffoni, Investor Relations. You may proceed, sir.

Thank you, Francis, and good morning everyone. Thank you for joining us Penn National Gaming's 2010 third quarter conference call. We will get to management's presentation and comments momentarily as well as your questions and answers but first I will review the Safe Harbor disclosure. In addition to historical facts or statements of current conditions, today's conference 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 can 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 10-K and Form 10-Q. 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 measures calculated and presented in accordance with GAAP can be found in today's news announcement as well as on the Company's website. With that I will turn the call over to Peter Carlino, the Company's Chairman and CEO. Peter?

Thank you, Joe. Well, good morning, everyone, and welcome. Here with me today, as usual, is most of our management team and you will be hearing from probably most of them through the course of our presentation. Well, it has been an interesting and eventful quarter for us. We opened table games at Charlestown, we opened table games at Penn National. We opened a brand new facility in Perryville, Maryland. We announced the establishment of a joint venture with the Sam Houston Race Park in Houston. We broke ground in Toledo. We have made significant progress with our construction in Kansas City. We have made great progress in our site preparation in Columbus, which started with raising a 1.2 million square foot building with a lot of environmental issues. That's moving along very, very well. We purchased the outstanding debt at M. So there's a whole lot of things to talk about today, and as usual, why don't we move quickly to your questions and go where you would like us to go. So, operator, would you open the call to questions?

Thank you. (Operator Instructions). Our first question is from the line of Joe Greff from JPMorgan. You may proceed.

Good morning, everybody. Peter, in the quarter the one thing that nicely surprised us to the upside at Pennsylvania, West Virginia wasn't as much on the revenues but really on the margins. Can you talk about that? I know there's obviously a difference of gaming tax rate on the table side. But, can you just discuss that margin improvement, and then, typically, I would think we would expect to see maybe with time, margins improve from here. So, do you think margins can improve in Pennsylvania and West Virginia from what we saw in the third quarter? That's my first question. The second question is can you just talk about M a little bit and the timeline and the gaming issues in order for you to close? Maybe you can talk a little bit if you can about the operating expense structure there, what can you take out? And then, if there is a rebranding effort there, how much dollars that that would cost? And maybe just generally just talk about what you can do different or better at that property?

Joe, if I answer all of that there would be nothing left for anybody else. So --

I will e-mail you the questions.

So, we will give you a partial answer on number two just so we save room for others. But on the margin question, I'll have Tim address this more specifically. Look, you understand we are always focused on the bottom line. It's always less critical. Look, we love top line volume but in the end it is how much it drops to the bottom line. And there's certainly a lot of instances in the industry we see some pretty fancy properties doing nice numbers but not making any money. That is not our model. So, get that commercial in because that is what drives us here day in and day out. Tim, why don't you get to the specifics.

There's a couple of thing, Joe working in the favor of these margins. One of which we had already started early part of 2010 at Penn National in Charles Town to continue to be smarter marketers and continue to look at opportunities to reduce our commercial spending. That continued in the third quarter but, obviously, the introduction of table games created a whole new level of energy and excitement and as you know in West Virginia, table games is taxed at 35% versus slots in the high 50s. And at Penn National table games is taxed at 16%. So, we did expect especially Pennsylvania that there would be margin improvement on that business. And we did see as well a lot of movement, especially in Penn National, away from the electronic table games product which was taxed at 58%, moving to live table games as the black jack and poker options there. So that all contributed to the improved margin. Plus given the newness of table games at both of these properties we saw a lot of new business -- trial unrated business, which has always delivered very strong margins in our operations. So, there's a multitude of things that are contributing to the margin expansion at these two properties. I would be hesitant, though, to say there's going to be further improvement going forward from what you saw in the third quarter, given all the noise of the introduction of the new offerings at these two businesses.

And then, Peter, on M?

You remembered, huh? Exactly. We hoped you forgot. M is a very interesting situation for us. Let me make clear, we own the debt. That's all we own today. Obviously, we have an objective in mind. What I can tell you is a couple of things. First, the M does not, in case there is any doubt about that, meet our strategic objectives in Las Vegas. It does not. It is just a terrific property built with great love and care by the [Marnells] that has been affected by a very tough market and we just have kind of happily ended up with an opportunity that we believe in, in the long term. So, I don't need to advertise just what a terrific job they did there. It gives us a chance to work with our pretty much newly organized database that has now been integrated companywide. It gets us to I won't say play with, but begin the process of working with offers. There is a percentage of our customer base that would be thrilled to go there because it is just such a terrific property. So we get to work with that. We see a significant upside there, period, we do. But its a one off purchase of a terrific property. We do this everyday. This one just happens to be in Nevada. So, Bill, do you want to address just some highlights because I know we're going to get the questions?

