In preparation for PENN’s Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from PENN’s Q1 earnings release/call and subsequent conferences/articles.



Columbus water/sewer annexation deal misses deadline (7/20/2011)

  • "The pending settlement expired at the deadline because the two contingencies were not satisfied. Penn National continues to be in discussion with all parties.”
    • 2 contingencies
      • PENN had to have an agreement to sell its original casino site in the Arena District for at least $11MM. Nationwide Realty Investors had acknowledged it was in talks with PENN to purchase the land.
      • PENN had to settle separate lawsuits with The Dispatch Printing Company, which publishes The Dispatch and
  • "We are prepared to go to trial and are confident in a fair hearing from Judge (Gregory L.) Frost."

$2.15BN Senior notes refinancing (7/19/2011)

  • $700MM RC facility—matures July 2016, L+175bps
  • $700MM Term Loan A—matures July 2016, L+175bps
  • $750MM Term Loan B—matures July 2018, L+275bps (LIBOR floor of 100 bps)
  • $250MM 6.75% Senior Sub Notes—matures August 2015
  • $325MM 8.75% Senior Sub Notes—matures March 2019s
  • Refi replaces the existing $640.6MM RC facility maturing July 2012 and the $1.52BN secured TL B loan maturing Oct 2012

Ohio Governor Kasich signs the racetrack relocation bill—HB 277 (7/15/2011)

  • Permits PENN to move Beulah Park from Columbus to Dayton, and Raceway Park from Toledo to Youngstown.  The Ohio Racing Commission will have the final say on the matter.

Highlights of the Ohio casino agreement (6/17/2011)

  • Penn would pay Ohio $110 million over 10 years–$10 million per year for the first five years and $12 million per year for the next five year
  • Tax certainty for gaming companies: Ohio’s Commercial Activity Tax (CAT) would be applied to casinos’ total dollars wagered minus winnings and prizes paid out to customers
  • Capital Expenditures: Gaming companies would make a combined capital expenditure in their casino facilities of at least $700 million (ROC: Cleveland and Cincinnati, PENN: Columbus and Toledo)
  • VLT Licenses: The Lottery Commission intends to allow each of Ohio’s seven horse racing permit holders to apply for a 10-year sales agent license to operate a VLT facility. Licenses would cost $50 million and be paid over time: $10 million upon application, $15 million at the onset of VLT sales, and $25 million one year later
  • The state tax on racetrack gaming machines would be set at 33.5%

PENN divests Maryland Jockey Club (6/16/2011)

  • “While we are divesting our interest in the Maryland Jockey Club, Penn National Gaming remains committed to racing and gaming in Maryland. With our acquisition earlier this year of Rosecroft Raceway in Oxon Hill and our successful opening last fall of the state’s first VLT facility, we will focus our resources on further strengthening the racing and operations at Rosecroft and building on the initial success of Hollywood Casino Perryville. We believe that the Maryland Jockey Club, Pimlico and Laurel Park will be well served under the single ownership of The Stronach Group and we wish them success with these historic racing venues.”
  • Transaction expected to be completed in the next few months and is subject to approvals from the Maryland Racing Commission.

Post Earnings Conference Commentary (Jefferies & Co. Global Consumer Conference/ Wells Fargo Securities Consumer Gaming and Lodging Conference/ UBS Leveraged Finance Conference)

