Why Penn National Gaming generates significant cash flow
Penn National Gaming, Inc. (PENN) derives most of its revenues from slot machine gaming. Slots represent over 80% of its total gaming revenues. Table games depend highly on the volume and spending levels of customers. Other revenues are derived from the management service fees at Casino Rama, transition service fees from Gaming and Leisure Properties (GLPI), hotel, dining, retail, program sales, racing operations, and certain other ancillary activities.
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Operating cash flows
PENN’s properties generate significant operating cash flows because most of the revenue is cash from slot machines, table games, and pari-mutuel wagering. Because the casino business is capital intensive, PENN relies on its properties to generate operating cash to repay debt, fund capital maintenance expenditures, fund new capital projects at existing properties, and provide excess cash for future development and acquisitions.
PENN continues to expand its gaming operations at its existing properties through the implementation of a capital expenditure program. Other casino companies using capital expenditures to expand their gaming operations include Las Vegas Sands Corp. (LVS), MGM Resorts International (MGM), and Wynn Resorts, Limited (WYNN). These companies, as well as PENN, are part of the Consumer Discretionary Select Sector SPDR Fund (XLY).
In the next part of the series, you’ll find out why PENN’s earnings aren’t volatile.