Right, I think, again, we're the lenders and not the operators, but I'll give you just a little bit of couple pieces of data points. One is their year-to-date revenue through August was roughly $106.5 million. Their EBITDA through August was roughly $9.7 million, which -- there are some one-time costs in there. But candidly I don't have enough detail and enough back up to support what could probably be supportable at a slightly higher number. And lastly, I would indicate that cash on hand at 8/31/2010 was $21.4 million.

As the lender, obviously, that cash that they continue consuming, and there's no reason to believe there won't be, continues to be positive EBITDA through whatever period it takes to finalize the transaction, that cash balance should grow. Our source of funds that we used to buy it, was we drew down the revolver for $145 million, and we paid the rest with cash sitting at the corporate level in October to fund the transaction. To piggyback on what Peter said, I view this anyway, this transaction -- as purely really a financial opportunity. We think that we can over time and in the foreseeable future get this property to a point where it's a very nice return and a handsome return for our investment. There's not -- there's no other motivation other than that when we looked at M, relative to strategic steps and whether we buy something else in Las Vegas, the answer is if its a compelling opportunity, the answer is yes. If it's not, we will continue to be disciplined and pass on opportunities that come by.

I will ask Tim to ask some color, but one thought that came to my mind that I kind of like and it was this. You know the property sits in Henderson, so it's ten miles south of the strip, and Anthony Marnell had described to me, forgive me, it was not he, but one of the folks at the properties, that early on they had some -- it looks very close. Distances are deceptive. They had some guests that decided rather to take a cab that they would walk to the strip. And it looks -- I would swear, myself, it looked like a three mile hike. He said, an hour and a half later you had some very red faced and pretty draggled looking people coming back much worse for wear for having tried that. Again we are not confused about the location of the property. It is just a terrific one-off opportunity. Tim, do you want to add some color to that?

The other thing I would like to add, as Peter and Bill said, is the current management team there has continued to improve operations over the quarter-to-quarter and year-over-year results. So we are very encouraged that that business is getting toward stabilization and as we said before we do know that we do have a percentage of our database that would very much enjoy the experience that the M offers, quality hotel rooms, quality restaurants, great casino floor. And we're going to work with that property to take advantage of their property and our data base. And that is something, as we get greater understanding of that business and spend more time with management there that we are encouraged, as Bill said, that we will get a good return for our shareholders on this investment.

Just another observation about quality. Look, I would easily rank this in the top five of all properties in that market. This is a first-rate property, as I said, built with great love and care by the Marnells. So, we're anxious to take the next step. Next question or does that answer your question?

I am set. Thanks, guys.

Our next question is from Felicia Hendrix from Barclays Capital. You may proceed.

Hi. Good morning. Hey, Bill, you just touched on this, but I am going to see if you can be a little more specific. When you were doing your analysis on M, you can gave us the current numbers through August, which is really helpful. Just wondering what kind of EBITDA did you use in your analysis?

I don't think we are going to go there for a multitude of reasons. Listen, it's premature for us to do that in the first place. We certainly have numbers. I feel very comfortable that we are going to be able to increase results to the point where it will be better than the Company multiple. But that's going to -- I can't promise that's going to happen next year. But I do see that it happens within the foreseeable future and it doesn't take -- we don't think it's going to take enormous heroics in the Las Vegas return market for us to get from. So, if Las Vegas returns as we have always said on our calls or at least I have always been consistent, we do believe in the long term health of Las Vegas and on a long term basis we think we can get really outstanding results at this property.

But it seems like you might try with your data base to make it a little more destination oriented than of originally intended?

Well, there's 390 rooms there, very high quality rooms. And clearly the property, just like the rest of Las Vegas, struggles to fill rooms. Given the size of our data base, certainly what we said is we will be able to use our data base as an additional pipe to help fill that side of the business. Clearly the property is a great property. I mean it has outstanding restaurants, food quality is amazing. And I think our guests find it incredibly a great experience. If nothing else, if we can just help fill the shoulder period with customers or enhance the quality of the customer from the maybe the lowest end type of customers of what they have to use today to try to fill the hotel. We can replace those with customers with a relatively high propensity to gamble we should be able to enhance results. It is not going be astronomic because there's only 400 rooms. Even if we were able to completely fill the hotel with guests, it is not like there's hundreds of millions of EBITDA here.

And we all know, too, that the majority of customers coming to Las Vegas do want to stay on center strip. The thing that we're encouraged by is the quality of this facility will certainly attract some business but the majority of our data base will still want to experience what goes on in the center of town. So that's going to dampen the effect of our data base a bit but, as Bill said, it is only 390 rooms.

Right. Switching gears over to Maryland. The Maryland state lottery released numbers yesterday which looked great just for the last four days of September. I get that it was early days in the initial. But the win per unit per day was obviously a lot higher than we were looking for, it was slightly under 350. Just wondering if you could talk a little bit about how we should think about that property on a run rate basis?