  • [Perryville Capex budget/ROI] “I think we’ve budgeted $98. We’re probably going to come in around $94. And I think you’ll see here we’ve generated $8.8 million since opening -- six months -- plus $17 million over a year’s timeframe and that’s still ramping. So you can see that’s at least a 17% to 20% of return on invested capital regardless of how small it is we still only think about returns on invested capital.”
  • [M Resorts] “Net of cash, we’re in for about $210 million on this $1 billion facility. So, the property is running less than 10% margin and we think that there is a big opportunity for us here to get margins up to a level that commensurate with our overall company operating margin.”
  • [Leverage] “So from a leverage perspective, our leverage should not go up in 2011, should not go up in ‘12. And once we bring these facilities on in 2013 and the CapEx goes away, we should be able to de-lever very, very quickly even though we already have very low leverage.”
  • [April/May] “April was a good month.  April was one of our better months and we’re very encouraged by that. May has been okay; it hasn’t been as strong as April, but [we’re] still very happy with the month of May.”
  • [Business interruption insurance] “Our policy is we have a $5 million deductible and a two-day business interruption and we’ve got a flood insurance coverage from the federal government for like a million bucks, which will help. So basically net deductible should be like $4 million. I’m not sure we’re really going to go very deep into that claim because candidly we’ll see.”
  • Q: If gaming got passed in Texas or any other jurisdiction in general, how long do you think is usually between the time it gets passed and time you can have something running?
    • “It depends to the extent that they preordain or they preselect sites and that will indicate who is eligible for site, it can be probably two years from the actual authorization to the extent that they’re going to have a process and what we affectionately refer to is a beauty contest, then that usually generally takes three years.”
  • [$1.25 BN interest-free loan in 2015] “There is another issue in 2015, which is the Fortress and Centerbridge, what we call the preferred equity slug, comes to a maturity in 2015 and if we haven’t been able to find a good mechanism for deploying our capital in terms of expansion opportunities by then, obviously we would look to eliminate that delusion at that point we would go out, raise the debt and pay it off….So really through 2015 that speaks to roughly $1.2 billion of commitment of where we would spend the money.”
  • [EBITDA] “I think one of the best things that happened ironically for the gaming industry was this financial crisis or economic crisis. Pretty much across the boards, people have stopped worrying about market share and that’s a good thing, because they’ve started to worry about EBITDA. And EBITDA is basically where we’ve always been focused.”
  • [Joliet] “When we look at all of our properties, and we do a monthly review, which is at a very high level review at each of the properties, we’ve been incredibly pleased with really the operations for all of our properties and if there is one that’s been a little bit of a disappointment, it’s probably Joliet. Joliet, we’ve clearly not really executing – and I don’t mean this in any way to be discouraging to the team in Joliet, but clearly the property, when you look at it, we’re struggling with the margins, we’ve put some significant CapEx in, not astronomical amounts, but $50 million or so, put a new parking garage on – it’s just been a really tough environment there.  Other than there, I think we’re pretty pleased across the boards.”
  • [Slot Capex] “So this year, we had a very small reduction in our slot machine maintenance CapEx. So we’re probably replacing just slightly less.”
  • [Thoughts on slot purchases] “Most of our other competitors have almost like stopped ordering slot machines, I think we’re probably more inclined to follow – not follow to the extent and the degree to which they followed, but if it’s not making a difference and the customer’s don’t care, then why would you want to run around buy a bunch of new slot machines other than to make the slot manufacturers happy with you. There’s really not a whole lot of benefit there….And the other issue that’s out there, which is candidly starting to get addressed, is the slot manufacturers were year-over-year having significant increases in their pricing, but the production of their slot machines in the way we measure production is win per unit was not matching the increases in the price. So that’s a bit of a concern because obviously that’s a relationship that just says that the slot manufacturers are taking more and more money out of our investors pockets for their benefit of their investor’s pockets and they’re not delivering.”

