Pennsylvania tries again to auction a mini-casino license, and opens the field for bidders

Pennsylvania’s auction last year for a license to operate a new “mini-casino” attracted zero bidders willing to pay a minimum of $7.5 million to open a satellite gaming outlet. Yet the state is going to try again, and this year’s auction may actually attract more action.

The Pennsylvania Gaming Control Board is set to receive bids Wednesday for a license to operate a slimmed-down gaming facility known as a Category 4 casino. On first glance, success seems unlikely: No other mini-casinos have opened yet, and casino operators have been struggling in a poor business climate brought on by the coronavirus pandemic.

But new auction rules, set forth in an obscure clause in legislation that Gov. Tom Wolf signed in May, are aimed to attract fresh money to the state’s depleted treasury by dramatically expanding the universe of potential bidders for mini-casinos beyond Pennsylvania’s current 13 casino licensees.

Cordish Cos., the Baltimore-based entertainment and real estate firm that is building a full-scale casino-hotel on Packer Avenue next to Philadelphia’s sports stadiums, told PlayPennsylvania.com that it intends to bid for the new mini-casino license.

Cordish did not disclose a location where it might bid for a new casino. Much of the state is off-limits to expansion because existing properties and approved satellite casinos are protected by a 40-mile buffer from new rivals. The available territory tends to be in lightly populated areas of central, western and northern Pennsylvania.

Cordish may have competition. The new auction rules allow any principal investor in one of the state’s 13 licensed casinos to bid on the new casino license, not just the 13 current casino licensees. Dozens of individuals, already vetted by the state as casino investors, are eligible to bid.

One experienced casino investor who experts say privately may be in the market is Ira M. Lubert, the Philadelphia-based former owner of the Valley Forge Casino Resort in King of Prussia. Lubert and his partners sold the Valley Forge property for $280 million in 2018 to Boyd Gaming Corp. of Nevada.

Lubert, chairman and co-founder of Independence Capital Partners and Lubert Adler Partners, is still named by the gaming board as a principal in Valley Forge. He also owns about 3% of Rivers Casino Pittsburgh. As a principal, he would be eligible to bid.

Lubert in 2018 was listed as a member of Nittany Gaming LLC, which had a lease option on a former department store in the Nittany Mall outside of State College. The site is located in College Township, one of the municipalities that did not invoke a procedure to opt out of having new gaming establishments. Lubert, a current Penn State University board member and its former chairman, did not respond to email messages seeking comment.

The Category 4 casino licenses are unique to Pennsylvania and were part of a 2017 gaming law that dramatically expanded gambling options, including sports betting, online gaming, and video gaming terminals. The satellite casinos can contain up to 750 slot machines and up to 40 table games, compared with the 3,200 slot machines and 198 table games at Parx Casino in Bensalem, the state’s biggest casino.

The gaming board awarded license rights to five mini-casino bidders in 2018 after two rounds of auctions that generated more than $100 million in fees to the state. There were no bidders at last year’s auction.

Mount Airy Casino Resort, which won one of the 2018 auctions, was denied its mini-casino license last year after it was unable to obtain financing.

No mini-casinos have actually opened for business.

One mini-casino project, the Live! Casino Pittsburgh property owned by Cordish, is on track to open later this year in the Westmoreland Mall near Greensburg. Cordish’s flagship property, the Live! Casino and Hotel Philadelphia, is set to open early next year after construction was delayed because of the COVID-19 lockdown.

Three other mini-casino projects have stalled.

Penn National Gaming’s two mini-casino sites, in Berks and York counties, are on hold after the coronavirus shutdown. A Parx Casino mini-casino in Shippensburg is looking for a new location after the first site was found to contain sinkholes, and has not yet received its formal license.

“The pandemic has slowed the development process,” Carrie Nork Minelli, a Parx spokeswoman, said in an email Tuesday.

The denial of the Mount Airy satellite license, which would have gone into Beaver County near Pittsburgh, set the stage for the General Assembly to reopen bidding this year.

The legislature in May included the new mini-casino auction in House Bill 1083, an amendment to a state budgetary measure, which Wolf signed into law as Act 23 of 2020.

The law specifies that the new casinos can be built no closer than 40 miles from an existing casino or satellite casino. More than 1,000 of the state’s 2,500 municipalities also opted out of hosting mini-casinos.

With much of the state already off-limits, only a few areas near to population centers are likely to attract bids. Sections of the I-79 corridor between Pittsburgh and Erie, previously claimed by Mount Airy’s denied license, might get a new bid.

Some towns in central Pennsylvania along the I-99 corridor might also support a casino, including College Township, home of the Nittany Mall that Lubert had targeted two years ago.

Lubert’s history in Pennsylvania suggests he knows how to extract value out of a casino license.

Lubert and his partners paid $5 million for the Category 3 license for the smaller Valley Forge Casino Resort, which opened in 2012 after withstanding legal challenges from rivals that paid $50 million for their licenses for full-sized casinos.

Valley Forge initially was open only to guests at the hotel and visitors who obtained a membership. But after the 2017 gaming law changed the rules, Valley Forge was allowed to pay the state $1 million to opt out of the requirement limiting entry to members only, broadening the casino’s potential audience.

A few months later, Valley Forge was sold to Boyd Gaming Inc. for $280.5 million.