Well, Felicia, it is still very early. We are three weeks into the business, and it is stabilizing. Certainly the first four days are driven by the newness of the facility and the grand opening and all the energy around that with Governor O'Malley being there on September 30 to do the ribbon cutting. So, it has started to stabilize in October. It is still very early to give an indication of where this win per unit will level out. It is meeting our expectations. There's a lot of business that's coming there [unincented] right now. We are watching what our competitors do to the north in Delaware. So I would just say performing to our expectations and we will have more information for you and be comfortable to provide better and more confident information once we have a little more time under our belt.

That's fair. Thanks. Then just my final question is on Louisiana and your application for the [fifteenth] license there. I am wondering with the three other applications vying for Lake Charles, does that give you an advantage?

Steve, do you want to that?

Well, Felicia, I think we certainly have an advantage as it relates to the presentation we'll be making in front of the Louisiana Gaming Control Board in December in terms of the financing and the certainty of an outcome. So I think that if -- all other things are equal, I think the preference down there will clearly be to be certain that whomever is selected will build the facility and I think we are better positioned than anyone else to evidence that proof.

Thanks. And then I am just wondering are you guys planning to build a new boat there or could you move your old Lawrenceburg boat there. There's just not a lot of information. I am just wondering if you can give us some more.

We are not prepared at this point in time to announce any capital plans with respect to that project. We will be as I said presenting in December. But suffice it to say, we have looked at a boat that is sitting in Indiana that would fit in that location and it probably makes quite a bit of sense given the fact that the existing incumbent operator there has made very little capital investment in their project over recent years.

Okay. Great. That's really helpful. Thanks, guys.

Thank you.

Our next question is from the line of Larry Klatzkin from Chapdelaine. You may proceed.

Hello guys. One quick housekeeping capitalized interest?

Capitalized interest in the quarter was $1.6 million.

Alright. And, depreciation at Perryville, what number should we be using?

We -- what number should you be using? I am not really prepared to give detailed line by line projections. It's not going to be a lot, obviously on $93 million. It is not really a material number, but you can call Mario later on.

Alright.

Alright. For -- M casino, that cost what, $1 billion to build? We are trying to trend away from giving exact details relative to the former owners. Again, we're the bank at this point, so there's certain confidentiality provisions within the credit agreement that we probably at this point, wouldn't care to share.

Alright. No concerns about somebody buying Green Valley and fixing it up and making it more competitive?

It could well happen. Well, first of all I don't think Green Valley, I can't imagine that anybody could buy it and justify the capital expenditure required to get it up to a level that would be anything close, quite candidly, to the quality of finish of what M has. Green Valley is fine property.

It is very competitive today, as it stands, Larry.

I know, I know.

If they were going fix the reserve or whatever they call that, that would be a different animal, but Green Valley Ranch there's nothing wrong with Green Valley Ranch.

Well, look, we're not confused, this is still a very, very, very competitive market, the local market. So, it's a dog fight. And we understand it, so we go in with our eyes wide open.

Alright. Changing direction, the Ohio slots on your two tracks and timing I know with the Gubentorial election things kind of get put aside until you have a new governor. Any feel for what's going on there?

Eric do you want to --

The gaming commission is actually going to have it first meeting on Monday. And that's to swear in the new members of the Board and so they're continuing to try to move forward. The following meeting from there is probably going to wait until after the election. Its showing that its going to be -- it's a tight race there with Kasich and Strickland. And we will have to see what happens after that. There was some rumblings yesterday in the press that, depending on who wins, there may be another look at the composition of the gaming commission. A lot of that is just politicking right now. So we will have to see what happens after November second.

What about, Eric, the status of the BLT at the track?

Part of BLT also we think is largely dependent on the outcome of November second. Kasich has said publicly, not to put words in his mouth, he has said this, that he would open to exploring any new new sources of revenue that could create jobs and opportunity so he is not precluded the possibility. We know where Strickland stands on the issue, he has talked about seeking a declaratory judgment on the question. At this point it has not been filed. We don't know when that will occur. Obviously that's an after the election item as well. So we will have to see how it plays out. In the meantime, the lottery commission is continuing to put together rules, regulations, getting up to speed on how the BLT industry will be running in Ohio. So even though everyone has an eye on the election, things are moving on a parallel track both in terms of the gaming and at the lottery commission.

Let me be clear, we support slots at the racetrack. We always do, wherever that opportunity exists. We'll just have to see how it plays out as Eric has clearly said. On the other hand, if it doesn't happen, that's okay too. But, we do support it. We have strategies that we think will be successful.

Well good. Well, thanks guys.

The next question is from David Katz from Jefferies and Company. You may proceed.

Hi. Good morning, nice quarter. I wanted to just see if we could go back to M resort for a second. Obviously, those of us that are projecting out for next year and the year after are going to be required to make somewhat of a leap as to when that property is going to come online. If you can share any detail about how that process is going to work or what news items or what benchmarks we can be looking at, that might help us make that leap. Then I have a couple of detailed follow ups.