Youtube from Q1 Conference Call

  • [Margin guidance] “I think as we look out, certainly we are incorporating operations from Rosecroft well as the Sam Houston Raceway Park into our EBITDA guidance. But some of the other components that are out there is that we are also moving up the date of which we expect the 10th license in Illinois to open up. And candidly, we are looking at it going forward and recognizing that our margin improvement has been a gradual process. I think certainly on a year-over-year basis, we are ecstatic with how we’ve done this year, but as we went along last year, our margins were continually developing and improving throughout the year. So I don’t know that we certainly can’t take this year’s or this quarter’s margin improvement and extrapolate that out for the rest of the year, certainly not the rate of improvement. We’re certainly reflecting I think margin improvement in the next quarter and the combination of all of those events together is kind of where we look at.”
  • [Flat revenue guidance] “We’re not including a rebound in revenues going forward or some kind of improvement. We are assuming revenues are basically flat on a year-over-year basis other than the properties that have table games obviously in the second quarter at Charles Town and Penn National will continue to see robust growth. And then going forward from that we’ll start to anniversary to the table games. So we would expect our year-over-year revenue improvement to basically come back in line. Not to say that we don’t expect some growth in Charles Town, but once we get the year-over-year comparisons our revenue growth will not be quite as strong as what you’ve seen here in the first quarter.”
  • [M Resorts] "I think that that property will trend like all the other Las Vegas local properties trend."
  • [JV properties] “I mean on an overall basis for the year, I think we’ll find that we should at least for the properties that are continuing in a year-over-year basis that we should see some progress in terms of reducing those levels of losses. Clearly, within Maryland Jockey Club right now, which is a number that’s included, it’s a pretty decent number in the first quarter, that does not take into account any kind of rebates and other issues that are in front of the Maryland legislature in terms of reimbursing operating losses. When in fact those monies are authorized and finalized and start getting paid, that would obviously reduce the operating losses significantly from the Maryland Jockey Club.”
  • [MJC] “Well, clearly in the second quarter, Maryland Jockey Club will swing from a negative to a positive because of the Preakness. So, clearly in the second quarter, you are going to see a dramatic improvement. First quarter results are probably some of the weakest results, the winter months in the racing business is probably the worst quarter. So I would expect that as you go out throughout the year, the seasonality combined with the concept of the fact that we are doing some stuff to try to reduce our operating losses should see better results going forward than what you’ve seen in the first quarter.”
  • [Charles Town table games] “We are going to be adding 20 more table games come the end of the second quarter to the operations to take advantage of that growth. We’ll have over 100 games heading in to the summer. [They currently have 104 tables, ex poker.] And we also will be completing our $40 million capital program opening up our entertainment lounge and sports bar come June, July, to complete the transformation of Charles Town.”
  • [MS promotional spending] “Down there on the Gulf Coast, promotional spending has been fairly rational.”
  • [Impact of 10th IL gaming license] “We think the property that’s going to be most affected will be Elgin, followed by Aurora, followed by the properties down in Joliet…. And there also will probably some effect in the Northwest Indiana as well with customers from within the loop.”
  • [Why 2H EBITDA margin guidance much lower than 1H?] “You certainly cannot expect us to continue to have the same margins in 3Q/4Q as you see us having in 1Q/2Q, so there is a seasonality effect. There is the impact of the M. There is the impact of these additional racing operations, which do generate revenues and generate losses. So those are clearly counterproductive to overall margins…. We also have for five months the removal of the Rama management fee, which is extremely high margin that we have concluded at the end of July. However, we are in negotiations with the Ontario government and we do believe we’re going to get a short-term extension on that that will carry us through the first quarter of 2012, but that’s not in our numbers as well.”

Measuring Time

This note was originally published at 8am on July 15, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Observe due measure, for right timing is in all things the most important factor.”



On Monday I titled my Early Look “Timing Matters.” It still does.


If you are proactively prepared to play this game, you will capitalize on opportunities while your competition freaks out. Yesterday was a good example of that. If you were watching La Bernank back-pedal on QG3 (Quantitative Guessing III) real-time, you knew exactly what to do. Buy US Dollars, Short Euros, and cut your gross (and/or net) exposure to US and European Equities.


Or at least that’s what I did.


No, that’s not being overly “confident.” It’s called seeing the play develop and capitalizing on it. I’m not sure if it’s this industry’s very low expectations of sell side research or whether it’s just easier to universally accept mediocrity in “not being able to time markets”, but whatever it is, I like it. Championship teams have championship processes. They make calls when calls need to be made.


That’s just modern day risk management with a Global Macro overlay. Measuring political timing, as Canadian Prime Minister Elliott Trudeau once said, “is the essential ingredient of politics.”


Timmy Geithner’s message on timing yesterday was that there is “no way to give Congress more time.” Really Timmy? Thanks – we appreciate the fear-mongering about a debt position you’ve spent 47% of your born life helping create.


Assuming America’s political panderers abide by Geithner’s timing signal, you can bet your Madoff that this weekend sees an acute level of Congressional respect paid toward their own career risk management.


Rather than waking up to these embarrassingly timed notes out of Moody’s and S&P on US credit risk, what if you wake up on Monday to the thundering Squirrel taking a victory lap on a debt-ceiling compromise?


Perversely, that could be bad for stocks – in the very immediate-term. Why? Because that’s both US Dollar and US Treasury Bond bullish! In the long-run, that’s what America needs – a strong US Dollar, as opposed to a debauched one; a confident leadership-line drawn in the sand, as opposed to a politically obfuscated one; and a progressive American resolve, as opposed to a backward looking one.


Back to the Global Macro Grind

  1. I am long the US Dollar (UUP)
  2. I am short the Euro (FXE)
  3. I am Canadian

If you can’t have any fun with this game, don’t play it. Or at least we recommend not playing it against us. Hedgeye likes to stir the pot. And in case you missed our notes earlier this week on China – Big Alberta and his Chinese Cowboys in the Haven have brought out the mandarin ladle.


Despite La Bernank sending US stocks lower for the 4th day in the last 5, Chinese stocks closed up another 0.35% last night (they were UP for the 4th day out of the last 5). Good timing.


