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By forming 2 firms, Penn National hopes to qualify for 2nd casino

Although state law prohibits a single company from operating more than one casino in Maryland, Penn National Gaming Inc. — which opened the state’s first gambling facility nearly three years ago in Cecil County — may have found a way around that rule.

Penn National operates Hollywood Casino Perryville, Maryland’s first gambling operation, which has lost 40 percent of its revenue to Maryland Live.

The Wyomissing, Pa.-based gambling company has been meeting regulators across the country all summer in an attempt to persuade the agencies that monitor gambling in each state to approve a split of the company that would, in Maryland, allow it to operate more than one casino.

Stephen L. Martino, director of the Maryland State Lottery and Gaming Control Agency, said recently that the issue would be discussed by regulators at a Sept. 19 meeting.

The company’s planned spin-off spotlights a Maryland law that was meant to stop a single casino company from building a monopoly in the Free State — a law that Penn National is now testing the limits of.

Last November, Penn National announced its plan to split operating assets and real property into two separate publicly traded companies. The operating entity would continue to be Penn National Gaming and a separate real estate investment trust, Gaming and Leisure Properties Inc., would take ownership of all 19 casinos the company owns.

Seventeen of those casinos would then be leased back to Penn National Gaming, but two — Hollywood Casino Perryville in Cecil County and another in Baton Rouge, La. — would remain under GLPI’s control.

That would allow Penn National Gaming to operate a proposed casino resort at Rosecroft Raceway in Fort Washington — if it can first defeat MGM Resorts International Inc. and Greenwood Racing Inc. in a three-way bid to win Prince George’s County’s potentially lucrative casino license.

Peter M. Carlino, chairman and chief executive officer of Penn National Gaming, said last year that “the new structure is expected to allow PNG to operate additional facilities in certain gaming jurisdictions that have ownership limitations.”

John W. Morton III, a member of the Maryland State Lottery and Gaming Control Commission, which must decide on the matter later this month, urged the commission last spring “to be very careful” when examining the company’s proposal.

“The form I understand, with the REIT,” Morton said. “The substance, however, is something different.”

The company has already received at least initial approval from Pennsylvania, West Virginia, Nevada, Missouri, Kansas, Ohio, Iowa, Mississippi and Louisiana. The IRS and U.S. Securities and Exchange Commission have signed off on the split.

Penn National is not the first company to try to get around single-license laws, said David G. Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas. But it is the first company to try doing so by splitting operating and real assets, he said, a unique approach that will be watched closely by the industry.

“Some of them have done things kind of similar like this,” Schwartz said. “Usually, they just lobby straight up. For example, Atlantic City used to have a limit of three casinos, but Donald Trump lobbied to change that.”

Penn National opened Maryland’s first casino in Perryville in September 2010. The slots parlor was the dominant gambling facility in the state until June 2012, when Maryland Live Casino at Arundel Mills mall opened and siphoned more than 40 percent of Perryville’s revenue.

Penn National has long coveted the opportunity to operate a casino in Prince George’s County, where it would market to wealthy residents in Northern Virginia and potentially serve as a tourist stop for visitors to Washington. The company was so enamored with breaking into the market that it bought Rosecroft Raceway in 2011.

Rosecroft, the struggling harness racing course, had previously been the top contender to host slot machines in Prince George’s when the state’s plan was to install slots at horse tracks across Maryland to help prop up the flagging industry.

But as other casinos originally expected to be built as an addition to racetracks — including Maryland Live and the future Horseshoe Baltimore — became freestanding facilities, the glitzy National Harbor development emerged as the frontrunner to host a casino in Prince George’s County.

Seeing its chance at owning the casino slipping away, Penn National spent nearly $50 million last year battling Question 7, the statewide ballot initiative that authorized the licensing of a casino operator in Prince George’s along with table games such as blackjack and roulette.

Penn National feared the National Harbor casino would draw business from its most successful property, Hollywood Casino at Charles Town Races in West Virginia. After the company failed to stop gambling expansion in Maryland, it bid against MGM Resorts International Inc. — the hand-picked operator for the proposed National Harbor casino.

The first public hearings on the future location of a Prince George’s County casino are expected to come in October, state officials said. The state Video Lottery Facility Location Commission is expected to make a final decision in December.