I am going to have Jordan Savitch answer the legal aspect of that question. But we got a lot of questions on M. This is a relatively small deal. I mean from our point of view. And I know it is interesting and it is kind of fascinating that we're actually there, but understand this is a small transaction relatively speaking. It is as we mentioned kind of a one off opportunity. It will unfold over a period of time. So we can spend a lot of time with it but frankly there's a lot more important and interesting things that we are doing today. Jordan, do you want to address the particulars?

Sure, given how we came into this transaction, we are still sorting through the details. We stepped into the bank's shoes, so we are sorting through the details of what they were thinking, what's best for us, and I am going to hopefully finalize this shortly. But whatever we do is going to be -- is going to require approval from the Nevada Gaming Control Board, and Nevada Gaming Commission. We are expecting that, hoping that happens some times in the first quarter. So that's probably the best time direction I can give you.

Okay. That will help. And then just a couple of other details, I notice that your -- obviously your earnings from joint venture line becomes a little bit, a little bit more prominent in the model these days and I assume that's a result of including Maryland in there. But we are also going be reflecting Sam Houston in there as well. And if you could shed a little bit of light on that. And then, also for Bill, if you could just talk about the CapEx ramp we should be thinking about, particularly as it relates to Ohio, and those two projects. I also didn't -- I apologize if I if missed it in the release, but I was looking for your revolver balance and debt balances?

Yes. I will give you that.

Let me make a comment, Bill, first, about just philosophically. Look, we understand what we have undertaken in both Maryland and in Texas. We are alert, obviously, to any large opportunity that could positively affect us. These are money-losing operations, to be clear. And we have a very sober look at what the opportunity is and a timeframe around which we are willing to sustain negative numbers. This Company is not in the business of losing money, not here, not anywhere, so, we will take a hard look at it. If we don't succeed in Maryland, you will see a major change in the way we operate there. We have the commitment of our partners, we have a very realistic sense of the opportunity. We were taking the case today that slots belong at Laurel racetrack because that's what is best for Maryland, and that is the most certain thing. By the way, it is the most profitable thing for the state if we succeed in that effort.

In Texas again, maybe the stars are aligning with a lot of support, much beyond us in that state for slots, not -- probably not just at the racetrack, although that's fine with us, maybe a broader bill, a la Pennsylvania. Hopefully it's not lost on the smarter legislators, that Pennsylvania has rocketed from no place to being the number one revenue producing state in the United States, from gaming revenues. That is an amazing accomplishment in the span of just three years. It's amazing. Pennsylvania has set a model that can work, it balanced both racetracks and free standing facilities, its been terrific, you all see the results. We hope that Texas will look at that as an example, as a perfect model. So that gives you our strategy but make no mistake we are not in the money losing business forever. Bill, do you want to -- ?

Relative to the timing Texas is obviously in front of the regulatory racing commission for approval. We're not exactly sure what the timing is for next year at this point. So, something in -- probably second quarter is probably a good guess. The -- relative to some data that we normally give out, our total -- our cash at the end of September 30 was $237.3 million. Bank debt was $1.518 billion, capital leasing of $4.2 [million], the Aurora obligations of $3.7 [million]. Then we had the two bond offerings of $250 [million] to $325 [million] for a total of $2.1 billion. CapEx in the third quarter, broken out with the total of $74.1 million with roughly $51.8 million in new projects stuff. Maintenance CapEx was roughly $22.3 million. Broken down -- that was broken down into expense roughly $12.9 million in Joliet, [Cecil] County was $14.6 million, Columbus was roughly $4.4 [million], Toledo was $3.4 [million], Penn National $3.5 million, Lawrenceburg finishing up the restaurant there was $3.2 [million]. Charles Town was roughly $7.6 million.

Looking into the fourth quarter, we are looking at total CapEx for $89.7 million which we've broken down between new projects of roughly $59.3 million, and maintenance CapEx of roughly $20.4 million. As far as next year we are -- at this point we're not really prepared to give guidance on 2011. That will be -- we will be providing that on the fourth quarter earnings call.

Okay. If I may, just one last one, your earnings guidance. Are you reflecting $0.46 for this quarter or $0.37?

We are reflecting the $0.46.

Okay. Perfect. Thank you.

Our next question is from the line of Steve Wieczynski from Stifel Nicolaus. You may proceed.

Good morning, guys. Two questions, I think they're probably both for Tim. Just first Tim, you talked about the past in terms of Charles Town, the high end play and that has been pretty strong, the database of players down there. Can you just address what you've seen over the past couple months, couple of weeks, in terms of that market and how big, eventually, do you think that market can grow to? Then just address Lawrenceburg, the property seems to be a little bit under pressure at this point, the margin deteriorated a little bit year-over-year, just a little bit of color on that would be great. Thanks.