Meanwhile, European stocks are sucking on a Europig’s nipple this morning hoping that the rest of the real-time risk managing world doesn’t realize that the European Bank “Stress Test” Part Deux isn’t a joke. Hope, and “stress testing” banks using their 2010 numbers, is not a risk management process.


In terms of European positioning:

  1. I sold my Sweden (EWD) yesterday because we don’t like/trust their banks’ exposures
  2. I am long Germany (EWG), and I’m worried about it
  3. I am short Italy (EWI), and I like it

Conan O’Brian said that “early on, they were timing my contract with an egg timer.” And that sounds just about right in terms of the shortest of short-term durations that we’re talking about when we consider these Eurocrat and Congress market catalysts…


But, when Measuring Time in macro market moves, you have to be Duration Agnostic. Market catalysts can be short and/or long term in nature. Mr Macro Market doesn’t particularly care about our individual investment styles or durations.


I’ll walk through how we Measure Time with our all-star Global Macro team of analysts on a conference call at 11AM EST this morning. This is our Q3 Macro Themes call, and we’re right fired up to grind through it and get to the best part of the game – your Q&A session. Please send an email to our Sales Deck ( if you need call-in info.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1542-1606, $94.68-97.34, and 1299-1318, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Measuring Time - 222. USD EL


Measuring Time - Virtual Portfolio

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“I like them more than all of the top-notchers.”

-Harry Truman  


I smiled last night as I was reading that passage on page 808 of what my son calls the “heavy book” – David McCullough’s “Truman”:


“He liked the Secret Service agents who watched over him, most of whom came from small towns or backgrounds much like his own and none of whom ever asked anything of him. “I like them more than all of the top-notchers,” he once told Margaret.”


Harry Truman, like all of us, had his issues – but, ultimately, he was victorious in what most of us want to accomplish in life. He achieved above and beyond what anyone ever expected of him.


Markets, too, are like that. They are all about expectations. I think that’s why they resonate with so many of us. They can make you laugh. They can make you cry. And, every once in a while, they can put a sparkle in your eye.


Apple did that last night. The proverbial love-affair Americans have had with this stock extends itself from the product all the way back to the man who bet on himself to create it. Steve Jobs is another great American success story who has travelled the broken road of expectations to infinity and beyond.


With a Debt-Ceiling Compromise finally appearing in the rear-view mirror, Americans have a great opportunity to move forward today. No matter what you think about Steve Jobs or the Global Market – I can assure you of this on both - they are looking forward. And they will both leave those who are caught up in yesterday behind.


Back to the Global Macro Grind


1.   ASIA - surprisingly Asian stocks had a mixed reaction to Debt Ceiling Compromise and the Apple news. Both China and India closed down overnight (-0.1% and -0.8%, respectively), while Korea, Australia, and Japan all closed up over +1%. China and India in particular did not like the food and energy inflation that was marked-to-market yesterday. So keep your eye on that.


2.   EUROPE - wet Kleenex reaction to American earnings and Italian Equities in particular look very vulnerable if the MIB Index fails to overcome the 19,559 line in the very immediate-term. We don’t think that there is any irony in the timing of $12.4B in Italian CDS that traded last wk (2x that of the next country in terms of notional size - France). Sovereign Debt maturities for both Italy and Spain are going to be huge in August and September - and the EUR/USD remains bearish/broken below my $1.43 TREND line.


3.   USA – S&P futures look as good as they should look with Apple taking over from the Bankers of America and changing the tone of the earning season to something the winners in this world can believe in. The idea is to think, re-think, and evolve; not suck compensation from a Europig’s nipple of a socialized banking system. That’s all I have to say about that.


In terms of risk management levels in the US, as usual, I think you need to take the Apple out of your eye and focus on being multi-factor and multi-duration. That means Stock, Bond, and Currency market moves altogether:


1.   STOCKS – what was our intermediate-term TREND line resistance in the SP500 at 1319 is now support. For the immediate-term TRADE (different duration) that’s bullish and should support a new Risk Ranger range for the SP500 of 1. From a long-term TAIL perspective, my topside target for the SP500 in 2011 remains 1377.


2.   BONDS – on our Q3 Macro Themes conference call last week, and really since April, we’ve been saying that A) a Debt-Ceiling Compromise will get done and B) that’s very bullish for US Treasuries. Why? It takes out some of the shorts that are either trading on lagging indicators (Moodys and S&P ratings fears) or short UST bonds on US credit risk. We are long both long-term Treasuries (TLT) and a US Treasury Flattener (FLAT) as we think the long-end of the bond market will continue to see yields fall.