First, in Charles Town, Steve, we certainly are -- with our 85 tables games and 27, 28 poker tables, we are seeing very, very strong play during the week and on weekends. Our table limits are extremely strong during these periods, and we have also benefited from marketing we did prior to the opening into the Asian community in the Washington, DC, northern Virginia markets. And knock on wood it has been fairly strong and stable over the three months in the third quarter. We have seen no erosion as we turn the page on the third quarter into the fourth. It's been very solid. I can't give you a sense for how much bigger it can get. I wouldn't want to say -- it is already exceeded our expectations and it continues to be strong. We'll continue to price our offerings based on the demand there, which continues to be very, very encouraging. So we are off to a good start there and we know it is a deep market as we have seen over the years with the slot business we have enjoyed there. It's a deep market that right now with it being exposed to table games for the first time, and we expect it to sustain itself.

In Lawrenceburg going over to southern Indiana, we, in the third quarter, had the anniversary of our grand opening last year in 2009 of the hollywood casino refurbishment. So we knew there was going to be some decline year-over-year in especially July and into August. But what surprised me and concerned me is the softness we saw in September in the market it was down. We have a competitor there who is up for sale actually a transaction is in place to sell the assets, that clearly spending a lot of promotional dollars to prop up the revenues, we believe at the expense of EBITDA. It has hurt us a bit in the margins at the lower ADT levels, and something we are looking at. We are certainly not going to chase as we see this competitor continue to be very, very aggressive there. And we are going to continue to be very smart about how we spend our promotional dollars and continue to wait for that market to recover.

And as I did want to cover -- we are generally, across the businesses, with the exception of introductions of table games in Pennsylvania and West Virginia, we are still seeing a bumping along at the bottom across the regional markets. It is not getting any worse, it's not getting any better. We are still managing to -- volume levels that are pretty consistent with what we saw in early part of 2010. In most of our businesses we are doing a better job of managing our expenses and that's where you are seeing the margin improvement across the enterprise.

The next question is from the line of Ryan Anchor from Affiliated Research. You may proceed.

Good morning. Just wondering if you had any update regarding the zoning ballot initiative in Anne Arundel county Maryland, and what was your -- latest findings are showing regarding the initiative in that market?

Eric, why don't you talk about that and we'll talk more broadly afterwards?

Sure, so as many of you have probably seen, the public polls that have come out have shown that its going to be a tight race and its a dog fight there. We believe the that the voters in the Anne Arundel County originally intended for slots to be at the racetrack, when they decided this issue back in 2008, as to whether Maryland should have gaming. And, while the economy is certainly on everyone's mind there, we have been continuing to point out that the mall is just a bad location and Laurel racetrack is a better location, where we can create jobs and revenue faster and we have really spectacular plans for a facility there. So, it's really been an education effort on our part. We think the natural inclination and people get the fact that the mall -- with the traffic problem, with the growth and development that's occurred around there with residential neighborhoods, just is an inappropriate location. So, the more we talk to people about this and point out what we are hoping to do at Laurel, the more support we are continuing to get. But, its going to be close and we are just keeping our nose to the grindstone.

One of the problems for us has been the Baltimore Sun, which is completely in the bag for David [Cortis]. Their behavior through this process has been virtually scandalous. I don't think in ever in our experience around the United States in any of these efforts have we ever seen such outrageous behavior by a newspaper. Just to say it flatly, its been amazing. It shocks us everyday. So that's been sort of a difficult process. The free press is tough to fight. But, nonetheless, the truth is on our side. We can actually move faster than this guy to get slots open. We actually have a site that is completely entitled and ready to go, which he doesn't. So there's a lot of facts in our favor. What the voters emotion will be like on the election day, of course, is something that we can't completely predict for the reasons that we all know is that some of these races go up and down, even to my surprise here in Pennsylvania, I see that Toomey may be slipping back. So, you watch these things and recognize it is highly volatile year. So, it could go one way or the other. I guess that's our answer.

Okay, thank you for the update. If I could just ask maybe one follow up regarding -- you commented very extensively on the promotional environment in Lawrenceburg. If you can anything about the current promotional environment in other markets, such as Chicago market, Missouri?

Well, generally it is as the quarter evolved, it got better. We started to see some pull back in the promotional activities in the Kansas City market which at the beginning part of the third quarter, Ryan, were very intense. That's gotten a bit better. Chicago land has been fairly stable over the quarter. Southern Mississippi and Tunica continue to be very aggressive markets for promotional spending. It is something that hasn't changed really now for a couple of years. And then in the other markets, generally the level of promotional spending has been fairly reasonable, and some of the competitors have actually started to pull back noticeably Pinnacle which we have seen in the markets we compete head to head with them. They've actually pulled back as well, which is encouraging to see.

Great. Thank you.

Our next question is from the line of Joel Simkins from Credit Suisse. You may proceed.

Good morning, guys. A cup couple of quick questions here. Clearly everyone here continues to be focused on M but your appetite historically has been for regional acquisitions, the last time I checked AmeriStar is for sale. There is a couple of asset that could fit in nicely there. What's your view, generally, on regional M&A at this point?

We are always interested in quality properties at a fair price. So -- that's all I can say. They had some very nice properties, The question is, can they be added at a price that we can survive. That's the quick answer. Tim, do you want to add?

Nothing more to say, Bill?

No. Listen we are always looking for an opportunity to grow free cash flow per share, and quite candidly, AmeriStar would be an enormous collection of assets. However, quite candidly in our view anyway, the market and relative value of what you could pay for it are very tight. And, candidly, AmeriStar has indicated they are available for sale and I am sure they're going through the process but the question is at what price would they actually part with the assets.

Sure. Two quick follow ups here. One on Zia Park, obviously a smaller property but it looks pretty good this quarter. Is that really driven by energy prices and then, secondly, just real quickly back to Texas. Any sense of what you're prepared to spend on lobbying there the next six to 12 months?.

Let me cover the question. I will let someone else in the room cover the other question about lobbying spending in Texas. Joel, we have seen oil be above $75 a barrel. And that really does drive the feeder markets that go into Zia Park, Midland Odessa and Lubbock. That's why we're seeing good year-over-year growth in that business and we're able to continue to grow the business because people that work in the energy industries now are employed at higher levels. That's certainly the primary reason why we are seeing year-over-year growth in Zia.

With respect to lobbying, obviously we can't publicly say what our thoughts are about a financial commitment there. It doesn't serve any of our purposes to do that. Suffice it to say, we want to spend as little as possible but we'll spend what we must. We are part of a coalition there, this is not a one-off effort on the part of our Company. There are a lot of people with an interest in the same thing. We think it is good for state. It is good throughout the state. I think it stands a better than reasonable chance this cycle than it has in the past for the reasons that we all know, its called just economics and tough budgets. So we'll do what we must, but again this is not a one-off effort, we're part of a group.

I do want to say, Joel from our polling research in the state of Texas, if it does go to the voters of that state, polling is very favorable among the residents of Texas for gaming. So that's obviously what we think is going to happen in terms of how its going to be structured through a legislative process. As you know,you look at that state,it is surrounded by gaming to the east, north, and to the west and is a huge feeder market for Las Vegas. So there is already a very favorable predisposition toward casino gaming among Texans.

Thanks a lot, guys.

Our next question is from the line of Steven Ruggiero from CRT Capital. You may proceed.

Good morning. One last question I have there are a few casinos including Aurora, Altin and Bay St. Louis where you controlled your expenses very well, your top line was off but you managed to improve your margins notably. Is this expected to continue not only in the fourth quarter but into 2011 at those properties?

I certainly believe we are going to see year-over-year margin improvement in the fourth quarter, Steven, as we continue to do that and fine tune it. I would be hesitant to go into 2011 that far out until we have more data points into the fourth quarter to talk about how, how the P&Ls are looking in these businesses, but certainly I am confident that you will continue to see margin improvement in the fourth quarter.

Let me --

One last question on consolidated affiliates, a bump up in the latest quarter, what did we see from that giving your Texas acquisitions perspectively? Can you give us a sense of guidance if you will?

I am looking for that now. We are not really touching 2011 guidance today.

How about just for the fourth quarter similar type of number.

It is not included because we haven't closed on the transaction. There's nothing in Texas in fourth quarter.

Okay. What's driving that then, the higher number?

Basically Maryland jockey club which includes our political efforts in Maryland.

Got it. Thank you.

One observation I think we should make is that I think it is of interest broadly to all of you, and that is that while Penn has very good things happening and those are evident, we are not seeing a lot of wonderful things happening out in the market. Any thought that somehow this has turned around beautifully and we're off to a new day, it certainly hasn't settled here in this conference room upon us. It 's -- markets are still tight in most of the places where we do business. Consumers have considerably cut their spend, and while we remain optimistic with our eyes on the horizon, we are managing the business as it is today and trying to be forward-looking about new stuff, different stuff, because one way or the other growing revenue in the bottom line is our goal. So, it's still tough.

Our next question from the line of Carlos Santarelli from Wells Fargo. You may proceed.

Hello guys. I just happened to notice in Illinois it looks like you guys have done a lot of the same there where we've seen revenues declining at two of the properties and you being able to grow margins, is that something -- was there anything, an aberration in the quarter or should we expect you guys to continue to operate under the same structure there? Thanks.