3.   CURRENCY – in a strong US Dollar can Americans trust? I guess that depends on which constituency of Americans you ask. I think well over 90% of us say yes (lower gas prices, Deflating The Inflation, and higher employment correlate with a strong US currency). The other 5-10% of you who want to Debauch The Dollar can’t possibly want that for your country in the long-run – you probably want it for yourself.


Whether it’s some Top-Notcher in Washington or a lobbyist trying to convince a professional politician of another policy to inflate, Americans have had enough. They get it. They are America’s “Secret Service.” From small towns to big ideas and sweat capital to big hiring, they are The People who make this country work.


My immediate-term support and resistance ranges for Gold (we’re long), Oil (we covered our short on Monday), and the SP500 are now $1, $95.51-99.20, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Top-Notchers - Chart of the Day


Top-Notchers - Virtual Portfolio


TODAY’S S&P 500 SET-UP - July 20, 2011


Yesterday, volume and Volatility (2 of our 3 core risk management factors) didn't confirm the PRICE move today, but 2 or 3 more days of follow through on this PRICE strength should do it and could easily carry this market towards 1352 SPX. If today's Tech move (+2.3% XLK) was a head-fake (doubtful given AAPL at the close), it would need to be confirmed by a TREND line breakdown of SPX 1319.


As we look at today’s set up for the S&P 500, the range is 33 points or -0.58% downside to 1319 and 1.90% upside to 1352.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: +1749 (+3888)  
  • VOLUME: NYSE 870.65 (-0.41%)
  • VIX:  19.21 -8.31% YTD PERFORMANCE: +11.5%
  • SPX PUT/CALL RATIO: 1.63 from 1.99 (-18.19%)



  • TED SPREAD: 23.68
  • 3-MONTH T-BILL YIELD: 0.03% +0.01%
  • 10-Year: 2.91 from 2.94
  • YIELD CURVE: 2.57 from 2.57



  • 7 a.m.: MBA Mortgage Applications, prior (-5.1%)
  • 9 a.m.: Moody’s U.S. commercial property prices
  • 10 a.m. Existing home sales, est. 1.9% to 4.9m, prior (- 3.8%)
  • 10:30 a.m.: DoE inventories
  • 6:15 p.m.: Fed’s Sack to speak to money marketers in NY


  • President Obama will renew talks at the White House this week, praised bipartisan Senate proposal for a $3.7t debt- cutting plan that emerged yesterday; House Republicans passed their own version yesterday
  • Greek Prime Minister George Papandreou to meet with EU leaders in Brussels tomorrow as officials struggle to agree on measures to restore confidence in region’s creditworthiness
  • WSJ is cautious on Cheerios (GIS), Frosted Flakes (K), Grape-Nuts (RAH)



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Oil Climbs for Second Day on Shrinking Crude Stockpiles, Stronger Economy
  • Copper Declines for First Day in Four as Three-Month High Spurs Selling
  • Corn Gains for a Second Day as Hot Weather in U.S. Midwest May Hurt Yields
  • Gold May Decline on Optimism Solution Is Nearer for Sovereign-Finance Woes
  • Coffee Falls as Supplies May Be Adequate to Meet Demand; Sugar Advances
  • Gold Price at Record Fails to Deter Purchasing in India as Demand Advances
  • Milk Powder Slumps to Eight-Month Low After Fonterra’s Call Proves Correct
  • Japan Won't Rule Out Possibility Radioactive Fukushima Beef Was Exported
  • Zinc Trades Near the Highest Price Since April as Supplies May Be Limited
  • Rice Exports From India at $400 a Ton May Lower Global Prices, Group Says
  • Rubber Supply Tightness Lasting Until 2018 May Raise Costs for Tiremakers
  • Ethanol Rebounds on Tax Credit, Price Discount to Gasoline: Energy Markets
  • Russia Arctic Route to Rival Suez May Aid Sovcomflot IPO: Freight Markets



THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: ominous bounce to lower-highs; Italy fading here and Greece about to go negative on day; Sold my Germany yesterday; shorting Italy with impunity
  • Germany Jun PPI +5.6% vs consensus +5.5% and prior +6.1%
  • BOE MPC Committee minutes say recent developments had reduced the likelihood that a tightening in policy would be warranted in the near term

THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: surprisingly mixed give the Apple of everyone's American eye - India down -0.8%; China down -0.1% w/ Korea/Japan/Aus all up over 1%

THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director

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