Carlos, in Illinois, no. Alton and Aurora were fairly clean quarters. There was really no one-time things driving those results. Joliet was a bit of an aberration. We had there as well, like Lawrenceburg, anniversaried the reopening of that facility from the fire that closed it in the second quarter of 2009. And we had a very good especially July and August for 2009. We saw declines there coupled with unusually unlucky, from a house standpoint, low hold on tables. And that certainly impacted the results as well. But we did continue to cut our promotional spending at Joliet during the quarter reflective of what we're seeing with the consumer. But Joliet is going to have a transformation in the fourth quarter with the completion and the rebuilding from the fire of the new facility and the rebranding to Hollywood Casino Joliet which should happen by the end of the this year. So that's really the big news going on in this quarter in Illinois that the change is going to occur there with the completion of that work.

Our next question is from Bill Lerner from Union Gaming. You may proceed.

Hello guys. A couple of questions. One on Maryland. If the Anne Arundel County is rebid, are you allowed to bid on a second license, or anybody can bid -- can you have a second licensure or what's the -- what body would give you approval in the event you need a carve out there? And then, the follow up is, as it relates to MID, interest in Gulf Stream, Golden Gate, Santa Anita in any way? I understand not all of those are slot oriented, if ever, but I want to get a sense for your level of interest.

I'll do Maryland. First and foremost, there's nothing that would preclude us, or MJC rather, from applying for a license at Laurel Park literally on November 3, or whenever the lottery commission tells us they're ready for the application. Nothing in the law that says we can't apply for it. We then have options that we'll have to explore that include a restructuring from an ownership perspective, management or potentially a divestiture of our other assets there. Clearly those are options that have been put on the table and we've not shied away from that publicly. We think the county, the state, the lottery commission and the location commission are going to want to move as quickly as possible to start generating the revenues and jobs that we're hoping to create at Laurel Park. So we are cautiously optimistic. We know on our end we will be ready. And on their end we are cautiously optimistic they will move very, very swiftly to get this process underway.

The Governor has made very clear that he believes slots belong at Laurel, so that we are pretty confident that following a defeat of the efforts to put the slots where they don't belong, that the state will move very swiftly to start a new process. Heck, they could have an RFP out in 30 days and we expect it to move very, very quickly thereafter. We are ready with designs and an approved site and an existing facility where we can open a temporary. They have talked about concealing us as a circus tent in the parking lot. I can't believe they've actually published that but that's what they say they want to do. We actually have a real building where gaming is going on where we can put these machines pretty quickly. So, we have the better story. We will just have to see how it plays out.

We also are reminding the folks in Maryland if you look at our record in Perryville, once we got the okay to proceed, we, with our development folks, design and construction and operating teams, got that facility open in record time and we are prepared to do the same in Anne Arundel.

Okay. Great. Then just a follow on if you would on Gulf Stream, Golden Gate and Santa Anita, as it relates to your MID relationship,.

Steve, I don't think we -- look, we have a great relationship with those folks and we would have talked about other opportunities. I would never say no to anything, but again, we are not prepared to make any other comment about that today.

Alright. Thanks.

Our next question from the line of Mark Strawn with Morgan Stanley. You may proceed.

Hello guys, one quick question on Columbus. Just wondering if there are any concerns that, that project could be delayed beyond 2012, given that you haven't broke ground yet or is that still tracking towards the end of the year?

I don't know - Tim, do you want to take that?

I mean we're still on schedule, Mark, to continue the remediation of the Delphi plants site. That is expected to finish up in the early part of February, and we are still targeting an end of first quarter ground breaking there in Columbus. We are making very good progress on our designs for the facility, and that is, that is moving along very, very nicely. We are still targeting a end of 2012 opening there. And, as Eric said before, the state is also now established the Gaming Commission there. So that's a good sign as well, that progress is being made on the state side.

And we've completely settled design, its a terrific facility, we know what it looks like, its going to be a very exciting project.

Great. Thank you very much.

Our next question is from the line of Neil Portis from Goldman Sachs. You may proceed.

Thanks. Could you provide some detail on specific programs or ways you have been able to reduce marketing spend? Are there types of customers you are targeting less or types of incentives?

No, it is really, Neil, all looking at the profitability of our relationship with customers, and the profitability of our marketing programs. We put in filters to determine certain thresholds that we want to manage margins to on a customer basis and a program basis, and then over time, as you evolve, these programs continue to make them more profitable by redefining the rules of engagement and modifying the details of the execution of where you have expenses being applied to your marketing program. So it is an on going process and a discipline that is inherent in all of our businesses. There's no one specific magic wand, that is being waved that is producing these results.

Is that across the portfolio or certain markets?

No, across all of the businesses. We started to see in late 2009 that trying to change customer behavior during this recessionary period was not producing any meaningful results. So we have decided to reflect the changing spending patterns of our customers across all of our businesses. So that is something that was put in place early part of this year. It is in all of our businesses and it will continue.

Okay. And for M resort, is there a time frame you are envisioning to achieve your target return on investments?

Well, listen. I think that's a bit of a fluid process and it is quite candidly not completely within our control. Listen, those targets are probably -- I guess I would say by '12 if we're not getting to numbers that we are very happy with, we'll be disappointed.

Okay. Great. Thank you.

Our next question is from the line of Harry Curtis from Nomura Securities. You may proceed.

Morning, guys.

Morning.

Hello, Harry.

Good morning. Peter, a quick question on the regulatory landscape as we look into 2011, given the increasing state budget deficits. Do you see any markets where there are rumblings where you could see some easing in either the regulatory environment or taxes, or are there markets where there's risk of or talk of taxes going higher?

I will let Eric handle that. Fortunately, we haven't heard a lot about higher taxes, I know that was a popular item about a decade ago. I think most states have wised up to the fact that, notably Illinois, they don't learn fast, that you tax it more you get less. We have seen that effort and I think it is not lost on most legislatures that you just hit a point of no return. Eric, do you want to talk more broadly about that?

Yes, the only jurisdiction we've seen that has started to (inaudible) some rumblings in the legislature about the tax rate would be Maryland because they have the second highest tax rate in the country at 67% and obviously there's an ongoing arms race in the mid Atlantic region with table games coming on in the neighboring states. So there's been some talk about that, there's been some talk even about when the state would go back and possibly look at adding table games in Maryland.

In terms of higher taxes though, we are really not seeing that out there. What we are seeing, though, given the state of the economy, are expansion proposals that could be very devastating us namely in Illinois. What we loving call as the "perennial kitchen sink" bill. That has reared it ugly head again. That we're going to have to play whack-a-mole every year we have to try to slap that down and show them it would -- expanding it beyond where it is today beyond the footprint of gaming in Illinois today would be very damaging. So the current bill there would require a three fifths majority, the way it was written. So we are working along with our industry brethren to try to knock it down for what Tim, probably the tenth year this has coming up?

No, probably close to twentieth year it has come up.

This is the least stable state in America. It is just a terrible place to do business, unfortunately. We have the happy distinction of having three properties there. It's a shame. It could be and should be a great gaming state but it remains very, very, very unstable. So we work it as best we can, and we will just have to see.

One thing Harry, to your question. The industry has demonstrated to the states in the past especially five to seven years that higher taxes kills jobs. That's the last thing anybody wants to do right now, given the high unemployment rates we are seeing across all of our markets right now.

Thank you. That does it for me.

(Operator Instructions). We do have a follow up question from Larry Klatzkin from Chapdelaine. Please proceed.

Hello, Peter. A quick question with the M casino, let's say you negotiate that and get possession or whatever, does that end your appetite for a strip property or do you guys still that's something attractive at the right price?

Larry, you must have missed the opening statement, where I think I made pretty clear that this is not a property that will meet our strategic goals in Las Vegas. This is a one-off transaction, a terrific little transaction, but it doesn't get us where we would like to be. So, we remain as focused as ever on the right opportunity on the strip at the right time. So, I forget whether that's a yes to your question or a no, but either way, you get the message.

I get the message.

I think that, at the end of the day, we are still not going to rush out and pay a ridiculous price for a strip asset.

Absolutely not.

That's regardless of the M and if something did come available on the strip that we thought was a good opportunity, yes, we would pursue it. But, quite candidly, I don't think the likelihood of that coming forward in the near future is very high. So, I guess the answer to your question is, no it hasn't whetted our appetite for a great property on the strip at a good price, but it doesn't mean it's increased the likelihood that we actually are going to get one.

That's a good answer, Bill.

That's a good answer. Alright, well, thanks, guys.

Thanks.

Appreciate it.

Our next question --

You have -- we will take one more question.

Okay. Thank you. From the line of Adam Steinberg from Merriman Capital.

Hey guys, thanks. Real quick, Bill, you mentioned that your growth CapEx for next quarter is $59 million. So I am going to assume that doesn't assume the two $50 million payments for the licensing fee in Ohio. When do you expect to pay those out?

I am probably not the right person to answer that question. That would be you or --

Yes, the $50 million would be due at the time we get our license, as Tim pointed out and I pointed out earlier, the gaming commission is just beginning the process. We have to keep an eye on the November 2 election and take guidance from the gaming commission going forward, and watch how the process unfolds but it is on licensure, when that check(inaudible, multiple speakers) which should be some time next year.

Okay. And then, also in your guidance, you say that you -- does not include any benefit or any earnings impact from M. Is that operational or are you are including into that, the higher interest on the revolver from buying the debt?

We do include the interest expense on the revolver. We are not including any of the operating results from M.

Okay. Thank you.

With that we are going to wind up the call. You all know where to find us. I think everyone has Mario's number. Sorry about that. But you know where to find us. We are working hard here and look forward to seeing you all next quarter. Thanks very much for participating.

Thank you, ladies and gentlemen. That does conclude the conference call for today. We thank you for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.